A Short History of Healthcare
Jan 27, 2017
The history of healthcare is the history of one powerful trend: the displacement of the patient as the primary customer.
The healthcare system feeds the interests of many—medical healthcare providers, insurance companies, governments, employers, pharmaceutical and biotech companies, innovators and inventors, politicians, lawyers, and consultants—everyone except the patient! Even though patients still benefit from the system, and even though many medical professionals fight to counter it, the system isn’t designed to put the patient first.
This isn’t about blame, but about understanding how we got here. Everyone contributed, particularly after the introduction of both public and private health insurance: patients lost sight of the cost and everyone else lost sight of the patient. It unleashed a vicious cycle: since patients no longer had to pay directly for their own healthcare, providers offered as much as they could, patients wanted it, third party payers (the decisions makers) balked, and the government stepped in. With the patient no longer paying directly, the rest of the sector focused on those who did.
So how did we lose sight of the customer?
From One Huge Shift to Another
Over the last 150 years, the US economy has weathered two seismic macro-economic shifts. It moved first from a commodity-based economy to a mass-manufacturing economy, and then from a mass-manufacturing economy to an information-technology economy.
Even up to the Civil War, America was a commodity-based economy (mostly agrarian), and most of those who fought on both sides of the Civil War listed their professions as farmers.
All that changed with the Industrial Revolution in the nineteenth century, gathering momentum in the early part of the twentieth century, until it evolved into a fully-fledged mass-manufacturing economy by the 1920s. Within a few years of the end of the First World War, the commodity-based economy was a thing of the past. The Second World War gave mass-manufacturing additional impetus, and the next decades saw it become a global phenomenon—at least in the industrialized West, driven by the abundance of relatively cheap energy.
The next major shift came in the early 1980s, with the advent of cheap microchips, and we moved rapidly and decisively into an economy driven by information technology. As information technology evolved, it transformed everything—from manufacturing to healthcare, and with it, the kind of social and economic transformations we have witnessed over the past forty years.
From Healing Patients to Eliminating Disease
How did these macro-economic shifts affect the medical profession? When America was largely an agrarian society, healthcare was highly fragmented. Doctors were given training, but they were pretty much left to their own devices. They were patient-focused, largely altruistic, and without other distractions. The relationship between the doctor and the patient was straightforward, with plenty of discussion on both costs and cures.
This simple relationship unraveled with the shift to a mass-manufacturing economy. The sheer energy of the economy unleashed resources to treat disease on a massive scale, and the emphasis shifted to research, driven by the rise of large pharmaceutical companies, who focused on the eradication of disease, fueled by government funding that accelerated after World War II. The inevitable effect was to create a business sector in its own right, driven, like every other sector, by profit and loss. The scope of research and the costs associated with it required a much more sophisticated financial infrastructure to support the increasing number of services, medications, and technologies it offered. And as the healthcare sector grew, so also the medical insurance sector blossomed. Healthcare was now a serious business.
From Two to Three
Regulation became inevitable. As costs grew, Western governments stepped in to provide a social safety net, and the door was now open to the separation of delivery and payment. Instead of two at the table, there were three: the patient, the provider, and now the payer.
This separation of delivery and payment got a massive boost in the 1960s with the introduction of Medicare. Insurers now became a potent force in healthcare, and their presence severed any existing financial relationship between the provider and the patient.
With the insertion of third-party payers, the discussion on the cost of treatment between the physician and the patient disappeared. The controls went off the system. Doctors were still, of course, meeting the needs of patients, but as a profession, the focus shifted to medical advances, and not to the most efficient ways of delivering healthcare.
The Escalation Cycle
The net effect was an escalation cycle. The separation of payment and delivery gave providers a newfound freedom to offer services regardless of cost, since cost was no longer part of the discussion with the patient. These services were also an additional source of revenue for both manufacturers and providers, and the providers increased the number of services they offered, advertising directly to the patient. For their part, the patients wanted these services, and when the payer didn’t cover them, they pressured them to do so, which in turn escalated the costs.
Aggravating all of this was the federal government’s approach to controlling “costs” by setting prices. As the government reduced or slowed the rate of growth for the amount it would pay for each service and procedure, the delivery system compensated by increasing the number of services and procedures provided to patients.
In the process, healthcare became totally politicized (perhaps inevitably, given the universal interest in healthcare), and at the same time healthcare coverage came to be seen as a right (perhaps justifiably).
The history of healthcare, then, is a history of escalation. The system has given an entirely rational response to the incentives it created, where every healthcare sector is driven to maximize its own interests. The result is huge waste in healthcare delivery, where the interests of the patient have been lost.
But the good news is that we can break the trend of history. We can break the cycle of escalation. We can restore the patient as the primary customer. What will it take? Leaders in all areas of healthcare exercising the right kind of leadership … and with that kind of leadership, we can change the course of healthcare history.