Consider how the different groups of players in the healthcare system are connected to one another:

Healthcare Industry Trends

Trends in society and in the healthcare industry over time have led to 

• Increases in medical information 

• Increases in numbers and specialties of service providers

• Increases in numbers of available medical devices and pharmaceuticals

• Increases in malpractice attorneys and healthcare regulations

• Consolidation of payers

• Consolidation of providers

• Increases in consumer access to healthcare insurance

• Increases in incidences of chronic disease in consumers

All these trends in the healthcare industry have led all the different sets of players to become more interconnected to one another in their actions and payoffs. As players become more interconnected, small changes to one piece of the system increasingly ripple through and affect all other parts of the system. In other words, you cannot change one part of a system without that change rippling through and causing changes in other parts of the system.

The healthcare system has become an intricately interconnected web of players. Furthermore, each player acts in seemingly perverse ways — given his particular set of incentives — to optimize his payoffs. Actions in one of the system lead to unexpected outcomes in other parts of the system.

Factors Attributable to Patient Health

Before we move on, it is important to understand the factors contributing to a patient’s health. According to The Kaiser Family Foundation,

• Only 10% of the risk of premature death is attributable to access to healthcare. 90% of this risk is due to the patient’s behavior, genes, and environment.

• Increases by the patient in his healthy behavior have the largest impact on his health.

Examples of How Changes Ripple through the System

Now let’s consider a few examples of how changes to the environment faced by one set of players ripple through and affect other players. 

Service Providers

• Increases in salaries of specialists relative to GPs => too many specialists relative to GPs

• Increases in costs (regulations, technology, malpractice) => decreases in margins => increases patient loads to make up for lower margins => less time per patient

• Decreases in reimbursements (public and private payers) => decreases in margins => increases patient loads to make up for lower margins => less time per patient

• Increases in consolidation of providers
  • => increases in leverage of providers relative to patients and payers => increases in costs to patients and increase in reimbursement rates to providers
  • often => increases in fragmentation of care = decreases in continuity of care

• Increases in the incidence of chronic disease => increases in patient demand for provider services => increases in profits

Goods Suppliers

• Increases in costs (regulatory, legal) => decreases in margins => medical equipment and medications less available and more costly

• Increases in incidences of chronic disease => increases in patient demand for healthcare goods => increases in profits

Legal System

• Increases in availability of insurance => increases in demand for healthcare services => increases in delays in treatment, given prices and supplies of providers

Payers

• Increases in consolidation of payers => increases in leverage of payers relative to providers and patients => decreases in reimbursement rates to providers and increases in insurance costs to patients

• Increase in incidence of chronic disease => increases in patient costs => increases in insurance costs to patients

New Information

• Increases in information => increases in specialization => increases in patients’ fragmentation and variability of care and decreases in continuity of care

Implications of Healthcare System Interconnectedness

A couple of implications of the interconnectedness of the healthcare system include:

• Patients’ healthcare will not improve substantially unless they improve their own behavior.

• Problems in the system cannot be fixed using piecemeal changes. Rather, the system needs to be redesigned at the system level, accounting for rippling of effects.

• The consolidation of providers and payers largely serves to benefit providers and payers at the expense of patients. Competition is essential among providers and payers for improving patients’ well-being.

• As more healthcare information becomes known, providers are led to increasingly specialize. Of course, knowledge and specialization can improve patient care. However, we must recognize that specialization creates fragmentation in patient care. We must therefore take steps to better coordinate care.

• Increasing technology, regulatory, and legal costs are large contributors to increases in both healthcare prices in general, as well as to perverse behavior by individual players in particular.