What Will Healthcare Look Like after the Affordable Care Act?

In 2012, the United States spent $2.87 trillion on healthcare. If the American healthcare system was a country, Ezekiel Emanuel says, it would be the fifth largest economy in the world. “We spend more on healthcare for 307 million people than the French do for everything for 66 million Frenchmen.”

Emanuel, who advised President Obama during the creation of the Affordable Care Act (ACA) and is now a health policy advisor in the federal Office of Management and Budget, spoke at Yale SOM on November 1 as part of the Colloquium in Healthcare Leadership. An oncologist, Emanuel is also the vice provost for global initiatives and chair of the Department of Medical Ethics and Health Policy at the University of Pennsylvania.

U.S. healthcare spending has spiraled out of control, Emanuel said, and the ACA has the potential to rein it in. In 2006, U.S. healthcare spending was $700 billion higher than what would be expected from the size of the U.S. economy, based on the level of spending in other nations. “The U.S. is just not on planet Earth,” Emanuel said. “We’re not getting down to planet Earth even with the Affordable Care Act—even with a lot of cost control, we are not going to be on planet Earth. The issue isn’t getting rid of the $700 billion, just preventing that gap from getting larger over time.”

Despite the rocky launch of its centerpiece insurance exchanges, the ACA will “transform how we deliver healthcare to individuals,” Emanuel said. He predicted that by 2020, U.S. healthcare will be more efficient and less expensive. Despite the controversies surrounding the ACA, those in the industry agree. In a recent survey of 73 executives at large hospitals, he pointed out, 72% said that they believe that healthcare costs will be at least somewhat better by 2020.

Healthcare costs can be controlled by a better-structured system that focuses on the patients who account for most of the spending, Emanuel said. In 2009, half of the American population used only 3% of healthcare spending, while 10% of the population accounted for 63%. The system needs to focus on the second group—those with chronic, but treatable conditions—to prevent their care from becoming more costly, he said.

The ACA encourages the creation of better-coordinated care, especially for patients with chronic conditions, Emanuel said, which should result in a reduction in unnecessary services, including costly emergency room visits and hospital stays. In 2011, hospital costs accounted for one third of healthcare spending, and physician services accounted for another 21%.

The key to delivering care less expensively is keeping patients out of hospitals, unless they really need to be there. “Across the country, there are pockets and experiments that tell us we can do it,” Emanuel said—regional organizations that are already cutting costs by delivering care in new ways.

On example is CareMore, which operates 30 “care centers” in the Southwest that serve more than 70,000 Medicare Advantage patients. Overall member care costs for the company are 18% lower than the industry average, Emanuel said. CareMore is structured into care teams composed of physicians, nurse practitioners, care coordinators, and health aides. Specialized clinics treat common, chronic conditions such as diabetic wound care, and intervention teams focus on severe psychosocial issues. This structure has allowed the group to expand access to care for patients and to proactively screen for high-cost conditions such as depression and dementia, and for physiological risk factors including weight, glucose, and pulmonary function. This coordinated approach also facilitates patient tracking and records. In 2011, CareMore hospitalization rates were 24% below the U.S. average, and hospital stays were 38% shorter, Emanuel said.

Patient treatment at home is another cost-saving measure that will likely grow under the ACA, Emanuel said. In 1930, approximately 40% of patient care happened at home, but by 1980 that figure had dropped to 1%. House calls will make a comeback, Emanuel predicted, because they can save money. Some large companies, including Microsoft and Costco, have contracted with Carena, a private care company that provides urgent care to their employees at home instead of the emergency room. Carena typically dispatches a physician or nurse to an employee’s home, at a cost of about $400–$500 per visit, Emanuel said. For minor illnesses, an $85 “virtual” visit with a webcam is enough.

Because of its focus on lowering costs and improving outcomes, the ACA will encourage the type of medical innovation that leads to less expensive treatment, Emanuel said. Devices and treatments that don’t provide this sort of tangible value won’t survive in a market that seeks to keep costs low, no matter how slick their marketing approach. Among competing drugs and medical devices, the less expensive brands will dominate, Emanuel said. And costs will also drop as insurers adapt to the ACA exchanges, where consumers will shop primarily on price, Emanuel said. Competition will force insurance premiums lower, and insurance companies will become more selective in their provider networks, Emanuel said. “You better get your cost down, your quality up, or you’re not going to be in the network,” he said.