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Healthcare // Analytics
Commentary
10/14/2014
12:30 PM
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Busting The Myth Of Uncontrollable Healthcare Costs

Healthcare expenses are as manageable as any other business expense, with the right data.

25 Years Of Health IT: A Complicated Journey
25 Years Of Health IT:
A Complicated Journey
(Click image for larger view and slideshow.)

A year ago, the launch of HealthCare.gov ushered in our country's most significant attempt to overhaul the healthcare system, expand access, and control costs. A recent report from the Centers for Medicare and Medicaid Services (CMS) suggests that these efforts have been partly successful, noting that healthcare spending growth in the United States slowed to just 3.6% in 2013.

But these broad, national numbers leave out a crucial part of the story. For large, private employers -- the ones who provide health coverage for roughly half of all Americans -- costs are still increasing. Premiums keep going up, and individuals and enterprises alike are footing ever larger bills.

Unfortunately, many business leaders and policy makers continue to believe the myth that, along with death and taxes, rising healthcare costs are an inevitable fact of life. There are any number of excuses given for this phenomenon -- the aging of the population, expensive medical devices, expensive prescription drugs, expensive lawsuits by expensive lawyers -- but there are two major problems with accepting this assumption at face value.

First, it has created a situation in which healthcare is a top-five business cost, but it isn't a top-five area of focus for enterprises. In what other area of business would a CFO accept the idea that one of the company's largest annual expenses is beyond its control?

Second, it is completely false. American enterprises spend $620 billion on healthcare annually, and of that spending, more than 30% is wasted. From overutilization of care to overpaying for lab tests to choosing higher-cost providers who deliver no better care, unnecessary costs can add up from all sides.

[Want to get software right? Read HealthCare.gov: Lessons From Continuous Software Delivery.]

Fortunately, there is a solution, and it's something that American businesses already use every day: data. At the same time as healthcare costs have been rising, enterprises have been learning how to apply data analytics to virtually every other area of their operations. From shipping and logistics to customer service and sales, data is now driving most of the core business decisions made in this country every day -- and enterprise technology platforms like Salesforce, Workday, and Zendesk make it possible for companies to manage this data effectively.

Yet healthcare is still being managed through faxes, handwritten forms, and standalone websites. The information flows in the same direction as the money: out. As a result, though plenty of data about healthcare cost and utilization is being generated every day, companies do not have insights into what they are spending.

This asymmetry of information has led to a merit-free marketplace in which the providers -- doctors, hospitals, labs -- have been able to charge whatever prices they want without regard to quality or competition, while those footing the bill -- enterprises and employees -- have had no way to compare prices or find the best value.

Our team at Castlight analyzed the numbers, and the results are exactly what you would expect in this situation. Take one procedure in one city, for example. In Chicago, the cost of a CT scan of the head and brain ranged from $323 to $1,817 with no correlation to quality or outcomes.

How the price of a head/brain CT varies across the country.(Image: Castlight)
How the price of a head/brain CT varies across the country.
(Image: Castlight)

In no other part of business would we tolerate this situation.

Thankfully, that's starting to change. Today, for the first time, enterprises finally have the ability to actually take control of their healthcare spending -- and to stop wasting 30% of it every year. Using the power of data analytics and the cloud, enterprises can fully understand and control their healthcare spending while improving outcomes for employees. Human resources and benefits managers can see where their cost drivers are, identify opportunities for savings, and reduce costs for everyone involved.

Taking control of this data also makes it possible to start engaging employees as active consumers by providing them with full transparency, offering the information they need to make better healthcare choices for themselves and their families. When an employee can easily see which doctors provide the best care at the lowest price, they are both more likely to get care they need -- saving costs down the line -- and to choose higher-value providers.

At the same time, by providing employees tools and incentives to easily access other benefits -- like wellness programs, telehealth services, onsite clinics, and health savings accounts -- employers can increase participation in programs they already pay for, improving the health of their workforces and maximizing the value of company healthcare spending.

Ultimately, healthcare costs are a business problem like any other, and this problem can be solved with enough information and the right tools. That's a good thing, too, because for American enterprises, this is not just an academic question; it's a fundamental matter of competition and survival. Surveyed this year, most business leaders said that, if they could reduce the cost of healthcare, they would invest the savings in employee wages, innovation, and technology.

That's not just good for business; it's good for America as more dollars can be invested (rather than wasted), growing our economy and keeping our people healthy.

The owners of electronic health records aren't necessarily the patients. How much control should they have? Get the new Who Owns Patient Data? issue of InformationWeek Healthcare today.

Giovanni M. Colella, MD, co-founded Castlight Health Inc. in 2008 along with Todd Park (former US CTO and co-founder of athenahealth) and Bryan Roberts, PhD (partner at Venrock). Gio brings more than 25 years of experience as a health technology entrepreneur, business ... View Full Bio
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pfretty
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pfretty,
User Rank: Ninja
10/27/2014 | 7:49:21 PM
Data could shine
Properly leveraged, data could be a huge star here. However, I would hope organizations within this field start with small projects and build up momentum.  As a recent SAS survey showed, the goals are in alignment but skills are still in need of development. 

 

Peter Fretty
DDURBIN1
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DDURBIN1,
User Rank: Ninja
10/15/2014 | 10:19:24 AM
Myth Buster NOT!
All hospitals have a "rack" rate for services which I believe are quoted here.  This is what an uninsured person is quoted and billed.  All insurance companies already use these types of analytical techniques to determine what they will pay a health care provider for services.  The primary cause of increased healthcare cost is the numbers of uninsured patients that can't pay the rake rates billed and the government as it has its own payment "scale" well below market costs.  Between these two short falls the rest of us are charged to make up for this short fall.  Costs to us (and our employers) will continue to rise as long as the government continues to pay short of costs and the millions of still uninsured continue not to pay.  A secondary cause of increased costs is the lack of competition amoung vendors providing healthcare technology and products to healthcare providers but that's another story.
GAProgrammer
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GAProgrammer,
User Rank: Ninja
10/15/2014 | 9:41:01 AM
Re: Cost Control
Daniel, you can also factor all the data you want to into a healthcare cost system, but there is one piece of data that technology advocates can never account for - the human factor. The fact is, the systems are never used as designed. Even if the healthcare systems were used as designed, the increasing costs of equipment and procedures combined with the expanding population means costs never go down, only up. Many people who would simply buy cold medicine for a cough before socialized medicine is implemented suddenly show up in ERs for a cough, either because "they paid for it", or as in the case for over 50% of Americans, it is free (Medicare). This isn't theory, I have first hand experience in this matter. If you make something "free" or cheap enough (zero or minimal co-pays), then a $7 fix for a cold becomes a $500 expense to the insurer/government. Multiply that by half of the population, say 175 million and you get a clearer picture of the true problem.

All too often in this day and age of amazing technological advancement, people build systems on "ideas" rather than reality. It has nothing to do with what you "believe" - it has to do with how things ARE. Those who take reality into account will succeed. Those who built systems and tech based on an idealized world are doomed to fail before they even start.
PedroGonzales
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PedroGonzales,
User Rank: Ninja
10/14/2014 | 11:47:12 PM
Re: Cost Control
It seems that technology applied in healthcare is being applied to other domains besides cost saving.  EHRs are increasing in adoptions, robots are doing remote operations, but healthcare processes continue to remain outdated.  I really hope that data analytics is the factor that would help decrease costs.
TerryB
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TerryB,
User Rank: Ninja
10/14/2014 | 4:27:13 PM
Re: Cost Control
@daniel, I think it has been just the opposite when tech like MRI and CAT are introduced. We certainly didn't pay for those in old days. Will there be enough economy of scale to drive use of those machines down? I think yes but not enough pressure on providers of that service to do it on their own. Only competitive pressure can really do that.
danielcawrey
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danielcawrey,
User Rank: Ninja
10/14/2014 | 3:31:35 PM
Re: Cost Control
My hope has always been that technology will be able to bring down healthcare costs – the system is antiquated and needs innovation. I don't believe in a world where these expenses continue to go up – they should start going down. I had hoped that the government putting some regulatory pressure in place would speed this along, but so far that has not been the case. 
TerryB
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TerryB,
User Rank: Ninja
10/14/2014 | 1:41:58 PM
Cost Control
Gio, is the business itself responsible to know the price of CAT scans or the benefit providers they work with? I agree analytics and transparency is the answer but who should apply them is the question? If you are a manufacturer of brass products and self insured like we are, with only 40 office employees, how could we possibly execute the medical cost control of the real price of CAT scan? Wouldn't it be more feasible to have the benefits provider do this? It is their core business.
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