Skyrocketing U.S. Healthcare Costs – Opportunity or Threat?

This week the Bipartisan Policy Committee released a report of the key drivers of skyrocketing U.S. healthcare costs. For those who work in or who understand healthcare in the U.S., many of the drivers identified by the committee look familiar. Among these drivers of healthcare costs are:

• Aging population
• Fee-for-service reimbursement
• Rising rates of chronic diseases
• Fragmentation of care delivery
• and many other factors

Included in the list were advanced medical technologies.  The report went on to say that unnecessary utilization of new technologies –  especially where a lower cost treatment would be good enough – drives healthcare costs.  Few would argue that the current path of healthcare spending is anything but unsustainable in the U.S.  According to the committee report, the U.S. spends roughly $2.6 trillion on healthcare, and healthcare spending is 18% of GDP.

For medical technology companies, the real question is what does this mean for the industry and the future of innovation and pricing?

• Threat:   One point of view could be a negative one.  Clearly, one of the ways to reduce costs is to focus on expensive new technologies and reduce prices or constrain utilization.  Many mechanisms like ACOs, comparative effectiveness, and gain-sharing are being put in place to help constrain both prices and utilization of expense technologies.  Companies should only expect that this will accelerate in the future.
• Opportunity:  The other way to think about the unsustainable cost trend is as an opportunity.  There’s a significant opportunity for technology companies to help find ways to reduce costs while maintaining or improving quality of care.  The idea of a “good enough” technology at a significantly lower price is a compelling one.  This is the classic disruptive innovation as described by Clay Christensen.   There are many other disruptive approaches such as moving  care to a lower cost site of service, home monitoring, and specialized diagnostics.

Personally, I believe that med-tech companies will be faced with both threats and opportunities as the market evolves.  Companies that rely on the old innovation model of incremental based innovation that adds features and costs to existing procedures without clear outcome advantages will suffer.  Smart companies that find new ways to be part of the solution will thrive and be winners.