Healthcare disrupters need more freedom to change a ‘dysfunctional’ system, private sector says

Telehealth consultation
Digital tools like telehealth are changing the healthcare industry. But many startups are running up against stringent regulations. (Getty/AndreyPopov)

To hear private sector healthcare executives describe the U.S. healthcare system, one might think the industry was on the verge of collapse.

Industry executives railed on the current constraints of the nation’s healthcare system during an event hosted by the American Enterprise Institute (AEI). Oscar Health CEO Mario Schlosser called healthcare pricing system “insane” and described his personal experience dealing with his insurance carrier prior to founding Oscar as “useless.”

Likewise, Clint Flanagan, CEO of Nextera Health, called the industry a “dysfunctional and crazy ecosystem” too burdensome for patients to effectively navigate on their own. AEI Resident Fellow James Capretta similarly described the current healthcare landscape as “maddening,” adding that the industry has suffered for decades from “a basic level of dysfunction.”

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Even Bob Kocher, M.D., a partner at Venrock who provided a brief dose of optimism over the progress made in the last eight years to slow the cost curve and the burgeoning industry of startups taking aim at the complex system, allowed that even the smallest changes are strenuous. He pointed to recently proposed changes from the Centers for Medicare & Medicaid Services (CMS) to consolidate evaluation and management coding that has received pushback from physicians who are accustomed to the complex billing process.

RELATED: Good or bad idea? Some worry that E/M coding update could underpay doctors with sickest patients

“The docs didn’t go, 'Hallelujah' because they had been saying they hated coding and charting and computer time—they said, ‘No, no, no. Keep it how it is because we’ve gamed it so much that we’re making more money by upcoding,’” he said.

What the private sector needs is more wiggle room to disrupt, the panelists said. Several, including Schlosser and Flanagan, advocated for allowing employers to hand over the money they would spend on providing healthcare to their employees to seek out their own insurance.

That approach would build the necessary competitive pressure to elicit change, Schlosser said. It also happens to be the advice he keeps passing along to Amazon.

“The first thing they should do is they should go to CMS and say, ‘Guys, give me the chance to do this—[to] open up my employees to take HSA money or whatever else and invest in individual plans and let them buy that and let's see who likes what,’” Schlosser said. “And over a period of three years you see who buys which plan, how they stick with it and what the retention rates are, what the promoter scores are, and let’s see where we land.”

RELATED: It's not just Amazon: Employers are turning 'activist' when it comes to healthcare

A similar restructuring is necessary in primary care, argued Flanagan whose company offers direct primary care on a Netflix-style payment model. Consumers, or their employers, pay $60-$70 per month flat fee for 24/7 access to a physician that relies on a mix of virtual interactions and in-person care.

That model, which shirks the traditional fee-for-service approach, is easier for both doctors and patients to manage by shifting care to telemedicine that can offload the strain of seeing 35 patients a day to maintain profits in a fee-for-services environment. Between messaging and telehealth, Flanagan estimates that 50%-70% of primary care can be done virtually.

“We shouldn’t have urgent care in this country,” he said. “The reason we have urgent care is because it’s hard to get in to see your doctor.”

But companies like Oscar and Nextera are often stymied by even the most mundane regulatory restrictions. IRS rules, for example, prevent patients from using health savings accounts to purchase a direct primary care membership. Likewise, insurers are limited to what Schlosser called a “blunt tool of deductibles,” and telehealth companies are still struggling with reimbursement challenges.

The other restriction that stymies transformation: a lack of information-sharing incentives.

“Most players in the healthcare system don’t have an incentive to value more clinical information to be disseminated quickly between each other to be able to react to it and be able to do something with it,” Schlosser said. “It goes back to the fact that the existing system we have isn’t particularly competitive from a cost and quality perspective.”  

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