Rob Falkenberg is an Operating Partner at Empactful Capital, a venture capital firm focused on early and growth-stage healthcare technology companies that enable the adoption of whole-person care delivery models. Rob was interviewed by Andrew Daniels, Founder and Managing Director at InsurTech Ohio.
Rob, what are the main drivers of inefficiencies in the healthcare industry?
“As a country, we currently spend 4.3 trillion dollars a year on healthcare, and this expenditure is increasing every year. It represents 18.5% of our GDP (Gross Domestic Product). I'm not suggesting that 4.3 trillion is too much or too little, but there are several critical areas where we don't spend enough, such as on primary care and behavioral health. We can't keep adding and adding; we need to be seriously thinking about ways we can reduce this cost.
Within that 4.3 trillion, we spend 20% to 25% on administration: paperwork, pre-authorizations and claims processing for insurance and providers. Recent studies suggest that we spend about 20% on suboptimal and unnecessary care. Combined, these areas equate to approximately two trillion dollars of potential savings.
The main drivers preventing us from achieving better value for our 4 trillion of annual expenditures are fourfold:
First, our care delivery system is inherently fragmented. One prime example is hospital systems that operate independently without coordinating efforts across each other's networks, leading to unnecessary and redundant capital and care expenditures.
Second, our system largely reimburses care delivery on a fee-for-service basis, meaning care providers request reimbursement from payers by submitting eligible claims codes. This approach can create an incentive to utilize treatment codes that seek the highest reimbursements rather than the most efficient and cost-effective outcomes.
Third, the overall health of our population is deteriorating, particularly in terms of the way in which we take care of ourselves. We're facing skyrocketing numbers of people that are overweight and obese, creating a metabolic-syndrome crisis.
Lastly, we have a severe shortage of care providers in the behavioral health field. This has become more apparent and impactful since COVID-19. There isn't adequate access to qualified behavioral health practitioners to meet the growing behavioral health needs of younger and elderly generations.
What do we prioritize on to improve upon this current societal challenge? In my opinion, people want a few key things out of life. They want to be healthy, look good, have financial security, invest in meaningful relationships and pursue happiness. When you assess how most healthcare players have been approaching their roles and serving patients, they don't keep all of these personal interests in mind. The industry traditionally believes their primary role is to be there only when their patients have a specific healthcare need, crisis or accident. This reactionary approach, while well intentioned, is not enough and not working well. The health insurance industry needs to reimagine its roles and transform the way they connect with and support patients proactively in a way that creates loyalty and meaningful relationships.”
What's one thing that would accelerate change in the healthcare industry?
“Clearly, we must do a better job to demystify healthcare in terms of how it's accessed and purchased. It’s far too opaque and complicated. We can make it simpler for people by providing them the information in an easily accessible format that clarifies options and care costs.
We need price transparency (think Amazon) for when and how people shop for their care. It's almost impossible to go to a hospital or a doctor and find out what it’s actually going to cost for your treatment. The physician's office often doesn't know what amount they're going to be reimbursed, and if they do, they often won't share that information. A consumer can't be an effective consumer if they are kept in the dark about the cost of their care. That's a major issue in healthcare that can accelerate welcomed change.
Roughly 60% of our population is covered through a plan sponsor (employer). Plan sponsors typically have an HR Department that engages an insurance broker who shops and helps select their insurance plan. The consumer (employee) is three or four steps removed from this decision-making process. As a result, employees have minimal loyalty to their insurance plan because they didn't participate in the shopping process. It's easier to be critical of something that you didn't have any input in choosing.
We could adopt a 401k-like purchasing model that offers purchasing choices to employees. This will create a marketplace of competing health plans that individuals can tailor to their needs. This model should then include subsidies funded by plan sponsors. This would change the way healthcare companies interact, communicate and advertise to consumers. This business-to-consumer relationship model would be truly innovative. There's a lot of excuses why this hasn't happened, but it’s largely because the established players are protecting the status quo.”
How does the shift to value-based contracting change the industry?
“Value-based contracting (VBC) has the potential to be a major solution in healthcare. So far, that potential value and impact of VBC hasn’t been deployed across the entire care delivery system. There have been targeted and incremental efforts to provide incentives to create better cost and care experience and outcomes, albeit on a small scale. There are lots of data analytic tools utilized inside the physician's office and within the insurance carriers. While the industry has more information at its disposal, that information hasn't effectively improved the total cost of care for consumers
Another major shift that needs to occur is to design value-based contracting, specifically to improve the influence of primary care providers (including behavioral health). The primary care provider’s relationship with the patients’ needs to be the centerpiece for how value-based contracting is structured and implemented. If we're going to change the current fragmented system into one that is more integrated, we must utilize a care model built around the primary care relationship with the patient.
The primary care physician also needs to take more overall accountability for guiding patients when they need assistance and referral to specialists, hospitals and off-hour urgent care needs. Today, most value-based contracting is targeting one specific specialty, limiting its scope for managing overall care cost.
Realistically, we may not have enough primary care physicians to assume this added-care coordination role. We need to invest in expanding patient care coordinators aligned with primary care and compensate them under some form of VBC performance criteria.”
What's on the horizon for the healthcare industry?
“We need more industry disruption led by organizations capable of reimagining a stronger relationship between doctor and patient. As innovative disruptors succeed, it will spread these types of changes through the marketplace. We all must align to invest in total cost of care models built around coordination, accountability, transparency and a trusted relationship between primary care providers and their patients.”