Derek A. Bang
Universal public healthcare systems can face the same cost control challenges as the highly private U.S. system.
At a Glance
- Healthcare costs in the United Kingdom are growing at an unsustainably fast pace while public dissatisfaction with the system continues to increase.
- Learning from the United Kingdom's experience, the U.S. healthcare system should focus less on shifting costs and more on the value of care delivered.
- To achieve meaningful cost control, U.S. providers and payers will need to focus on results, technology, and prevention.
As the United States charts a course toward greater government intervention and participation in the healthcare market through the Affordable Care Act, U.S. healthcare executives can learn some important lessons by studying Britain's experience with a predominantly public health system.
The Most Nationalized Healthcare System in Europe
Like every other major industrialized nation, the United Kingdom spends a much smaller percentage of its gross domestic product (GDP) on health care than the United States does. In 2007, the United States spent more than 15 percent of its GDP on healthcare costs, nearly double the United Kingdom's 8.4 percent, according to the Organization for Economic Cooperation and Development (OECD).a
What sets the United Kingdom apart from other European nations is that the government plays such a dominant role as a payer in the healthcare market. Private citizens, corporations, not-for-profit organizations, and insurance companies paid less than 13 percent of the United Kingdom's 2005 healthcare costs. By comparison, other European nations, such as Spain (29.7 percent) and Italy (23.4 percent), have significantly higher percentages of private healthcare spending. In the United States, private payers account for a majority (55 percent) of total healthcare expenditures.
How does the heavily public, relatively low-cost U.K. system compare with the mostly private, relatively high-cost U.S. model in terms of healthcare outcomes? The picture is mixed. OECD reports that although the United Kingdom spends a much smaller percentage of its GDP on health costs, its population has nearly the same life expectancy as its U.S. counterpart.
By other measures, however, the relatively parsimonious U.K. system does not seem quite so attractive. For example, according to OECD, the U.S. system gives both breast cancer and colorectal cancer patients a much better chance of reaching the five-year survival milestone.
Despite their public versus private payer differences, the two countries share the problem of rising healthcare costs. Both seek to craft policy under the constraints of crushing budget deficits and soaring levels of public debt. As the heavily private U.S. system expands the role of government and the mostly public U.K. system incorporates private partnerships and leans on supplemental private insurance plans, the two systems become more alike than different.
To address the challenges they face, both nations will need similar cost control solutions, focused on treatment outcomes, better preventive care, lifestyle changes, and technology-based improvements in efficiency.
Rising Costs and Limited Resources
The United Kingdom has a universal healthcare system that is generally financed by an 11 percent tax on employees and a similar tax on employers. These taxes fund the National Health Service (NHS), which has a mandate to provide care that is free at the point of service. The NHS provides more than 80 percent of total healthcare services in the United Kingdom, but some providers operate in the private sector and are paid either by supplemental private insurance companies or by the patients themselves. The private healthcare providers concentrate mostly on acute surgical and oncological treatment, urgent care, dentistry, and long-term care.
Providing universal access to "free" primary care does not automatically translate into equitable outcomes for different strata of society. Life expectancy for Britons with access to supplemental private health insurance can be, depending on their socioeconomic background, up to 10 years longer than the life expectancy of citizens who depend exclusively on the NHS.b
In the recent past, the No. 1 public complaint about the NHS has been the time spent waiting for elective operations, such as hip replacements or knee surgery. Although higher staffing levels have helped the NHS bring wait times down to the relatively palatable upper limit of 18 weeks, the hiring spree played a big role in raising British healthcare spending from £37 billion (approximately U.S. $57.3 billion) in 1997 to £120 billion (U.S. $185.9 billion) in 2009.c
The global recession inflicted significant harm on the British economy. Although the economy has started to grow again, spending has left a legacy of debt and a £156 billion (U.S. $241.6 billion) deficit that the government is determined to reduce by slashing public spending, including reducing the size of the bureaucracy.d
The era of NHS expansion is over for now. British politicians have pledged to maintain funding at current levels for at least the next couple of years, but such budget freezes would still represent a dramatic departure from recent years and ultimately erode NHS purchasing power once inflation is taken into account.
Indeed, the chief executive of the NHS has said his organization will have to improve its efficiency and productivity by 15 percent to meet rising demand for healthcare services as the NHS budget fails to keep pace with the growing British population.e A government white paper published July 12, 2010, suggests that the NHS may pursue cost savings by taking on the powerful labor unions and eliminating thousands of administrative jobs.f The public, however, would fiercely resist any resulting rollbacks to the hard-won improvements in surgical wait times.
Because the NHS and the powerful National Institute for Health and Clinical Excellence (NICE), a special health authority of the NHS, already drive hard bargains with pharmaceutical and medical device companies, additional healthcare savings from drug and supply costs most likely would result in further rationing.
Even as the British government tries to contain the costs of the public healthcare system, the public and the media seem to be focused on NHS quality or lack thereof. Despite the improvements in wait times over the past decade, dissatisfaction continues to simmer over alleged NHS shortcomings. The British media engage in daily attacks on the system for its supposed incompetence, bureaucratic indifference, or structural injustices. The volume and intensity of complaints produce the impression of deep British dissatisfaction toward the NHS.
The U.K. government's own statistics support this impression. In 2005, for example, the U.K. commission responsible for resolving public grievances with the NHS reported a doubling in the number of people requesting a high-level review of their complaints against the NHS.g Despite years of budget increases at the NHS, patient satisfaction with the healthcare system seems to be heading in the wrong direction.
Four Cost-Control Levers
The United States needs only to look at the British model to see that universal public coverage offers no guarantee of cost controls. If both nations want to rein in healthcare costs, they will ultimately need to shift their focus away from who pays for health care and move toward focusing on the value received by the payer.
In both heavily private and mostly public healthcare systems, the same four levers hold the greatest potential to improve quality while reducing costs.
Pay for results. In the United Kingdom and the United States, both government and private payers compensate physicians and hospitals based on the diagnoses they make and the procedures they perform. The current payment systems make no adjustments for any measurement of patient satisfaction or the quality of the outcome of the treatment.
Now both countries are trying to take initial steps toward an outcomes-based system. The U.K. government's July 2010 white paper proposes a system under which physicians would track their own performance, and hospitals would publish detailed data on the mortality rates of their patients.
In the United States, the federal government has begun mandating that hospitals keep records on the quality of their treatment outcomes and submit the resulting data to the Centers for Medicare & Medicaid Services (CMS). Starting in 2012, Medicare will implement a value-based purchasing program, which will withhold and redistribute 1 percent of payment funds to hospitals with the highest quality and patient satisfaction scores or those showing significant improvement.
Hospitals will face additional reimbursement cuts if they score poorly against benchmarks for hospital-acquired conditions or excess hospital readmissions. With provider scores broadly available on CMS's Hospital Compare website (www.hospitalcompare.hhs.gov), low-performing hospitals will feel compelled to improve their scores to avoid bad publicity from poor results that could affect public perceptions and cause declines in future patient revenue.
Over time, the percentage of payments withheld will increase in annual increments of a quarter percentage point up to a 2 percent ceiling. Because private payers often follow Medicare's lead, hospitals may soon face the prospect of having percentage payments withheld by both public and private payers. With many hospitals currently surviving on margins of 2 percent or less, the prospect of losing a couple of percentage points in reimbursement presumably will induce them to improve their quality of care. And since a botched procedure or a hospital-acquired infection almost always costs more than a problem-free procedure, improvements in quality should help limit the rise of healthcare costs.
Deploy EMRs carefully. The United Kingdom has failed thus far to implement electronic medical records (EMRs), having spent a tremendous amount of money in an attempt at rapid deployment only to run into severe technical difficulties. Now, with budget pressures forcing the NHS to scale back its EMR plans, the United Kingdom has no hope of seeing significant near-term EMR-related benefits.
By contrast, the United States has taken its time researching and refining its approach to EMRs. Early development of U.S. national standards increases the likelihood that eventual implementation of a national EMR infrastructure will be successful, but U.S. providers must be careful to avoid repeating the British mistake of deploying EMRs too hastily.
Even now, U.S. providers are implementing proven EMR systems without fully considering the changes in business processes needed to accommodate them. The costs of bypassing proper process redesigns can far outweigh any benefits of meeting the 2015 deadline for EMR implementation set forth in the American Recovery and Reinvestment Act. In several situations, process-related issues related to EMR implementation, particularly issues related to capturing the proper charges, have cost U.S. providers more than $1 million per month in net revenue reductions. A national EMR infrastructure has great potential to reduce medical errors and enable better quality-of-care measurements, but the short-term costs of poor execution can be dramatic for individual providers.
Focus on preventive care. Despite providing its entire population with access to preventive primary care that is free at the point of service, the United Kingdom still struggles to control its rising healthcare costs. Learning from these struggles, U.S. healthcare players should expand their definition of prevention to include much more than a trip to a general practitioner and emphasize the cost-controlling potential of preventive care.
Expensive new prescriptions and procedures may not have a significant impact on important benchmarks such as life expectancy unless wealthy industrialized nations can find a way to make progress on curbing modern lifestyle-related epidemics, including obesity, smoking, and alcoholism.
Healthcare providers and insurers alike will need to innovate in this area, partnering with community groups, corporations, the government, and not-for-profit organizations to find a way to encourage healthier habits that will eventually reduce the pressure on emergency departments and cardiac operating suites.
Such innovative community health projects have already begun to deliver impressive early results. Consider the Peyton Manning Children's Hospital at St. Vincent in Indianapolis, which partnered with more than 250 schools, a local supermarket chain, NFL quarterback Peyton Manning, and Ball State University to initiate Project 18, an attempt to educate children about healthy food choices and appropriate serving sizes. At one participating middle school, an assessment survey found that overall knowledge of health, nutrition, and wellness improved by 18 percent among more than 500 enrolled students. The project also had an impact beyond the schools as students passed along nutrition information to their parents and extended families, thereby altering the eating habits and improving the fitness and wellness of the entire community. As a result, the sponsoring supermarket chain estimated a 16 to 24 percent purchasing shift from less healthy food choices to foods approved under Project 18.
Assess public expectations. U.K. patients accept an 18-week wait time for elective surgery, limited access to high-tech imaging such as MRI machines, a lack of privacy, and a higher risk of infection when staying in large hospital nursing wards.h
On the pharmaceuticals front, the United Kingdom holds down costs by having NICE take a value-based approach that prevents high-cost products with limited efficacy from gaining access to the U.K. market. Although this approach has controlled pharmacy spending effectively, critics blame rationing for contributing to the United Kingdom's lower survival rates for complex conditions such as cancers. For example, a recent report from the Rarer Cancers Forum, a U.K. charity, claims that up to 20,000 people in the United Kingdom died from 2009 to 2010 after being denied access to cancer drugs that are dispensed widely in the United States and Europe.i
By contrast, most U.S. citizens expect quality, privacy, convenience, and choice from their healthcare providers. If Americans want the maximum number of treatment options, private rooms, and modern hospitals, as well as the latest diagnostic machinery, drugs, and devices, they may have to accept that U.S. healthcare costs will be higher than those in countries where the population is willing to accept lower levels of service in exchange for less expensive care.
Healing the U.S. System
Far too much of the healthcare debate in the United States continues to swirl around who pays for care. The United Kingdom's experience with the NHS shows that public systems can face their own struggles with rising healthcare costs along with additional problems related to quality of care, limited choice, and patient dissatisfaction.
By achieving high-quality outcomes, facilitating the implementation of EMRs, forging partnerships to promote true preventive care, and educating the population about costs associated with high-level medical care, the United States has the potential to sustain and improve its healthcare system in a way that protects the long-term health of its overall economy.
Derek A. Bang, CPA,is a partner and Healthcare Advisory Services practice leader, Crowe Horwath LLP, Indianapolis (email@example.com).
a. "After the Gold Rush," The Economist, Dec. 10, 2009.
b. Campbell, D., "Poor in UK Dying 10 Years Earlier than Rich, Despite Years of Government Action," The Guardian, July 2, 2010 (www.guardian.co.uk/society/2010/jul/02/poor-in-uk-dying-10-years-earlier-than-rich).
c. Walayat, N., "British Politicians Lying to the Electorate, NHS Budget 4 Percent Cut (Minimum)," The Market Oracle, Jan. 3, 2010 (www.marketoracle.co.uk/Article16204.html).
d. Oliver, J., "Cameron: Years of Pain Ahead," The Sunday Times, June 6, 2010 (www.timesonline.co.uk/tol/news/politics/article7144906.ece).
e. "After the Gold Rush," The Economist, Dec. 10, 2009.
f. "NHS Faces Biggest Shake-Up in Decades," Guardian News and Media Limited, July 12, 2010 (www.guardian.co.uk/society/2010/jul/12/nhs-white-paper-shake-up/print).
g. "NHS Complaints Double," The Daily Mail, Oct. 31, 2005 (www.dailymail.co.uk/health/article-367140/NHS-complaints-double.html?printin).
h. OECD, Excel spreadsheet (www.oecd.org/document/16/0,3343,en_2649_34631_2085200_1_1_1_1,00.html).
i. Martin, D., "Betrayal of 20,000 Cancer Patients: Rationing Body Rejects Ten Drugs (Allowed in Europe)That Could Have Extended Lives," The Daily Mail, March 16, 2010(www.dailymail.co.uk/health/article-1257944/NICE-rejects-cancer-drugs-extended-patients-lives.html).
Publication Date: Monday, November 01, 2010