U.S. healthcare costs are rising rapidly while American life expectancy has remained stagnant for two decades. Businesses are facing greater economic pressures and looking for ways to flatten the rate of healthcare cost inflation.
As a result, more and more organizations are choosing to self-insure rather than purchase traditional insurance policies for employees. Although this choice brings significant financial advantages, few companies have the expertise to handle all of the health plan accountabilities and legal requirements. And that’s why the role of the third-party administrators (or TPAs) is becoming ever-more important.
TPAs help self-funded companies navigate the regulatory and administrative complexities of the health insurance industry. They can manage claims processing, provide access to health networks, review the utilization of medical care, handle regulatory submissions and provide a wide range of other membership functions.
Today, I had the opportunity to keynote the Health Care Administrators Association (HCAA) Executive Forum, a conference committed to providing TPAs with up-to-date information, education and a unifying voice. With more than 500 attendees gathered in Las Vegas, all of them experts in the intricacies of health coverage and delivery, I focused my remarks on the future of American medicine and three massive changes ahead:
1. The rise of capitation at the delivery-system level
For decades, healthcare-cost inflation has risen faster than consumer prices and (for most businesses) the annual rate of revenue growth. As a result, our nation’s healthcare has become too expensive, even for financially stable companies.
We spend more than $12,500 on the care of each and every American (double the spending of nearly every other country in the world) for healthcare outcomes that rank dead last among the 13 wealthiest nations. As much as a quarter of that spending is wasted, according to researchers, on needless care (over-testing, over-treating) and errors in prescribing or care-delivery.
After decades of talk about pay for value, the time has come to shift healthcare’s payment model from “pay for volume” (do more, earn more) to capitation at the delivery-system level where physicians and hospitals are rewarded for preventing disease and achieving superior clinical outcomes.
For too long, businesses have had little choice but to stay afloat by transferring much of the expense to employees through high-deductible insurance products. But that strategy is becoming more problematic. Right now, 40% of Americans fear they will be unable to afford medical care in 2023. And half of Americans report that one large medical bill would devastate them financially.
For employers who want to keep workers healthy and minimize chronic diseases, capitation at the delivery-system level is a powerful way to incentivize prevention, reduce complications from chronic diseases, encourage the use of modern technology and drive operational excellence.
2. The impending dominance of the retail giants
Over the past few months, retail giants like Amazon, CVS and Walmart have made aggressive forays into the provision of medical care.
Amazon purchased One Medical with its 188 clinics in 26 geographies, augmenting its previous purchase of the online pharmacy PillPack and its ongoing relationship with self-funded businesses.
CVS, which owns insurer Aetna, recently acquired Signify and its 10,000 home-health doctors for $8 billion. And then it bought Oak Street Health, a primary care program with 169 clinics in 21 states for $10.6 billion.
For its part, Walmart signed a 10-year deal with UnitedHealthGroup, the largest physician employer with 60,000 doctors and a broad network of other clinicians who care for UHG’s 60 million members.
It is only a matter of time before these retail giants acquire enough scale and expertise to dominate the totality of medical care.
3. The skyrocketing potential of generative AI
The introduction of ChatGPT has created a massive buzz in the media and among educators. The current version of this generative AI chatbot (GPT3) is by its founder’s own admission “a horrible product.”
By this, he meant that this first generation version will rapidly be replaced by next generation applications that are exponentially more powerful and better.
Right now, ChatGPT and its AI rivals cannot provide unmonitored medical advice. But that day is coming. Many of the functions performed today by administrators will be replaced by technology. In the future, patients will use AI in their homes to access medical care, manage diseases and improve their health. A decade from now, assuming this technology doubles in power every two years (following Moore’s Law), generative AI will be 32 more powerful and, in 20 years, 1,000 times more powerful.
Physicians will rely on this technology to improve performance and clinical outcomes. Generative AI won’t eliminate doctors, but it will replace many of the functions they do currently.
It is too early to know exactly what will happen in each of these areas and exactly where new opportunities and threats will reside. But one thing is clear: Anyone who believes that the future will be like the present will be left behind and regret the opportunities they missed.
I want to thank HCAA CEO Carol Berry, Executive Director Susan Crolla, and the entire HCAA team for the excellence of the conference. In this field, where change is nonstop and even a minor error has major consequences, professionals need up to date information. Every attendee I spoke with said this conference was one of the best ever. Anyone who missed out should register for the upcoming fall event.
I look forward to learning from the success of the HCAA and hope to see it leading the transformation of American healthcare that is so sorely needed. TPAs and their partners can accomplish this task by better understanding the forces that move healthcare today and working with self-funded businesses to drive change in care delivery. For more information on the topics covered in this article, check out my regular Forbes and LinkedIn columns, along with my podcast and monthly newsletter, the links to which can be accessed below.
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Dr. Robert Pearl is the former CEO of The Permanente Medical Group, the nation’s largest physician group. He’s a Forbes contributor, bestselling author, Stanford University professor, and host of two healthcare podcasts. Pearl’s newest book, “Uncaring: How the Culture of Medicine Kills Doctors & Patients,” is available now. Follow him on Twitter @RobertPearlMD.
