Reducing Healthcare Cost with Technology
The cost of healthcare worldwide is constantly rising. The United Nations World Health Organisations (WHO) calculates an increase in the cost of healthcare by 4.6 percent every year. This means by 2020, the world will spend 10 trillion dollars on healthcare annually. That is more than half of the GDP of the US. In many industrialised countries, patients, politicians, as well as practitioners agree that this trend should be stopped. New technological developments have the potential to solve the problem as Robinson and Smith describe in their paper.[1] But how?
There many different approaches how technology can potentially lower the cost of healthcare. Lowering demand for healthcare services, more efficient products and services, a more efficient use of capacities of suppliers or even a disruptive change in the reward system are seen as possible and beneficial outcomes of the ongoing technological development in healthcare.
Reducing Demand
Fries et al. describes how new technologies could reduce the demand for health care.[2] The approach is that the industry should focus more on prevention, thus so people would get less sick and the demand for expensive treatment will drop. Today we see a lot of efforts by startups to create wearables and apps to keep you healthy. The app Hearandnow for example is tracking your stress level based on your heartbeat. Whenever the app recognises a noxious stress situation it tries to relieve the tension in guiding the user through some breathing exercises.[3] The long term goal is to keep people healthy like that. Applications like that represent a growing market. Though they haven’t left any significant marks on healthcare cost yet.
Cheaper Products
A cost reduction could be also be achieved by developing cheaper products. In the pharmaceutical field that is happening to a certain extent with generic drugs and biosimilars. Yet, those are only applicable by drugs where the patent has phased out. Developing new drugs is still a costly venture. But the process could be reduced by using AI in the research phase. [4] Thereby reducing the production cost of drugs should reduce healthcare costs.
Disrupt the Compensation Mode
New technologies are expected to have a qualitative impact on healthcare. Diagnoses are expected to become more accurate (due to the help of AI for doctors), treatment methods get better and better and the drugs prescribed will be tailored to individuals. As the quality rises, the model of how healthcare is provided, received and compensated stays flawed as Robinson and Smith describes it: “Most payment methods today tilt heavily toward incentives to do more.” Healthcare providers operate in a pay-for-service model. There is an incentive to provide more services than necessary. As treatments are getting better by applying new technologies, these incentives could be removed by changing to a pay-by-success model. In certain niche areas such approaches are being adopted.
As shown there are various examples of how technology could potentially reduce healthcare cost. All in all, these are assumptions that have to be tested and be proven right. Insofar, Until then, healthcare experts still expect the global cost of the industry to rise over the next few years.
References:
[1] James C. Robinson and Mark D Smith. (2008). Cost-Reducing Innovation In Health Care. Health Affairs 27, no. 5: 1353-1356
[2] James F Ries, C Everett Koop, Carson E Beadle, Paul P. Cooper et al. (1993). The New England Journal of Medicine. Vol 329. No. 5. p 321-325.
[3] Hearandnow. (2017). Retrieved from http://hearandnow.ai
[4]Daniela Hernandez. (2017). How AI is Transforming Drug Creation. The Wall Street Journal. Retrieved from https://www.wsj.com/articles/how-ai-is-transforming-drug-creation-1498442760
13 comments on “Reducing Healthcare Cost with Technology”
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Hi, Sam!
Thanks for an interesting read. I’ve been researching about healthcare technology for the past few weeks and its interesting to see how innovators are trying to use AI and machine learning to completely change the way the healthcare system works today. For example, companies are coming up with ways to cut costs and the amount of time wasted on administrative tasks. There are apps to book your appointments, apps that use machine learning to allow users to input their symptoms and then provide an accurate diagnosis in return, apps that provide diagnosis and then refer users to the right kind of doctor they need to approach to solve their health problem – in this way, patients no longer have to waste money or time by first approaching a general physician who will then guide them to a specialized doctor. There are apps whose sole purpose is to produce accurate prescriptions based on the diagnosis generated after the user inputs his or her symptoms. Additionally, there are apps that facilitate health management by tracking a person’s activities after a surgery or treatment – for example, ensuring if the user has taken his or her medicines that day, whether or not they have met their exercise and diet requirements for the day, etc. AI and machine learning is also being used to come up with software to manage healthcare data by providing a single platform on which doctors and patients, both, have full access to a patient’s complete medical history to reduce time wasted on conversations at the start of a meeting. There’s so many ideas and innovations out there to transform the healthcare industry for the better, and its inspiring to see so many entrepreneurs out there who are trying to tackle such a tough problem that has been plagued by too much regulation and data control!
Sam thank you for the quality post. I used to work for a dental clinic, verifying insurance and communicating dentist’s orders to the patients. It was remarkable how people would continue with their detrimental habits (drinking coke, smoking, brushing irregularly) after multiple visits where dentists admonished against these habits. But the people every time felt such little need to change, they couldn’t help themselves. In this case, no technology would curb these patient’s visits but instead, it was their personal lives and diet that needed to be changed. My question is to what extent can technology help diminish the costs of healthcare? It seems like the root to me is the diet and personal life choices of people; changes in these nuances can spur the major reductions in hospital visits and preventable illnesses. Although dentistry may not be the targeted healthcare industry technology is being engineered to improve, it still is costing Americans more and more every year.
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Thank you Foster for the interesting insight from the dental industry. What you’re describing in your comment, is in my opinion the chasm that preventative technologies need to overcome. For example: We’ve seen a big boom of wearables and smart watches over the past few years. Most of them were bought as a fitness trackers that motivate the buyers to be more active (preventative measure). The users are apparently already health conscious. Now, the market seems kind of saturated. Which means the wearable producers needs to find a way to reach a broader customer base. New customers that get inspired by those fitness trackers and participate in preventative actions. That could improve their well-being and potentially reduce healthcare cost. But how to get these customers? That’s the big question. The same big question as you came across in the dental industry; how to make people act more responsible in regard to their own health.
Thanks for the informative post, Samuel. I strongly agree with your third point regarding the current incentive structure in the United States’ health care markets. Unlike most other first-world countries, where there is no profit-incentive behind health care (as they’re generally single-payer universal health care systems administered by the federal government), the United States has a health care system where insurance companies are driven by profits and a desire to enhance shareholder value. Unfortunately, this system does not always encourage a cost-efficient solution to each health care problem. By having an AI system that spits out several different diagnoses for a certain combination of symptoms, doctors may be more inclined to order an extensive battery of tests to definitely rule out or confirm each diagnoses. However, I can see AI being successfully implemented in nations with single-payer health care systems (where the profit-motive is nonexistent) to help reduce loads on doctors and provide more targeted treatments.
Thank you Samuel for this great blog post.
An AI that can detect potential diseases before the symptoms arise would be so valuable. I am fascinated by preventive health care and wish more people engaged in it. Supposedly 38% of US deaths are based on 4 factors: tobacco, bad diet, low activity level, and heavy drinking. There are studies that have shown that drastic lifestyle changes can reduce new diabetes by 50+ %. Early cancers and chronic diseases detection can reduce the mortality by up to 20%. If all of the above are done, the initially stated mortality (38%) can go down by 70%. [1] Think about the cost savings!
Further, I recently watched a interview of Warren Buffett and he too mentioned that rising health care cost is one of the biggest trends we need to reverse. [2] I agree with you that technology could be the fastest solution.
[1] https://www.ncbi.nlm.nih.gov/books/NBK53914/
[2]
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Thank you very much for your feedback Boryana. Those are some impressive numbers (thanks for the article). I agree with you that new technologies in the field of prevention and early detection have the biggest potential to actually reduce healthcare costs. As other comments to this blogpost mention, it is a big challenge to design preventative measures in a way that people actually take advantage of it/ change their habits. I think that is the major challenge new technologies in this specific field face.
Thanks for a great read Sam! Aside from the economic side of things, public health is a social issue. Are you aware of tech initiatives governments are implementing to help reduce the demand for healthcare? I too think preventative measures are the way to go.
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Dear Sid, thanks for your comment. So far I haven’t come across a government initiative that looks specifically at tech to reduce healthcare demand. There are a lot of preventative measures in different countries that try to tackle things like smoking, drinking, obesity, etc. Tech in the form of apps and webpages are included in those preventative measures. But there they are used as a channel of communication, rather than a key technology to tackle healthcare costs.
Thanks for a great post, Sam, my friend!
I strongly agree with you that preventative healthcare should be invented rather than daily “keep in good shape” kind of products. Many major pharmaceutical companies are not focusing on those areas, because pharmaceuticals are enormously lucrative. The invention of preventative healthcare would be an ethically right decision, however, an economically wrong decision. Hence, there would be less active M&A with preventative healthcare from global healthcare companies. However, we may see active M&A from IT conglomerates, entering and disrupting healthcare sectors. It would be interesting to see how those players make decisions in the future.
There is a start up working on real time analyzing of patient doctor consultation sessions. The doctor uses google glasses during consultation. The glasses record the session and stream the video to a control center where AI is used to analyze the session and make important notes and insights about the patient. This information is recorded in the patients health records. With more data, the system learns more about the patient and can predict the patients health and advise accordingly. The doctor can also learn to improve his consultation sessions from the system. Poor diagnosis can be easily detected. This system is very efficient especially in busy public hospitals. Such systems will improve the quality of health care in the near future.
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Dear Patricia, thank you for your feedback and the additional information about this technology. I haven’t heard of it. As in other technologies I could imagine there are two problems with implementing such a system. Doctors could be reluctant because their work becomes entirely transparent. They are basically constantly observed by a machine. And the second problem is, how to handle the data that the smart glasses record. That is a lot of private data about the patient (and the doctor), which needs to be handled with great care.
Thank you for the great article Samuel!
I think it’s interesting that you mention that wellness apps as a preventative measure not having left much impact on healthcare costs. While these apps do seem to be effective, I guess they simply aren’t popular enough yet. I think the compensation model could be related to this. If wellness apps, or any other healthcare innovation, want to succeed in healthcare, chances are they will need insurance companies to pay for them. Yet insurance companies seem a bit resistant to these new technologies, and unwilling to pay when existing treatment options work “just fine.” If, however, there was a switch to a pay-by-success model, as you mentioned, these healthtech innovations could be adopted more rapidly because of cost-effectiveness.
Nice catch definitely,
I also believe in the huge potential of technology in health industry. I just wanted to say another aspect apart from all the advantages you’ve mentioned. It’s true that the costs are rising and with the rising costs it’s also becoming harder for some group of people to get help. So even though everyone cannot access the health service they need, some people having access now maybe won’t be able to have the same access just because of the costs. To conclude, I believe that all the advantages you clarified are even going to be more important and more useful in the long term.