Knowledge. Shared Blog
November 2019
Health Care Reform that Could Lower Costs
Rich Carney, CFA
Research Analyst
U.S. health care often suffers from high costs and suboptimal performance, a reality that has led to recent proposals to overhaul the system. Health care companies are hustling to find another way. The result: a flurry of innovation leading to better patient outcomes, lower costs and new sources of growth.
Key Takeaways
- As ideas to overhaul the U.S. health care system are proposed, the industry has started to deliver solutions aimed at lowering costs and improving patient outcomes.
- We think these efforts will gain traction in the coming years and could help reduce costs for the health care sector overall.
- Already, insurance providers have started to adopt innovative approaches to health care delivery and are reporting lower medical costs.
In recent months, several ideas for reforming the U.S. health care system have been proposed, including the sweeping plan known as Medicare for All, which would replace private health insurance with a government-run program. These reforms have captured significant attention because of their potential disruption and cost: 2020 presidential candidate Sen. Elizabeth Warren’s version of Medicare for All is estimated to cost $20 trillion to $30 trillion over the next decade.
But the proposals have also spurred a number of companies to accelerate solutions aimed at improving efficiencies in health care delivery – innovations that are effecting real change and that we think could be meaningful to the long-term performance of the sector.
So far, we’ve observed three key trends that we believe are likely to play a bigger role in health care delivery over the coming years:
The growth of telemedicine: We are seeing telemedicine used in multiple segments of health care delivery, including primary care, acute care and mental health. Doctors, patients and employers like telemedicine’s efficiency and convenience, resulting in a growing number of commercial plans offering the service.
The shakeup of primary care models: With the rise of tech-based solutions, some insurers are taking a virtual-first approach to care. As an example, some commercial plans now allow patients to access physicians via text and/or video to help manage chronic conditions. For government-sponsored programs, solutions include telemedicine, an increasing focus on diagnostics and data, and more frequent intervention in the home or in retail clinics (such as those found at pharmacy stores).
The rise of sophisticated disease management: Helped by the proliferation of connected devices (such as continuous glucose monitors for diabetics) and electronic health records, we think improvements to disease management could result in significant returns on investment for the system, as less than 10% of the sickest patients in the U.S. drive 70% of health care spending. And as employers look for ways to control medical expenses, demand for these solutions could expand rapidly.
None of these trends will transform the health care system. But they have the potential to drive down costs and improve patient outcomes, both of which should fuel adoption. Consequently, we think the health care service firms leading today’s innovation stand to benefit. At the same time, we believe firms in the health care sector that implement these solutions could position themselves for more sustainable long-term growth.
Health insurers are a prime example, with a few market leaders already taking action. During an earnings call in early 2019, for example, UnitedHealth Group’s warning that Medicare for All could destabilize the nation’s health system caused health care stocks to sell off. Fast forward to today and the tone has changed dramatically. In remarks during third quarter results, UnitedHealth highlighted key areas where the company is beginning to show progress in controlling costs without government intervention.
For example, the firm noted opportunities to shift “medical spend” to more cost-effective sites, including performing hip and knee replacements in ambulatory centers, which often have a 50% cost advantage over traditional settings with equal, if not better, results for patients. UnitedHealth is also optimizing the delivery of imaging procedures and enabling specialty drugs to be administered through alternate sites, which, combined with changes for other high-cost services, are expected to deliver $1.5 billion in savings to customers in 2020. And over the past year the company has deployed new technology that can analyze millions of data points to help physicians determine the optimal care setting for patients. In doing so, UnitedHealth says it’s realizing a 10% reduction in patient readmissions.
In our opinion, the efforts of insurance providers suggest that government-based solutions are not the only option for reforming the health care system. The industry is beginning to rethink operations and/or innovate products, often with meaningful impact. We expect more companies to pursue such initiatives, and believe these moves could not only help improve efficiencies and patient outcomes but also set up the sector for more sustainable long-term growth.
ABANDON YOUR DOUBTS,
NOT YOUR GOALS
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