We are exploring the divide in healthcare between those who only live in a value-based care (VBC) world and those whose thinking about VBC is limited to whether the hyphen is required. We are really trying to understand why that might be the case, other than the SOB doctors clinging to their fee-for-service (FFS) filthy lucre.
It is worth noting that many equity investors are backing various VBC plays. VBC is their calling? VBC is a ‘right’ and it is their mission to bring it to everyone? Can we dispense with that canard and try to have a real conversation about what is happening and why?
Last week, we channeled our inner Vilfredo Pareto, the Italian economist who in 1895 noted that wealth was not evenly distributed and gave us the 80/20 rule that more formally carries his name, and noted what we (two uses of the royal ‘we’ already…just in case this blog gets sued, I want to spread the risk to myself as well) believe is, maybe, the single most important healthcare economics bumper sticker:
5% of the population accounts for 50% of the total cost.
Vilfredo, we are right on track…the top 20% of individuals account for 82% of all expenditures.
Let’s spend a quick minute on this, the hard to solve, end of our skewed distribution curve.
Some of these are one-off cases that just ‘actuarially are’ – the $2M neonate, my buddy who was nearly killed in a head-on crash by a driver high on meth (Happy ending – next month, to demonstrate that he really can walk again, he will escort his daughter down the aisle and give her away). These are the miracles of healthcare, but life does not come cheap.
Most of the people on the expensive end of the tail are old or sick or both.
Not a little old, like ‘old enough to look at the brochure for the seniors-only community without shame, but the frail elderly. A newly minted Medicare beneficiary doesn’t suddenly start costing a boatload more.
And not a little sick, but multiple chronic diseases and many comorbidities sick. Really sick.
Yes, the first tends to lead to the second, which is why the last year of life is frequently so much more expensive than those that precede it.
Here is one specific example of just how skewed the skewness is…and a little more math for our English majors.
There are about half a million Medicare beneficiaries with end-stage renal disease (ESRD). Out of its $800 billion budget, Medicare spends almost $50 billion a year on ESRD. That is over 6% of all Medicare spending. And for those who like to quote stats at cocktail parties…that means that ERSD spending by CMS accounts for a little more than 1% of the entire federal budget. One condition, 1%.
So yes, we need a different model for the people who are going to incur such disproportionate costs. Thus, the birth of VBC.
More next time.