Creating a Sustainable Future

EHM presents the highlights of HealthCast 2020, the latest health industry survey from PricewaterhouseCoopers’ Health Research Institute, which looks at the globalization of healthcare and worldwide efforts to create a sustainable health system.

Sustainable health system

“By 2020, healthcare spending is projected to triple in real dollars, consuming 21% of GDP in the US”
-PricewaterhouseCoopers

According to the latest report on the healthcare sector from PricewaterhouseCoopers, HealthCast 2020, there is growing evidence that the current health systems of nations around the world will be unsustainable if unchanged over the next 15 years. Globally, healthcare is threatened by a confluence of powerful trends – increasing demand, rising costs, uneven quality, misaligned incentives. If ignored, they will overwhelm health systems, creating massive financial burdens for individual countries and devastating health problems for the individuals who live in them.

It is time to look outward. The attitude that all healthcare should be local is dangerously provincial and, in extreme cases, xenophobic. The days when healthcare sectors operate in silos must end. New solutions are emerging from beyond traditional boundaries and innovative business models are being formed as healthcare becomes globalized. These solutions are changing the way the Chinese think about financing hospitals, Americans recruit physicians, Australians reimburse providers for care, Europeans embrace competition, and Middle Eastern governments build for future generations.

In a world in which economies are globally interdependent and the productivity of nations relies on the health of its citizens, the sustainability of the world’s health systems is a national competitive issue and a global economic imperative. Moreover, there is a moral obligation to create a global sustainable health system. The stakes could not be higher.

Sustainability

The idea of sustainability is subject to many interpretations. It is often used in the context of environmental protection and renewal of natural resources. One comprehensive definition can be found in Paul Hawkin’s book, The Ecology of Commerce: “Sustainability is an economic state where the demands placed upon the environment by people and commerce can be met without reducing the capacity to provide for future generations.”

This definition applies in profound ways to healthcare. At the current rate of consumption and at the current level of thinking, the healthcare organizations of today will be unable to meet demand in the future. Our health systems will be unsustainable.

Beginning in 1997, health spending has been accelerating as a percent of Gross Domestic Product (GDP) among Organisation for Economic Co-operation and Development (OECD) countries. In 2002, the cumulative health spending of 24 OECD countries was $2.7 trillion. PricewaterhouseCoopers estimates that health spending for OECD countries will more than triple to $10 trillion by 2020.

Healthcare organizations and governments around the world are urgently seeking solutions to temper costs while balancing the need to provide access to safe, quality care. Yet, conventional approaches are failing, even in the most advanced nations of the world – throughout Europe, Asia, the Middle East, Australia, Canada and the United States.

Because they are often viewed as a local industry, healthcare organizations haven’t exchanged ideas globally as much as other industries such as manufacturing and services. While each country faces unique hurdles – regulatory, economic, cultural – the challenges they face are remarkably similar. In their responses, common themes are emerging.

Despite the complexity of the challenges that the healthcare industry faces, successful initiatives – often involving technological innovation, preventive care and consumer-focused business models – are occurring in many places. These are efforts that have improved health outcomes while also saving money.

In HealthCast 2020, PwC looked at the responses around the world to the globalization of healthcare and efforts to create a sustainable health system, highlighting best practices in innovation and shares insight and lessons learned from around the world. Our research included a survey of more than 580 executives of hospitals and hospital systems, physician groups, payers, governments, medical supply companies and employers from around the world in 27 countries.

Findings

The study identified several specific findings:

Future health spendingis expected to increase at a much higher level of growth than in the past. By 2020, healthcare spending is projected to triple in real dollars, consuming 21% of GDP in the US and 16% of GDP in other OECD countries. Nearly half of healthcare executives from 26 countries believe healthcare costs will increase at a higher rate of growth than in the past. Executives in areas with high population growth (for example, the Middle East and Asia) were more likely to say that healthcare costs would accelerate, but more than half of US and Australian executives also said that costs would exceed previous growth rates. Governments, hospitals and physicians are seen as having the greatest opportunity to eliminate wasteful spending in healthcare.

There is wide support for a health system with shared financial risks and responsibility among private and public payers versus the historic cost-shifting approach. Only a minority of industry leaders in the US, Canada and Europe think that a sustainable system is one that is mostly tax-funded. More than 75% of respondents believe that financial responsibility should be shared. Even in systems where healthcare is primarily tax-funded, such as in Europe and Canada, only 20 of respondents favored that approach. More than 50 percent of respondents said competition, taxpayer funding of some or all of healthcare, regulated cost controls, and cost sharing by patients were important.

Universally, health systems face challenges to sustainability around cost, quality and consumer trust. Transparency in quality and pricing was identified by more than 80% of respondents as a contributor to sustainability. Respondents’ opinions regarding who is making the most progress in improving quality vary by locale. In the US, patient advocacy groups rated first, while in Europe and Canada, physicians ranked highest. In the Middle East, Australia and Asia, government was viewed as making the most progress.

Preventive care and disease management programs have untapped potential to enhance health status and reduce costs, but require support and integration across the industry for their benefits to be realized. The most effective means of demand management, according to the survey, are wellness, immunization and disease management programs. The vast majority (75%) of respondents viewed queues (waiting lists) as an ineffective way to manage demand. Yet only 26% of respondents thought government and private initiatives promoting better health had been effective and only 33% thought educational and awareness campaigns had been effective. More than 80% of respondents identified lack of care integration as a major problem facing the health delivery system.

Interest in pay-for-performance and increased cost sharing is soaring. Industry leaders expect tremendous growth in consumer-oriented programs. Only 35% of respondents in the HealthCast 2020 survey said hospital systems are prepared to meet the demands of empowered consumers. But a large majority (85%) of organizations surveyed has initiated pay-for-performance initiatives, above the 70% who had started such programs in 2002. 43% of respondents said that direct cost sharing by patients is an effective or very effective method to manage demand for healthcare services.

Information technology is an important enabler in resolving healthcare issues when there is systemwide and organizational commitment and investment. The vast majority of respondents viewed IT as important or very important to integrate care (73%) and improve information sharing (78%). But IT is not a solution in and of itself. A smaller percentage saw IT as important or very important for improving patient safety (54%) or restoring patient trust (35%).

Convergence

Global and industry-wide convergence is occurring as best practices are shared and the lines become blurred among pharmaceuticals, life sciences, providers, clinicians and payers in the provision of care, access and safety. It is time that health systems – hospitals and physicians, public sector agencies, governments and other commercial health-related entities – view the benefits of working together and connect by formal partnership or informal business affiliations to deliver health services to consumers.

How, specifically, are various health systems addressing the need for sustainability? The study found that some solutions will require far-reaching changes in national policy. Policy solutions can be influenced – but are not made – by the managers of healthcare organizations. Other areas over which management has some ability to effect change are plentiful and are driving solutions. By looking at these solution drivers, health leaders can begin to formulate responses to the major challenges facing their health systems.

According to the report, at the broadest level, these are the issues facing health systems across the globe: transferable lessons are emerging. The variety is astounding yet so are the commonalities. Around the world and across all sectors of the industry, healthcare leaders are exploring many of the same solutions.

Collaboration . Payers, hospitals, physicians, and community service organizations are working together to foster standardization and adoption of technology and process changes. They are teaming to enhance access and portability of healthcare services. They are coming together to realign incentives to accomplish mutual goals.

Consumerism. Providers are reorganizing themselves in a patient-centric continuum through care management approaches. Payers are developing consumer-oriented benefits plans. Pharmaceutical and life sciences companies are using new pharmacogenomic discoveries to pursue personalized medicine.

Technology assessment and dissemination. Payers, providers and community organizations are coming together on a regional and/or national basis to establish infrastructure and communications standards. They are developing incentives that will distribute the risks and rewards more evenly. Payers and research organizations are evaluating technology relative to productivity and lifespan.

Transparency. New payment and reporting methods are emphasizing safety, performance and accountability for health organizations across all industry sectors. Payers and providers are participating in pay-for-performance programs. Industry trade groups are establishing quality and safety standards. Governments are establishing reporting mechanisms and requirements.

Portfolio management. Hospitals, pharmaceutical companies, life science organizations, and payers are increasingly called upon to manage their service portfolios in a balanced, fiscally responsible manner. Governments are calling for rational approaches to regional service planning. Providers are organizing and allocating services to meet consumers’ needs for access, manage quality of care, and reduce duplication and inefficiency.

Manpower management. New models of developing, recruiting and retaining manpower are developing to address the root causes of gaps in service and impending future needs.

The following table summarizes the solution drivers for change.