America spends $3.3 trillion on health care, or more than $10,000 per person, which is twice as much as any other industrialized country. Yet nearly 30 million Americans, or 10% of the population, are uninsured. If the Affordable Care Act unravels in the near term, the number of insured could creep back up to 50 million, the level in 2009. These numbers exclude the millions more who are underinsured — people with high deductibles, high copays, and benefit caps that leave them very exposed if they fall seriously ill and are hospitalized.
Washington, DC invariably takes a financial approach to this problem. Politicians debate endlessly who should pay for what, and how much of the burden of health care should be borne by individuals and their families versus state governments or the federal government. There is deep division on these questions, and Washington has been in gridlock for years.
But, in our view, Washington is focused on the wrong issue. The real problem is that U.S. health care costs too much, the quality is uneven, and too many people can’t get the care they need. We have a crisis in health care delivery, and if we can fix that problem we’ll have more than enough resources to cover all the uninsured and underinsured. Conversely, if we don’t fix that problem, health care will be unaffordable, no matter who pays for it.
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Viewed this way, there is a bottom-up solution to the problem of America’s uninsured. It’s a solution we discovered during our research in India, and involves breakthrough innovations that drive down health care delivery costs so much that the margins from serving those who can pay is more than enough to cover the costs of those who cannot.
In India, only 10% of the population has health insurance, while 90% are uninsured, the opposite situation of the U.S. Imagine what that must be like. Indians largely depend on free care — or die from the lack of it. In that brutal environment, a handful of private Indian hospitals, led by compassionate doctors, have found innovative ways to drive down health care costs to unimaginable levels while maintaining high quality. Some of them provide free or highly subsidized care to as many as half or two-thirds of all their patients — and still earn a good enough return to attract private investors, even though Indian prices for most medical procedures are 1%–10% of U.S. prices. For instance, open-heart surgery in one of these exemplar hospitals can cost $2,100, compared with $75,000–$150,000 in the U.S.; a cataract operation can cost $200 or less, compared with $3,500 in the U.S. In Reverse Innovation in Health Care we elaborate on the five principles that allow the Indian exemplars to provide world-class health care at ultra-low prices.
The question is: Could U.S. hospitals apply those same principles to drive down costs so much that the margins from serving insured patients more than pays for serving all the uninsured and underinsured? The answer is yes, as we found in the example of Ascension, the largest nonprofit health system in the United States.
Deeply grounded in the Catholic faith, Ascension resembles the Indian exemplars in its commitment to providing high-quality, low-cost health care, especially to the poor and vulnerable, who are often uninsured. Under the leadership of Anthony Tersigni, Ascension’s president and CEO, the organization has sought to become much more efficient at delivering health care. The following are some of the ways Ascension has become cost-effective:
- Ascension pooled purchasing in a central group, which allowed it to exploit economies of scale. In a 2010 review of its purchasing strategy, Ascension concluded that it didn’t really have an effective purchasing strategy at all. Most of its hospitals were still buying from their own legacy suppliers, with whom they had little leverage. In food and environmental support services alone, for example, $400 million a year was going to more than 100 different contracts. Ascension saved 10%–15% a year by aggregating all of those contracts and negotiating from the strength of the combined operation. The savings to Ascension in supplies alone totaled about $1 billion, or 5% of total revenues.
- Ascension centralized functions such as human resources, payroll, travel services, and finance, thereby streamlining operations and saving costs.
- Ascension convened doctors’ councils to evaluate the quality of available surgical implants, and then leveraged its size to purchase the devices at the best price. It also pursued process innovations that resulted in cost savings.
- Ascension expanded an in-house service group at one of its hospitals into a full-service maintenance company called TriMedx, which then offered its services to all of Ascension’s member hospitals, making it possible to increase the useful lives of the hospital group’s medical devices and machines. TriMedx was so successful that Ascension spun it off as an independent for-profit enterprise, which in 2017 had 1,800 clients in 28 states.
Among other things, these cost savings have allowed Ascension to waive insurance deductibles and unpaid bills at all of its hospitals for patients earning less than 250% of the poverty level, and provide some level of financial support to patients earning up to 400% of the poverty level. The new policy added to Ascension’s costs of providing relief to the poor. Ascension also used cost savings to support a wide range of community outreach programs, such as free health screening events in many of its communities. As Rhonda Anderson, the CFO of the nonprofit, told us: “Our mission goes back hundreds of years: providing care for the poor and the vulnerable. It’s part of Catholic social teaching.”
The real challenge in the United States, in our view, is to imbue health care organizations with the kind of purpose that inspired the Indian exemplars and organizations like Ascension. U.S. health care organizations need to rediscover the values and sense of purpose that attracted many employees to the health care profession in the first place.
In both India and the United States, this strategy works because an organization with an inspiring purpose leads employees to find innovative ways of improving quality, lowering cost, and expanding access — all at once. This is the power of purpose, a power that U.S. health care organizations should draw on more than they do.
Ascension has another solid reason for pursuing its strategy. It will be well positioned to thrive if value-based competition replaces the fee-for-service system in the United States. Ascension’s strategy has no downside, only upside. That’s why other health care organizations should emulate its strategy. At worst it will ensure success in the demanding world of value-based competition and help pay for care for America’s uninsured and underinsured. What is not to like?