Financial Leadership

Why bigger isn’t always better when it comes to the cost effectiveness of health

April 16, 2021 5:40 pm



All eyes were on the Suez Canal in late March when one of the world’s largest container ships ran aground there amid poor visibility and high winds during a sandstorm. Shipping traffic was blocked for more than a week, bringing billions of dollars in daily commerce to a halt.

A spokesperson for the canal said the storm caused “an inability to direct the ship.” Images of tiny tugboats working to free the 220,000-ton Ever Given, which is taller than the Eiffel Tower, inspired a lot of angst in the international business community (and dozens of humorous memes on social media). Five days after the ship got stuck, a flotilla of tugboats succeeded in freeing it, with help from the tides.

In the quest for lessons learned from that experience, some journalists observed that bigger is not always better. It’s hard to argue with that. The same holds true in healthcare.

The forces driving industry consolidation are real, but as savvy healthcare leaders realize, partners must be chosen carefully or the merged organization, having traded nimbleness for scale, can wind up floundering. I am reminded of a comment that consultant Nate Kaufman made at a recent healthcare industry conference: “Scale is not a universal solution. You may get anchored to a sinking ship.” (The ship in the Suez Canal incident was stranded, not sinking, but the analogy holds.)

Scale is not always desirable with seemingly innovative care and payment models, either. An assessment of scalability should include an analysis of an innovation’s cost effectiveness — that is, its potential for minimizing the costs associated with delivering optimal health outcomes.

Understanding cost effectiveness of health

Cost effectiveness of health is arguably the most important issue facing the healthcare industry today. By cost effectiveness, I mean more than simply the cost per unit of care delivered (although that’s a big factor). Cost effectiveness refers to the total cost associated with an individual’s health over a designated time period (usually a calendar or fiscal year).

Maintaining health — or, at a minimum, taking steps to prevent, delay or better manage chronic conditions — reduces the total cost of health. Many health systems have a mission to “improve the health of the communities we serve,” but in reality our nation’s healthcare system is not set up to achieve that.

The challenges our industry faces are too urgent to waste time and resources on innovations that cannot pass muster when it comes to cost effectiveness. The challenges are familiar to most healthcare leaders: The percentage of our nation’s GDP spent on healthcare continues to edge up, stoking concerns about crowding out other societal priorities. The projected date of insolvency for the Medicare Hospital Insurance Trust Fund is less than three years away. The national debt is piling up.

Meanwhile, employers are dissatisfied with rising healthcare premium costs that have not responded to their cost containment efforts. Consumers continue to push back against increasing out-of-pocket expenses. And new price transparency requirements are shining a spotlight on unexplained price variation and indefensible chargemaster prices.

Adopting the care purchaser perspective

With care purchaser dissatisfaction on the rise, it’s important to view the cost effectiveness of health through the eyes of purchasers. That’s the approach HFMA is taking at the virtual Cost Effectiveness of Health Summit scheduled for May 6-7. During the summit, leading healthcare organizations will share their experiences with rebuilding to address cost effectiveness of health, including emerging strategies for reducing complexity, creating efficiencies and transforming care delivery.

Join us at the summit to discover how achieving cost effectiveness of health can transform the healthcare industry, to the direct benefit of all stakeholders. Learn how to minimize the risk of anchoring your organization to innovations that turn out to be shiny objects lacking in substance. Innovations that aren’t cost effective won’t meet the needs of care purchasers in the long run, no matter how appealing they may be on the surface.

In healthcare, unlike in the Suez Canal debacle, rescue is not at hand for those who get stuck and are unable to direct their own ship.


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