The US healthcare system has long been lauded for its innovation and high caliber of talent. But alongside these accomplishments are some major downfalls. Healthcare in the United States is expensive—for individuals and companies—and it’s only getting pricier. The healthcare system has relied on the same organizational structures and processes for treating patients for more than 100 years, even though the world has changed exponentially around it. And although innovative care models and technologies exist, they are being adopted at too slow a pace to improve affordability and make a real difference for patients.
In this episode of McKinsey on Healthcare, McKinsey Partner Anne Koffel speaks to Paul Kusserow, chairman and former CEO of Amedisys, executive chairman of Unified Women’s Healthcare, and cofounder and chairman of Healthpilot Technologies. Kusserow recently coauthored The Coming Healthcare Revolution: 10 Forces That Will Cure America’s Health Crisis, a book that describes the journey of the US healthcare system over the past 100 years and the conditions that are shaping it today.
In their conversation, Kusserow describes the macro and market forces that have brought the US healthcare system to an inflection point, including the changing nature of disease in America, increased consumerism, and the growing emphasis on patient-centered care. He advocates for expanding the role of community-based care and training nonclinical caregivers, and he discusses the potential of AI to alleviate financial and administrative burdens in the industry.
A lightly edited version of their conversation follows.
Healthcare at its tipping point
Anne Koffel: What inspired you and your coauthor, David W. Johnson, to write this book?
Paul Kusserow: I previously wrote a book called The Anatomy of a Turnaround: Transforming an Organization by Prioritizing People, Performance, and Purpose, which was about turning around Amedisys, the company I ran for ten years. Dave was my editor then; he’s a healthcare economist. We were looking at some of the ideas that were coming out of writing that book, and we started to talk about where we were in the journey of healthcare in the United States. We spent about six months doing extensive research, and the book started to form quite naturally. The thesis is that healthcare is going to change more in the next ten years than it has in the past 100.
Anne Koffel: You say the healthcare revolution has stemmed from the industry’s complacency in an ever-changing world. What are some examples of this? Why do you think now is the tipping point?
Paul Kusserow: During our research, we went back more than 100 years to see how we got to where we are now—as we know, those who don’t learn from history are doomed to repeat it. We looked at something called the Flexner Report, which came out in 1910 and was basically the start of modern healthcare in the United States. It was written by Abraham Flexner, who was doing a project for the Carnegie Foundation that involved looking at medical schools and hospitals in the United States. What he saw appalled him, and he came out with this report about how to reform the US healthcare system. It suggested building hospitals around academic centers and training physicians in the appropriate way so they could drive great care that’s research-based.
There was a huge transformation of the US healthcare system in the 1920s. Of the 150 hospitals and medical schools that were open, 100 of them closed. What was left turned out to be the best healthcare system in the world. But while we were superior through the 1960s with this methodology, we had already outgrown it in 1970. Now, more than 50 years later, we haven’t progressed much. It’s as if we are still driving Model Ts while the rest of the world is driving modern cars. There are forces at work now that we believe will upend this model once and for all.
The macro forces shaping the next era of healthcare
Anne Koffel: You structure your book around macro forces, such as demographics and technology imperatives, and market forces, including care redesign. Do you see market and macro forces being additive or in tension?
Paul Kusserow: The macro forces, I think, are going to be the forces that cause change. Change is constant in the business world, and certainly in the healthcare world, yet our system has resisted major transformation for about 100 years, and the forces driving the change are irrefutable at this point. Combined, these forces will cause exponential change. In terms of demographics, for the first time, the old will outnumber the young by 2030. The fastest-growing demographic in the country is people aged 85 or older. The second fastest is 75 to 85 years old. The third fastest is 65 to 75. The world is becoming much older, and that has increased the focus on healthcare.
Another important change is that we are sick in a different way now. Instead of acute illnesses—which is what we experienced when Medicare and Medicaid started—90 percent of all illnesses now are chronic. These are illnesses that people live with for 20 to 25 years, and they often start when someone is in their 60s. The worst thing you can do from an economic perspective is take care of chronic disease in acute situations or in institutions.
What’s more, Americans are now spending more on healthcare and scrutinizing the value of the care they’re receiving. We’re able to measure how much money the average American household is contributing toward healthcare, and it’s now up to 32 percent, which affects the ability for people to have discretionary spending that they can use throughout the rest of the economy. Now consumers are saying, “Am I really getting value there, and do I really know what I’m buying?” When they look at the answer, it’s not a great answer. Clarity, transparency, and the fact that consumers are paying more out of pocket for these services will result in some real conscious consumerism. And who are the best consumers but people in the United States?
Anne Koffel: You mention funding fatigue as a significant macro force. Can you explain what you mean by that and its effect on the sustainability of our healthcare system?
Paul Kusserow: I look at this from an employer’s perspective: I ran Amedisys for ten years. We had 22,000 employees, and we were self-insured, and every year we saw increases in how much we were spending. This really started to affect how much we were able to pay our employees, particularly in an inflationary environment. So we were looking for alternatives to try to give money back to people.
The tipping point is where we’re at right now. About a third of people’s incomes are going toward healthcare. The average American household makes about $86,000. About $12,000 of that is being pushed out due to healthcare inflation, and it could be spent elsewhere. Americans are getting fed up with this, and that fatigue among self-insured employers and consumers is starting to reach a strong tipping point.
Anne Koffel: Another macro force you mentioned is the technological imperative. How do you see advancing tech demanding change from the healthcare industry?
Paul Kusserow: In the book, we considered how efficient we are as a healthcare industry. The data since 1970 shows that the growth in the number of clinicians is about 200 percent and the growth of administrators is 3,800 percent. So where has the money gone when we look at that growth? Some McKinsey work that we quoted in the book says a healthy company has about 0.8 people to support each healthcare provider, and in healthcare, it’s ten to one. Right now, administrative costs are driving inflation. We saw that there were more than five million people just doing healthcare administration.
So what can AI do? AI connects dots—it can find information and piece it together and build good storylines. US healthcare is such a fractured business. AI can help put together narratives in processes, such as prior authorization to make sure payments work according to the rules. We estimate that the revenue cycle management business alone could save about $1 trillion in work it’s already doing. I think that’s where a lot of AI initiatives are going to start.
We’ve also been using AI clinically in home health. There is a home-health business we’ve used and invested in called Metalogix that enables us to drive best-outcome utilization for each individual. It has produced more-efficient care at higher quality, and we’re able to save a quarter to a third of what we would normally spend on clinical expenses.
The market forces spurring care model innovation
Anne Koffel: Many of the market forces you say can change healthcare are focused on whole-person care, or patient-centered care. What are the benefits of this approach? What innovations in care model design give you the most hope for the future?
Paul Kusserow: Some research says about 20 percent of the care needed to optimize outcomes is clinical. In the United States, clinical care is all we really focus on. But when you’re chronically ill and you’re living with a disease for 20 or 25 years, it’s a long game. You obviously have to have that clinical diagnosis, but to handle 20 years of chronic illness, behavioral health is very important. Activities of daily living—making sure you’re bathing, taking your medicines, exercising, and getting the right amount of sleep—are also very important. And then there are the social determinants of health, which are about dealing with things that are environmental, that deal with access, and that deal with things like loneliness. When you add these together, that’s how we can address chronic illness. And we have to do this on an individualized basis, which is where technology can help. For example, at Amedisys, we had customized care plans that take all these conditions into consideration to build whole-health models.
Anne Koffel: The last market force is about empowering caregivers. How do you see the role of caregivers evolving? And what do caregivers need in terms of support from the health system to be effective?
Paul Kusserow: I think caregivers are essential. As the older portion of our population grows, we’re starting to see a real scarcity of caregivers. We will never have enough doctors. We will never have enough nurses. We will never have enough licensed clinicians. So what do we have to do? We have to take people who are not clinicians and make them caregivers. As I said, clinical care accounts for 20 percent of all care, and other people who are unlicensed can do some of this care. I’m the chairman of Careforth, a company that helps unskilled caregivers become caregivers in the home to help a person who may be quite ill and on Medicaid. We’ve seen phenomenal results. Caregiving and unskilled caregiving, particularly in the home, are growing at an enormous pace.
The other piece is the productivity of caregivers: making sure that licensed clinicians do the right thing at the right time and don’t have to get involved in some of the things that other people can do for them. You can drive productivity and extend that expertise much better through technology, electronic health records, and individualized, customized care plans. That’s where I think AI can be very helpful, too—in not only diagnosing what needs to be done and in what areas but also parsing that information out and putting together schedules so people can get the care they need.
The move toward having it all
Anne Koffel: You’ve described some transformative changes. The healthcare industry is a $5 trillion chunk of our economy that has been extremely slow to accept change. Can you help us feel more optimistic about healthcare’s ability to change and evolve?
Paul Kusserow: Compared to the rest of the OECD, healthcare in the United States is two to three times more expensive with much worse outcomes. We studied other countries. Portugal, at about a fifth of the cost, produces much better outcomes because it has community-based care. It uses primary care, which is another area we need to bolster: primary care physicians and nurses who can direct healthcare within the community. As we migrate out to the community, I think we’ll start to see much better results, and I think that’s what people want. They want to be able to see those caregivers outside of an institutional setting.
Anne Koffel: You ended the book with a chapter called “Guns and Butter.” Can you explain this analogy and whether you believe it’s possible to achieve a state in healthcare with both guns and butter? How do you think the system will look in five to ten years?
Paul Kusserow: “Guns and butter” is taken from a speech by Lyndon B. Johnson, who was basically saying that you can have it all. I translate it as, “You can have your cake and eat it too.” I think we can. We have such strong healthcare within institutions, but we need to shrink those institutions. We have good technology that can migrate care out into the community. I think we’re going to catch up to most of the rest of the world and even leapfrog other countries. I’m very optimistic about it.
A lot of the companies that we profile in the book are going to have the same types of characteristics. They’re going to do value-based care, so they’re going to take responsibility for the care and outcomes they deliver. They’re going to be community-based. They’re going to be holistic. They’re going to be individualized and customized. I think they’re going to be democratized, so there will be much better access. For the book, we looked at the city of Chicago and saw that the lifespan of people on the North Side of Chicago was 90 years, while the lifespan on the South Side of Chicago—a more challenged community—was 60 years. In one city, the average life variance is 30 years. We have to improve accessibility in the community, driving primary care and addressing some of the issues with chronic illness that are out there.
Much of this incredible inflation in healthcare is driven by obesity. There are correlations between obesity and diabetes, heart disease, certain types of cancer, and even Alzheimer’s. As consumers learn more about what’s driving costs and as they participate more in their own healthcare and pay for more, I think savvy consumerism will start to kick in. I’m excited about where we’re going and for some of the innovations that are occurring in the United States.
McKinsey & Company "Our firm is designed to operate as one—a single global partnership united by a strong set of values. We are equally committed to both sides of our mission: attracting and developing a talented and diverse group of colleagues and helping our clients create meaningful and lasting change. From the C-suite to the front line, we partner with clients to help them innovate more sustainably, achieve lasting gains in performance, and build workforces that will thrive for this generation and the next."Please visit the firm link to site