Medical costs may fall in the coming years

For the last 50 years healthcare costs have been rising about 2% faster than economic growth in developed countries. The big drivers for this trend are the ageing population, increased prevalence of lifestyle diseases (e.g. diabetes), an inefficient allocation of resources and more costly new therapies and technologies that focus on better outcomes rather than lower costs.

One way to reduce these soaring costs is the conventional way of insurers and hospitals to use their bargaining power to negotiate discounts from suppliers. This way prices unavailable to individual patients can be achieved. These negotiations are powerful and important. However, they are limited in their effectiveness because they’re solely based on a modified distribution of economic surplus (assuming that the “amount of healthcare provided” doesn’t change).

Another option is to actually cut expenses in hospitals and pharmaceutical/medtech companies. That as well would ease the pressure on the broader economy. How can we cut these expenses? Prescription drugs account for about 10% of total health expenditures. We have already discussed the possibility of price negotiations. Another way would be to move production sites to low-wage countries. This would result in paying lower salaries for the same work being done.

Hospital care and physician services make up the largest share of health care expenditures — about 50% (the remaining 40%? Dental care, administration, research etc.). Cutting down these expenses means either 1) cutting down costs for medical equipment or 2) paying lower salaries for doctors, nurses, administrative staff. Again we will end up paying lower salaries for the same work being done.

We might consider cutting salaries. But the problem is again: This approach is limited in it’s effectiveness because paying lower salaries won’t fix a broken system. We might be able to cut expenses by let’s say 20%. But paying 16,000$ instead of 20,000$ for your surgery simply won’t make the difference. Especially if you belong to the 12% of US workforce employed in the healthcare industry with your salary being cut by 20%.

So why should we expect falling medical costs?!

Prevention and digital innovation are the two drivers that have the power to make medical costs drop sooner than we think.

In 2015, U.S. health care spending was $3.2 trillion, or $9,990 per person. The total cost of diabetes in the U.S. is estimated to be $322 billion per year by the American Diabetes Association. There is two types of diabetes. Type 1 is very likely a genetic autoimmune disease. Type 2 diabetes on the other hand is caused by an unhealthy lifestyle. Approximately 90% of diabetics suffer from Type 2 and not type 1. This means that almost 10% of yearly health care spending in the U.S. could simply be cut by effectively encouraging (young) people to live a healthy lifestyle.

An article in the American Journal of Preventive Medicine estimates that 8.7% of annual healthcare spending in the U.S. are attributable to cigarette smoking. Almost 10% of yearly health care spending in the U.S. could be cut if we effectively kept people away from smoking.

The list of lifestyle diseases could be continued with genetic diseases, sexually transmitted diseases, the use of sunscreen, prevention of accidents, education on how to avoid sports injuries and joint degeneration.

One of the most promising approaches for prevention are the do-it-yourself genetic testing kits of 23andme. Without a visit at the doctor’s office they let you assess whether your DNA may be altered in a way to put you at risk for 10 different diseases including Gluten intolerance, Alzheimer’s, Parkinson’s and thrombophilias. This kit only costs $199 — and may save you thousands of dollars empowering you to adjust your lifestyle to your genetic profile (a few years ago the cost of DNA analysis was several thousand $).

What if we simply extinguished half of medical expenses by trying to be a bit more healthy and knowing our DNA?

The second driver is digital innovation. Digital technology is advancing exponentially and its becoming ridiculously cheap (including a smartphone for $3.60 — I bet a few decades ago people were discussing about how expensive computers and cell phones are, just like we are discussing how expensive healthcare is).

A straightforward example is MediSafe’s cloud-synced smartphone app. Together with an image of how the pill looks, it digitally reminds patient’s to take their pharmaceuticals. The cost of such an app is ridiculously low compared to its impact on healthcare expenditures. This app maximizes compliance, while making visits to the doctor’s office unnecessary — the doctor can remotely adjust medication and manage treatment plans. Imagine the impact on productivity if you can manage 5 easy(!) patients remotely in the time it takes to manage 1 easy(!) patient personally.

What about the difficult patients? The doctor will have much more time to take care of them when they actually attend their face-to-face appointment. For example an emotionally fragile patient that smokes and is at risk to get diabetes Type 2 will be able to talk 30 minutes to the doctor — because all the straightforward patients that waste a doctor’s valuable time are taken care of remotely.

And now imagine several apps providing such productivity boosts being integrated in a cybersecure(!) network without a single piece of paper. This way doctor’s & nurses will not have to deal with redundant stacks of paper anymore.

At this point it becomes obvious that digital health creates a positive feedback loop in the medical system. The more digital healthcare gets, the less redundant, administrative tasks need to be handled by healthcare staff. Doctors & nurses will spend 99% of their time on the patients and 1% on bureaucracy and administration.

At the moment the general pace of change in technology is increasing at an exponential rate and it will have an unbelievable impact on the cost structure in healthcare. The question is how long it will take for prevention & digital innovation to truly transform healthcare — but as soon as it kicks in, we won’t have to worry about medical costs anymore.