By STEVEN ZECOLA
The United States healthcare system has failed in every way.
First, costs are out of control. For example, 17% of the country’s GDP is spent on health care. This percentage is less than half of what it was in 1980. It is predicted to continue to grow to 20% by 2032. Seventy-five percent of these costs are caused by chronic diseases.
Second, although the highest percentage of GDP is spent on health care of the ten high-income countries, the US has the worst performance results whether measured in life expectancy, deaths that can be prevented through disease management, and even access to care through insurance coverage or another way. .
Third, the agency that oversees the healthcare industry is the Department of Health and Human Services. HHS is organized by functions such as Clinical Health Services and Behavioral Health Services rather than by disease management. The five strategic mandates of the 4-year strategic plan do not contain benchmarks to improve the health status of the population, or concrete steps to achieve these benchmarks. No mention of cost.
Fourth, the industry is huge and has many different components from healthcare providers to equipment manufacturers, researchers, pharmaceutical companies, genetics companies, insurance companies and more. Over 16 million people are employed in the industry, with 60,000 in HHS alone. At this level of aggregation, leadership and management skills are reduced and there is no driving force for improvement in disease management.
Fifth, the industry spends about $100 billion a year on R&D to achieve FDA approval. This development cost translates to more than $2 billion per approved drug. Once approved, the drug effectively gains a barrier against unlimited competition. Independent analysts estimate the costs of this regulatory scheme outweigh the benefits. But the FDA is steadfast in its approach, because its primary goal is safety.
Sixth, there is a lack of common understanding of the economics of the healthcare industry. For example, politicians introduce laws without understanding the cause and effect involved in supply and demand and their results.
Regardless of the cause, the bottom line is that the existing healthcare industry system is broken and further from a stable equilibrium.
Fundamentals of Health Industry Economics.
The United States has relied on the “invisible hand” of the market as an economic system since Adam Smith aptly named this phenomenon in the 1700s. That is, buyers and sellers interact until they reach a mutually satisfactory equilibrium that determines the price, quality and quantity of goods or services.
With this principle, about 95% of the thousands of industries in the United States are competitive and produce efficient results. The health care industry is not one of them. Suffers market distortion from “information failure”. That is, for most major diseases, consumers have no knowledge of alternative treatments, or their costs. Thus, a “demand curve” to signal patient preference does not exist.
As a result, health practitioners often provide views on the best care, incorporate the influence of relevant legislative and regulatory issues (including Medicare/Medicaid policies), consider relevant research and related clinical trials, and perform billing and other support functions. including communication with insurance carriers.
This approach effectively combines the demand and supply functions into one. In any industry or situation, this approach ensures that costs cannot be controlled.
Additionally, there is a general lack of HHS activities that promote consumer interests such as drug price negotiations, even though 33% of all healthcare costs are paid by the federal government.
HHS is involved in the supply side of the industry, but not very well. For example, in 2023 HHS awarded 143,468 grants to 16,411 recipients. However, there is no program that provides a bridge for this work, after completion, to continue applied research. Similarly, ClinicalTrials.gov lists 515,319 studies with 43,756 studies allegedly in Phase 3. However, the US government states on this website that it does not review or approve these studies. Most of them are not funded.
The FDA has done its best to ensure that the drug is safe. However, involvement in all phases of research has brought blockbuster treatments to crawling.
Recognizing the lack of continuity and coordination of research on Parkinson’s disease, Congress passed, and the President then signed into law the National Plan to Cure Parkinson’s Disease on July 2, 2024. Soon after, the Michael J. Fox Foundation and several Members of Congress issued a press release praising the passage of the Act – the law.
Four and a half months later, HHS has yet to issue a press release assigning organizational responsibilities, points of contact, or an overall plan to address the Act’s mandate. I have filed a FOIA request with HHS to try to determine the cause of the delay. In any event, the lack of responsiveness in the face of legislative mandates highlights the need for change.
How to Regulate the Healthcare Industry to Overcome Market Failures.
The two missing pieces for the US health industry to work more effectively and efficiently are 1) for major diseases, consumers do not provide a “demand curve” in the traditional economic sense due to information failures and 2) industry resources (including government resources. source power) is not adjusted by disease and therefore does not provide a supply curve that can be used to address patient preferences.
To address these issues, HHS will be organized by disease with Czar responsible for developing and overseeing strategic plans for each major disease. Each Tsar would be responsible for appointing an Advisory Council to do the heavy lifting.
Advisory Boards for each disease should be elected to represent the interests of patients. The Advisory Board should be tasked with creating comprehensive treatment standards for the disease as well as recommending how much and where research money should be spent. Essentially, this entity will provide inputs that are usually provided by the demand curve, including the need to contain costs and how to allocate scarce resources.
On the supply side, existing resources will be identified and allocated virtually for each major disease. As a first step, the Market Czar will identify and coordinate the activities of treatment providers for the disease. A current example is the National Comprehensive Cancer Network.
NCCN provides guidelines on available care categorized by acceptance, availability and cost of different types of care. The Advisory Board can then make recommendations for the preferred treatment for each type of diagnosis. In areas of disagreement, the HHS Czar for the disease will provide an opinion.
As a second step, the Advisory Board will be tasked with determining the optimal division of basic and clinical research resources given the assessment of uncertainty, to track promising development progress, and to ensure that funding is available when necessary and used appropriately when allocated. FDA employees working on drugs for specific diseases will report on the dotted line to the Czar for that disease to ensure a proper balance between the costs and benefits of the regulatory overview process.
Summary and Conclusion.
With a national debt of $34 trillion and the healthcare industry contributing to the growth of the deficit without significant performance improvements, the industry structure is unstable. Changes must be made before Draconian cuts are forced on the system.
For any change to be effective, it is necessary to overcome the “information failure” that causes chronic diseases and the lack of interaction between supply and demand to produce acceptable results.
The approach proposed here uses an external Advisory Board as a proxy for patient demand.
The industry will be reorganized into a “virtual market” defined by disease management and driven by a demand-side Advisory Council that will make recommendations to an HHS-appointed Market Czar.
That approach will shine a spotlight on disease management, and we know from a competitive industry that continuous focus leads to better performance.
This double approach is 1) strengthening patient input through the Advisory Board and 2) managing resources according to the market rather than by function will improve the performance of the industry by establishing leadership positions and organizational structures that can develop and follow specific goals for each major disease. .
Steve Zecola was selling web application and hosting businesses when he was diagnosed with Parkinson’s disease twenty-three years ago. Since then, he has run a consulting practice, taught at a graduate business school, and played a lot of sports
