Will the healthcare bubble burst? 19 key perspectives

Healthcare spending has been a topic of national conversation over the past decade as it continues to increase despite efforts to reduce waste and overall costs. The Affordable Care Act sought to curb spending through pay-for-performance measures instead of fee-for-service, and while the current administration takes steps to dismantle the ACA the goal for revising the healthcare system is largely the same: increase quality while decreasing costs.

Americans spend around $3.5 trillion on healthcare annually, according to CMS, and continue to see premiums rise. How sustainable are current trends in healthcare spending? Will patients continue to have access to care at the same rates they do now? How much waste is left to squeeze out of the system?

Here, 19 healthcare industry leaders and economic policy experts share their perspective on the healthcare bubble, addressing the industry's unique characteristics and opportunity for disruption while also considering whether the bubble will burst. Respondents are listed in alphabetical order, and categorized by whether they responded in the positive or negative.

Note: Responses have been lightly edited for style and clarity.

Yes, it could burst any time

Ted Chan. Founder and CEO of CareDash.com (Cambridge, Mass.): "The healthcare bubble is unprecedented right now, with the healthcare industry exceeding 20 percent of GDP. As a society, we are about to witness major push back from both the consumers who are realizing that healthcare costs are eating into their paychecks, as well as the companies who are increasingly burdened by providing healthcare options.

Specific costs are closely tied to rising yearly medical fees, which have nearly tripled since 2000 for families, and increased healthcare companies' debt. As a result, we have recently seen major employers such as MD Anderson and Partners HealthCare pull way back on employee headcount due to stagnating revenue growth.

In response to these increasing costs, we are seeing employers and self-insured recipients start to push back on costs, which looks a lot like a deflation. Beyond periodic deflations, however, I think we will in fact see some catastrophic bubble-like company meltdowns. This is because corporate debt in the healthcare space has increased substantially in the last 10 years. If large health systems begin to see their debt downgraded, a massive downward spiral could be on the horizon, especially considering that revenue will likely remain low. This is not to say that all large healthcare systems will disappear like Lehman or Bear Stearns did in the financial crisis before 2010, but the restructuring will be painful for both patients and employees alike.

Now is a crucial time for healthcare executives to be focused on savvy financial management to ensure long-term stability and to utilize value-based healthcare strategies to deliver more impactful results while simultaneously managing costs and outcomes."

Jean Drouin, MD. CEO and Co-Founder of Clarify Health (San Francisco): "Healthcare cost growth has continued to defy expectations. This is unsurprising as there remains enormous latent demand for healthcare services, technology and therapeutics. With the rise of high-deductible health plans, more and more families are being exposed to healthcare costs and rationing care 'at the kitchen table.' Will it be paying to fix the car, send a child to school or for Grandma's hip replacement?

As such plans become more prevalent, economic theory suggests that we ought to observe declining cost growth. This in turn ought to increase the pressure on providers and manufacturers to demonstrate and deliver value for money. With that said, healthcare is far from a traditional market. We should therefore expect these changes to be implemented more slowly than in other industries. If there is a silver lining, it is that there remains billions in wasted healthcare spending. Successfully rooting out that waste and reinvesting it productively could ease the cost pressure for several years before the ultimate day of reckoning.

This is where deploying big data and analytics can be a win-win, enabling the delivery of better outcomes at cheaper cost."

Andrew Graham. CEO of Clinic Service (Denver): "The healthcare industry has become largely dependent on government payers for its existence. With the expansion of Medicaid on a federal level, health systems gained access to roughly 20 to 30 percent more cash flow than they had previously. This money has been spent hiring physicians as in-house staff, buying up practices and building infrastructure. Should the payment models helping the poor and indigent decline to the levels they reached in the early 2000s, all of this overhead will become a cost burden to these systems, thus leading to a reduction of staff as the most expendable. What the hospitals need from the doctors is referrals, not overhead. Independent physicians will rise to fill the demand, typically with networked affiliation with a place of service.

A second threat is continued automation, which threatens to eliminate many tech and administrative jobs. Front-line healthcare will always be needed, as it is by definition a task for real people, not machines. Continued technological innovation will continue to be disruptive to jobs that are methodical and repetitive. This is not unique to healthcare at all.

Third, with the baby boomer population beginning their use of increased healthcare, the system will be taxed. More elderly people than ever will utilize care in numbers never seen before. Someday, the bubble will end and Gen X, Gen Y, millennials and beyond will be left with crumbling infrastructure and less people to use it, not to mention that much of healthcare will increasingly be independent of a physical brick and mortar building for care delivery. Instead, telehealth, personalized home care and other dispatch services will take the place of the physical locations."

Heidi Jannenga, PT, DPT, ATC/L. President and Co-Founder of WebPT (Phoenix): "If the U.S. healthcare system continues along its current trajectory, the bubble could absolutely burst. After all, the cost of care would only become more and more unaffordable — but that doesn't mean patients will stop needing and receiving that care. Thus, it is imperative that we begin leveraging more cost-efficient, high-value care options. Physical therapy, for example, is a much less expensive — and equally, if not more, effective — treatment option for patients experiencing neuromusculoskeletal issues that are commonly treated with expensive surgeries or prescription medications.

Healthcare is unique and will always be in demand — but unless we address the seemingly endless rise in the cost of care, we'll eventually price out certain populations, and that could lead to dire consequences. Physical therapy — like other preventive and noninvasive care options — not only helps make effective treatment affordable to our nation's most vulnerable populations, but also reduces the incidence of the dangerous, long-term side effects associated with more traditional treatments and prescriptions, including opioids."

Paul Johnson. CEO of ReDirect Health (Scottsdale, Ariz.): "It's a healthcare bubble and a reckoning is sure to follow. Insurance companies stocks' are soaring, prices are inflating, there's political pressure to provide more services, yet Medicare, Medicaid and employers' budgets are already strapped. Wage growth has not kept up with increasing health insurance premiums, co-payments and deductibles. At a fifth of the nations' economy, the healthcare bubble threatens to be larger than the housing bubble of 2008.

Today, we spend $3.5 trillion annually in our healthcare system, almost $10,500 for every man, woman and child in the United States, a full 17 percent of the U.S. GDP. The Congressional Budget Office projects double-digit premium increases, along with increases in deductibles and fewer benefits and services. At this rate, healthcare will reach 21 percent of the GDP in the next eight years. The cost of delivering healthcare is almost twice as much in the U.S. as other countries, and it has poorer outcomes.

Our nation is deeply divided in this debate. Much of the discussion revolves around ideology, gaining partisan advantage or advancing the agenda of powerful interest groups. What is lost in the discussion is almost a third of all healthcare costs in the United States is attributed to waste. In a Harvard Business Review article titled, "How the U.S. Can Reduce Waste in Health Care Spending by $1 Trillion," the authors argued that $1 trillion of waste not associated with improved outcomes could be cut — including clinical waste, administrative complexity, excessive pricing and fraud and abuse.

Policy leaders need to spend less time on how we pay for healthcare and more time on how much we are overpaying for healthcare. The existing system is not sustainable. It was built around the shareholders, not the stakeholders; around the healthcare silos, not the customers. But this provides a very big opportunity for private companies, innovation and technology to disrupt the existing system to lower costs, improve outcomes and create a better experience."

Drew Kallestad. Executive Vice President of Broker and Employer Engagement at PeakMed (Denver): "Due to many inflationary factors, old-school benefit cost shifting and wellness are at the end of the road. The dysfunctional healthcare ecosystem has rendered most benefit plans and strategies unsustainable. Slowly and steadily, the system has created increasingly higher premium structures and leaner benefits and higher exposures that are crushing American families.

This is compounded by medical inflation of 10 to 12 percent and facility and Rx inflation running even hotter. Employers and brokers must abandon old-school strategies that perpetuate status quo. The riskiest path forward is the road we are on."

Annie Lamont. Co-Founder and Managing Partner of Oak HC/FT (Greenwich, Conn.): "Bubbles are turning up in nearly every asset class. Venture and digital health are no exception. Inflated valuations may not be ideal for investors, but they are good for innovation. If there wasn't a bubble in 2000, we may never have had Amazon or eBay.

The majority of the $16 billion already invested in digital health may never produce a return for investors. This is primarily because many novices have poured into the field with expectations they can reinvent it before ever understanding how the system fundamentally works. But this "bubble" has an upside: It has brought young entrepreneurs and tech talent into the industry, which has historically been in desperate need of talent and transformation.

An influx of talent has been the greatest benefit — and so far the greatest return — of all the money that has poured into digital health. It will likely result in innovation, reduced cost and improved quality for healthcare. I believe the combination of technology and services in healthcare — delivered through tech-enabled services — will provide the greatest benefit to the marketplace because the combination is desperately needed to create maximum impact at scale.

The bubble will likely get bigger before it bursts. Many tech venture capital firms still want a healthcare play, and the number of corporate VCs participating is expected to keep the party going for a while. There will be failures over the next few years that may dampen the mood, but there will also be visible successes that encourage others to enter the field. Much like the growth of ecommerce that followed Amazon and eBay in the wake of the dot-com burst.

There are enormous healthcare problems to solve, and there will be an unending opportunity to invest in exciting companies with substantive, knowledgeable entrepreneurs. That party is only just beginning."

Brooke LeVasseur. Chief Business Officer of AristaMD (La Jolla, Calif.): "The healthcare bubble is indeed about to burst, most likely within the next two to three years. The traditional fee-for-service healthcare model, where hiring mirrors the ever-increasing volume of care services, is in the midst of its metamorphosis into value-based care. At the same time, healthcare faces a predicted shortage of 46,000 specialists by 2020, which will shift an even heavier weight to primary care physicians' shoulders as they struggle to treat more patients, more quickly and at a lower cost, all while achieving better outcomes. To successfully adapt to this new reality, organizations will need to embrace a collaborative care model that values working smarter, not longer, to paraphrase the well-known concept.

Just as other industries embraced technology to achieve once-impossible goals, so can healthcare deliver care in a smarter, cost-efficient manner via telehealth. Bypassing the barriers of time and space, physicians and specialists can asynchronously and electronically consult regarding patients' individualized care plans for rapid diagnosis and treatment at the lowest possible cost.

In conclusion, the implosion of the current healthcare model is unavoidable. However, by leveraging the hard-won lessons of other industries and integrating advanced technologies to drive efficiencies and outcomes to a new level, healthcare can not only survive, but thrive, in the future world of value-based care."

Robert Pearl, MD. Former CEO of Permanente Medical Group (Oakland, Calif.): "Today's healthcare system operates like a 19th century cottage industry, with doctors working alone in small offices, disconnected from others, unaided by modern technology and paid piecemeal for each service they render. Like any other industry, American healthcare is vulnerable to disruption. The question isn't whether disruption will occur but, rather, when?

We have seen the economic threats for decades and done little to change the rate of healthcare inflation. We're aware of opportunities to prevent more heart attacks, strokes and some cancers, and yet we've failed for years to course correct. We have talked about increasing patient safety and reducing medical errors for nearly 20 years, and yet more than 200,000 preventable deaths occur annually. We fail to provide patients with the kind of convenience and technological access they expect in the rest of their life. For example, most patients today cannot do a video visit, schedule an online appointment or send a secure email to their doctors. As physicians, we like to tell ourselves that healthcare is different than other industries, but it is not.

I predict one of three things will happen in the future:

1. We will devolve into a two-tier system (not like today's hierarchy of Medicaid vs. everyone else, but rather the wealthy versus the middle class, including Medicare patients). This is the most expedient, politically.

2. Transformation will happen externally, led by a combination of major employers and patients. Providers will be given five years to integrate care delivery, be paid through capitation and implement a comprehensive EHR or risk being dropped by major payers.

3. U.S. healthcare will be disrupted by global solutions like the program Dr. Devi Shetty is building in the Cayman Islands.

Sebastian Seiguer. CEO of emocha (Baltimore): "There is a very obvious bubble in prescription medication spending, which exceeds $300 billion annually, making up 10 percent of all healthcare costs. Patients on average take only 60 to 70 percent of their medication, and therefore there is a market bubble for the approximately $100 billion that is wasted. Currently this cost is assumed by payers, and patients through their premiums and co-pays.

Technology now allows us to understand medication adherence on a dose-by-dose basis, opening up the opportunity to cut into this bubble and improve outcomes in the process. Payers currently pay for patients to receive medications, and maybe take them. The bubble will burst when payers start paying for medication that has been taken."

No, it won't burst and there might not even be a bubble

Sanjeev Agrawal. President and CMO of LeanTaaS (Santa Clara, Calif.): "I don't believe healthcare is in a bubble, at least not in the same sense as the dot-com bubble of 1995 to 2001. Like those early internet days, though, the market forces in healthcare are huge: a growing population in greater need for solutions at a lower cost. Three factors distinguish the healthcare market from other bubbles, however: 1) it is a traditional industry rife with inefficiency and waste whereas the dot-commers strove to create new industries with a 'if you build it they will come' swagger, 2) sophisticated technologies like predictive analytics and machine learning are now available and have a clear value proposition, and 3) there is a changing of the guard within healthcare leadership toward a more technologically savvy mindset than ever before. To be sure, there will be winners and losers as healthcare startups jockey to gain traction before their funding runs out."

Tobin Arthur. CEO of angelMD (Seattle): "According to most numbers, the aggregate total healthcare spend is now 19 percent of GDP. Cost growth is a result of a growing population, most notably the senior population or Baby Boomers. Costs are also tied closely to increases in chronic illness like diabetes. The bulk of our costs are attributable to the last 20 years of people's lives and handling chronic illness through emergency care versus proactive treatment.

Compounding an already large market is the fact that we are living longer. A larger older population expecting new hips, knees, heart surgery, cancer treatment and more well into their 80s and 90s comes with a cost. We have a system in which buyers and providers of services have been disconnected by a massive administrative bureaucracy we refer to as healthcare insurance. Healthcare insurance is in fact not truly insurance; its pre-paid healthcare combined with payment processing. And it adds a huge layer of cost to the system.

Clearly, healthcare is not like other industries. When the price of oil rises, people can drive less. When food prices rise, people will shop more judiciously. Healthcare, on the other hand, is generally not a nice to have but a must have. Moreover, the consumer has very little visibility into actual costs and they generally have limited options in a system dominated by government (approximately half the market) and large insurance plans mostly anchored in employer-based care. Is all of this a bubble? Not likely. It's a long-term trend that will increasingly pressure the U.S. economy and employers picking up a large portion of the cost."

Timothy Hoff. Professor of Management, Healthcare Systems and Health Policy at D'Amore-McKim School of Business (Boston): "Healthcare spending has seen a slight decrease recently given a moderation of health insurance expansion nationally over the past year or so, which has affected the amount of service utilization by individuals, with coverage expansion initially spiking utilization. In addition, Medicare has been decreasing reimbursements to hospitals through new value-based payment programs, as well as the use of incentive programs used by all health insurers that lean heavily on healthcare organizations becoming more efficient to lower costs. This squeeze on spending is likely to continue, although the aging of 80 million baby boomers, who are living longer and are high utilizers of the system, poses a long-term challenge to keeping service delivery spending lower.

Unlike other industries, healthcare is a fairly inelastic product in that there is only so much changing prices and payments can do to limit the demand for it. As individuals live longer, they experience more chronic and acute illness that cost more to treat and manage. In that sense, I don't see any sort of 'bubble' per se that indicates healthcare spending will drop significantly. In many markets, the hiring of healthcare workers, particularly support personnel such as medical assistants and nurses, is up. The inpatient side of the system is definitely experiencing pressures to trim their workforce, but the ambulatory component is still growing rapidly as more and more care moves to the outpatient side."

David Lareau. CEO of Medicomp Systems (Chantilly, Va.): "The healthcare bubble isn't likely to burst in the immediate future because we're in the midst of real transformation. As healthcare systems face the challenge of shifting from traditional fee-for-service to alternative payment models such as value-based care, they are searching for the right technology to ease the evolution. That requires spending and continued investment.

Healthcare is also a critical segment of our national economy. In many communities, healthcare is the top employment sector. As a result, Congress and even local politicians often support healthcare spending as a priority over other needs. Similarly, the health insurance, hospital and pharmaceutical lobbies continue to have influence over both federal and state spending priorities, and will be increasingly active as we move toward the 2018 term elections.

The healthcare bubble will not burst because additional investments will be required to move to an outcomes-based reimbursement model, while still maintaining the systems and payment models currently in place. The hope is that this spending will result in a system that provides better, more coordinated care, for patients and their families."

Adam Powell, PhD. President of Payer+Provider Syndicate (Boston): "Overall healthcare spending is determined by the percentage of the GDP allocated to healthcare, national GDP and the size of the population. According to the Bureau of Economic Analysis, there has been positive GDP growth every quarter starting with the second quarter of 2014. Although population growth slowed to 0.7 percent from 2015 to 2016, our population is still growing. Despite efforts to reduce healthcare spending, the percentage of GDP devoted to healthcare is projected to increase. As older people tend to use more healthcare, and the Baby Boomers are entering their prime healthcare utilization years, efforts to reduce spending may be counteracted by increased need in our population. Between economic growth, population growth and growth in demand, healthcare spending is unlikely to permanently abate at any time soon."

Stephanie Schreiber. Shareholder of Buchanan, Ingersoll & Rooney (Pittsburgh): "Bottom line, the healthcare industry is not in a bubble. That security can be attributed to the fact that it is an evolving industry with ever-changing regulations. Moreover, the need for healthcare will not go away, but rather the way that healthcare is delivered will continue to change. These changes will be based around, among other things, changes in the law, changes in reimbursement, technological advances and alternative delivery modalities."

Tara Stultz. Vice President of Healthcare at Adcom (Cleveland): "Total annual health spending in the United States has reached $3.4 trillion, according to a recent report from the Centers for Medicare and Medicaid Services. National expenditures on healthcare are expected to increase 5.6 percent annually through 2025 — which means that health spending growth is poised to outpace projected gross domestic product growth during that time.

Generally speaking, economic bubbles occur when prices for particular goods and services rise far above the items' real value. While some might say that the economic trends identified in the CMS report could signal a bubble at risk of bursting, healthcare’s growing emphasis on value-based care and innovation are pivotal to insulating the market from that likelihood.

In the context of value-based care and IHI’s Triple Aim for Populations, providers and payers are incentivized to work together to lower per capita costs while enhancing patient outcomes and experience. Add to that the fact that federal, state and local governments are projected to continue financing 46 percent to 47 percent of national health spending, and there are further incentives to keep costs down while keeping patients healthy.
Meanwhile, healthcare innovation in pharma, medical device and health IT all hold promise when it comes to healthcare’s ongoing value proposition. Emerging medications and therapies have the potential to support population health and lower overall spending; and health IT innovations are driving more efficient workflows as well as better, more cost-effective patient care."

Scott Wallace. Managing Director of the Value Institute and Care at The University of Texas at Austin: "Healthcare is amidst a dramatic transformation, not simply in payment but with fundamental disruption to existing care providers. Companies like Iora Health and Commonwealth Care are establishing thriving businesses by chipping away at relatively poorly served segments of patients — high-risk employees and frail elderly, respectively. The insurgents are being funded by very deep-pocketed investors who recognize the opportunity of disruption. They are offering new services that entrenched providers can't or won't, and investors will continue to seize those opportunities, and customers will continue to buy those new services.

At the same time, the basic needs of middle and upper-middle class people are being met, often at decreasing prices. How many color TVs does anyone need? How wide-screen is wide enough? How many pixels does one person really need? The point is that we've found efficient ways to make the products that satisfy most of our other 'needs.' What's left to spend money on? Just as bleached teeth became obligatory in some circles and eye glass frames can top $2,000, people will continue to spend relatively more of their income on healthcare if they perceive that it might deliver some kind of value."

Helen Waters. Executive Vice President of Meditech (Westwood, Mass.): "I've personally worked in healthcare for over 25 years, at a company that has been in healthcare, and only healthcare, for 50 years. I'm not so sure I'd go as far as saying there is a definitive 'bursting bubble' but I am alarmed there isn't more discussion on the exorbitant costs recently associated with a specific segment of healthcare — EHR.

There is a misconception across the industry that if you pay more, particularly for hospital systems, you get more but there is very little indication that is true. Why hasn't the industry pushed for more independent research on EHR spending? Does spending more on an EHR equate to improved quality measures and/or related financial performance? There needs to be a more candid discussion on the exorbitant costs and the impact of those costs on healthcare organizations (bond ratings, staff layoffs, financial setbacks, executive turnover, etc.). The end of meaningful use funding will naturally force some of that bubble to burst and put some rationalization back into purchasing decisions. Healthcare as a whole has been asked to collectively reduce the cost of delivering care, and there needs to be a renewed commitment from EHR vendors to assist with that goal.

Beyond that, this is a very exciting time to be part of the healthcare industry. Healthcare generally speaking is a driving economic force ripe for innovation and change. It is a very vibrant and attractive industry to be a part of. From its job market opportunities to new technology and care delivery innovation, healthcare has become an attractive career for many to consider. We are seeing a convergence of individuals who bring diverse experience and skill sets from other industry sectors. That is energizing to witness as we shift nationally to a new healthcare paradigm."

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