Why the American Health Care System is Failing the Patient and How to Fix it (even without politicians)

I: Great business at the expense of you, the patient

The business of U.S. health care is doing extremely well, as evidenced by the now $3.5 Trillion total annual health care spending. That is more than 40% of the entire world’s health care spending, while the U.S. represents only 4% of global population. To put it another way, we are spending about $11,000 per capita each year in health care, which is over 100% more than in other developed nations. Whatever the margins of the players in the health care food chain, this food chain is sucking in a lot of value — in fact, nearly 20% of the U.S. GDP! In other words, the business of health care is doing great!

The business of U.S. health care is doing great!

Paying a lot for great value could justify the $3.5 Trillion annual bill, especially, if we Americans had the longest quality-adjusted life-expectancy and lower rates of obesity, diabetes and other chronic diseases and lower use of pharmaceuticals compared to other developed countries. But unfortunately it is just the opposite: Americans are sicker, use more drugs than people in any other developed nation and have a life-expectancy below most comparable countries, while it is further going down(!). We may still have the world’s best academic medical center(s) to address a complex medical situation, but on average, the system is failing the patient — and the patient is dying way too young.

The conclusion is really sad: players in the U.S. health care food chain make a lot of money, while our health outcomes suck. Even if you’re healthy and get your health insurance for “free” from your employer (of course, it’s not free), you’re also paying the cost of others through taxes. This is a collective problem for everyone, sick or healthy today.

As a curious citizen, I always knew the system was broken, but I didn’t know how badly, until my now 5 years inside the industry through my efforts to fix the system at Virta Health. This is my effort to diagnose the system and recommend proper treatments.

II: I diagnosed three treatable system level conditions

Many smart people have debated and shared why the U.S. health care system is broken and what could be done to fix it. It’d be easy for anyone to list 10+ personal examples of things that could lower costs (e.g. why do doctors still use fax machines!?) or make the patient experience better and cheaper (e.g. why can’t I easily take my prior records to my new doctor) or identify puzzling cost drivers (e.g. why do drugs cost so much less in Canada?). Yet, I’ve observed three system level issues that could fundamentally improve patient outcomes and lower costs not by 1% or 10% but much more.

1. CEOs are incentivized to deliver as much sick-care as possible
   A CEO of an American hospital or any kind of care delivery organization looks to optimize the same KPIs as a CEO of a hotel chain: how many beds are full, how many upsells have been sold and how efficiently all the other monetizable assets (e.g. labs, MRI machines) are utilized. The more the better! It really sounds crazy that anyone would want to keep people sick and in the rooms and maximize the number of complex, risky and expensive surgeries, such as bariatric surgery.
   These type of incentives driving this very behavior are present at all levels of U.S. health care because of a system-level incentive: fees paid for a given service. Very few care delivery organizations are economically incentivized to think of the total cost of care or whether there’s a cheaper way to achieve the same outcome. That’s a huge problem and almost every hospital CEO would agree with this, at least behind closed doors. Imagine going to a primary care doctor owned by a large hospital system. Would they have an economic incentive to diagnose you to have an expensive surgery or run a few fMRI scans at the hospital, just in case? Oh, yes. Does that ever happen? According to the WSJ, yes.
   I don’t think people are evil or trying to keep people sick — it’s just that the incentives result in delivering more paid procedures today than what is optimal, rather than designing and delivering care and treatments that maximize both short- and long-term health outcomes. Our health care system is maintaining a great business of health care at the expense of the patient.
2. The economic pain is opaquely transferred to the patient
   It’s been argued that “if patients had more skin in the game, they would waste less money in health care”. That may be the case, but this is also a clever way to push the rapidly rising costs to the patient, often opaquely, reducing the payer’s economic incentive to eliminate those costs to begin with. I’ve observed two examples of this:
   (i) Very high deductible health plans and high co-pays. This is how employers and health plans conveniently keep their costs in check — by simply pushing more of the cost to the patient. The patient, however, is not the decision maker on the types of health care services that should be offered.
   (ii) Opaque drug rebates are making selling drugs cost-neutral or possibly a profit center for some health plans and employers. Most patients have no idea that if their monthly insulin is advertised to cost $500 and their co-pay is $240, they are the only ones paying for the drugs. That is because the employer might be getting a $260 rebate from the drug manufacturer. In turn, the patient is footing 100% of the bill. That’s messed up.
   Again, our health care system is maintaining a great business of health care at the expense of the patient.
3. Chronic disease has become an attractive cash cow due to focus on delivering sick-care, rather than reversing these diseases
   Unsurprisingly, chronic diseases — such as T2 diabetes, cardiovascular disease, hypertension, obesity and many inflammatory diseases — are where most of our sick-care is focused. This historically small niche has now ballooned to more than $1.3 Trillion in annual direct costs and $3.8 Trillion if indirect costs are included. Chronic diseases are now the meat and potatoes of U.S. health care and it’s only getting worse because we are treating all these diseases as chronic and irreversible (which they are not). As a result, patients are told to “manage” their life-long conditions, while our sick-care delivery is focused on two things:
   (i) Last-mile solutions to deal with expensive and inevitable complications of these diseases, such as dialysis or leg amputations for T2 diabetes or by-pass surgery for cardiovascular disease. These may be life saving operations for some, but the fact that any of them have to be performed, is a failure to deliver a better treatment earlier.
   (ii) Managing symptoms of these diseases with an ever-increasing cocktail of expensive drugs that have known side-effects. In fact, there is now a drug for nearly every symptom of a chronic disease, creating a nearly $1 Trillion industrial complex managing chronic disease symptoms. People 60 and older now take an average of 15 prescription drugs. Fifteen!
   Again, our health care system is maintaining a great business of health care at the expense of the patient.

There are many other things that could be done to lower costs and improve outcomes, but I believe that by fixing the above three system level issues, we could improve outcomes and save not 1% or 10% but perhaps third or more of U.S. health care costs.

III: There’s a way to fix this mess and we are doing it every day

Although I grew up in Finland and greatly benefited from universal and free (tax payer funded ) health care, I do not believe that a single-payer system is a feasible solution in the U.S. today. It may have its place and time elsewhere, but to solve the three issues I highlighted above, there’s a better way in the U.S. and most of them can be delivered today by for-profit companies with little or no policy changes.

Here are the three antidotes to our broken system (that, unsurprisingly, are also foundational to our business plan at Virta Health, because our goal is not only to reverse T2D but help fix our system more broadly):

1. Replace fee-for-service with outcomes based bundled payments or long-term shared savings payment model
   Our own example: We weren’t the first to introduce 100% outcomes based payments, yet it is very rare for a company focused on chronic disease treatments to do that. In fact, our goal is to share as much of the economic and health outcome risk for as long as possible, because that perfectly aligns the incentives of the provider or treatment with that of the patient (yet, it’s only possible if you know that your solution works, which is why it is so rare in health care). Since we address all of the key chronic diseases nationwide through our virtual clinic model, I believe over time we can force many others to adopt the same payment model throughout the industry.
2. Make drug rebates and indirect kick backs illegal and expose the true cost of care and who is paying for it clearly to the patient
   Our own example: We share the total cost of the Virta Treatment, who pays it (usually free for patients, paid for by their health plan or employer or government) and how we get paid for it with our patients. Fortunately, our incentives are directly aligned with patient: if we make you healthy, we get paid. Otherwise not.
3. Invest in and promote treatments that can reverse previously “irreversible” diseases
   Our own example: Only by addressing the multiple chronic diseases at their core (that is, by reversing obesity, inflammation and insulin resistance that are the underlying drivers of most chronic diseases), can we actually eliminate the majority of our health care costs. This is precisely what we’ve demonstrated at Virta Health and are doing nationwide every day.

This is a plan to help fix the U.S. health care system. Unfortunately it is still easier to make money in the existing health care system by amplifying its flaws (e.g. more tools, drugs and systems for chronic disease patients to live with their disease until death) than fixing the system for the benefit of the society and the patient. Fortunately I’m very delighted that Virta Health is not alone — I’ve met a few tech-driven innovators and even a few health plans, employers and policy makers who are working on all of the issues I highlighted above. Better patient outcomes at a lower cost is a very bi-partisan objective regardless of political ideologies.

If you’d like to join us on our mission to Reverse T2 Diabetes in 100M people by 2025 and solve the U.S. health care mess for the benefit of the patient, please drop me a line. This is a $3.5 Trillion problem worth solving.