By Patrick Getzen, FSA, MAAA; Dave Nelson; Karen Johnston, MD
Healthcare costs are a mystery to most people and organizations. Even large insurers and governmental entities, paying billions of dollars in claims every year, struggle to understand current cost drivers and the impact of new methods to control costs. In the ever-evolving landscape of healthcare, the integration of advanced technologies, such as artificial intelligence (AI) and machine learning (ML), holds significant potential to enhance value creation.
This paper discusses how these technologies, coupled with structured processes, can be employed to address specific healthcare challenges. The focus here is on the effective treatment of wounds and falls in the over-65 population-a critical area ripe for improvement. Future papers will explore the following additional opportunities:
- Expanded use of optimal care delivery by physicians
- Optimal member care at home
- Impact of habits on health and costs
- Influence of social determinants of health (SDOH) on health and costs
- Impact of behavioral health on physical health and costs
- New opportunities identified by AI
A key element in healthcare value optimization is understanding and addressing cost drivers. Current reporting systems already generate comprehensive information on factors such as demographics, service types, provider, site of care, and dates of service. But to stay cost-competitive and relevant, more is needed. We cannot just focus on traditional cost drivers; we need to analyze exceptions, provider practice patterns, and member-level behaviors to improve actionable insights, much like venture capital firms do to uncover future cost-saving opportunities.
The goal of improved identification and management of new cost drivers is not just to reduce costs but to ensure competitiveness in a landscape where payers must achieve significant annual cost reductions (at least 1% or 2% of total healthcare spend) to remain viable. This need for cost innovation is particularly true for government business, where budget deficits are likely to force low renewal increases for a long time.
Structured Process-Importance of Problem Identification in Healthcare Value Creation
The first step in a structured process revolves around the problem you are trying to solve. Good problem statements can come from two places. The first, and historical, way of creating problem statements comes from smart people using their experience and academic research to hypothesize approaches for improving quality, managing costs, increasing access, or otherwise improving health. A second, and more recent, way of creating problem statements comes from good data and analytic tools. Today, with new tools, one can drop an immense data set into a flexible analytic toolset and see what correlations are automatically created. One can then use this analytical capability to either create or refine problem statements. Often, companies will continue to refine their current set of problem statements to try and drive value. Best-in-class companies will do this too, but will also continue to create new areas to find value not previously evaluated before.
Structured Process-Data Collection Challenges and Opportunities in Modern Healthcare
It has become apparent in all industries, not just healthcare, that data is vital to solving the problems of cost today and tomorrow. Data is sometimes thought of as a company’s most valuable asset. And while healthcare companies are making strides, they are still behind industries such as financial services, retail, and others in utilizing this valuable resource. For healthcare companies, available data is abundant but is often not collected, unavailable to the researcher, incomplete, or unstructured. Gathering and using this data, derived from clinical, payer, social determinant, and third parties, and making it serviceable is crucial. Most companies will use a standard data set, populated into a data warehouse for their employees to use. The best companies use and link multiple data sets. They then provide a flexible way for their employees to comb this enriched data for insights, described in the next section.
Structured Process-Actionable Insights Through Advanced Analytics and Modeling
Insight stems from combining data, analytics, and modeling toward problem statements. While older models identified correlation (what), today’s models use newer technologies to help identify causality (why), bringing promise to more accurate insight and better resource allocation in healthcare. While there is a push to use the most advanced analytic tools to solve some of our most complex problems, we should not forget the value in producing and using solid reporting and dashboards. This is often the blocking and tackling of analytics work teams. There are many opportunities for improvement (i.e. new problem statements) identified with good reporting. Best-in-class companies understand the value of all levels of analytics and modeling, from basic reporting to the most sophisticated methods available.
Structure Process-Executing on Data and Analytics
Imagine you have set yourself up with the right data, in the right format, with the right accessibility for your employees. You have created various levels of reporting, dashboarding, and advanced analytic tools using that data. You have identified some interesting correlations and causal relationships which have helped create some interesting problem statements. It is now time to apply the last and oftentimes most important step: execution. Execution entails creating actions and programs to achieve the end state: value creation. Execution is where companies often fail. Knowing about cost drivers, quality care, performance, and member behaviors is one thing, but value is only achieved when companies implement effective homegrown or vendor-based programs to deliver that value. Many companies do not effectively utilize the data and analytics/insight they have due to the lack of execution on those pieces. While more value can be obtained by investing in better data and analytics, a good process is required to realize value, which is our end goal.
Structured Process-Integrating Problem Identification, Data, Insights, and Execution in Healthcare
It should be clear at this point that while each individual step in the value creation journey is important and necessary, the individual steps are not sufficient for value creation. All the steps, from problem identification to data and insights must be integrated to optimize value. The description of each of the components is purposefully high-level in this paper, but each individual step must be studied separately to fully understand and implement best practices. As your company goes through its own process of value creation, some questions to ask include:
- What data do we have and use today? What is available that we are not using? Could we benefit from adding to our existing datasets?
- Is the data easily accessible and user-friendly for our employees?
- What reporting and dashboards do we currently have? Are they being utilized effectively? Do we regularly receive feedback from users on the effectiveness of current reporting? (Note that one of the authors of this paper eliminated thousands of reports generated but not utilized. Exception reports are more valuable than unused dashboards.)
- Are we effectively using AI and machine learning?
- Do we have a structured process for value creation? Do we report on how effective we are?
Sample Problem Statement: Effective Treatment for Wounds and Falls
Do you know how much you are spending on wounds and falls? If not, you should!
Wounds and falls in the over-65 population are significant cost drivers:
- An analysis of Medicare claims reveals that chronic wounds impact approximately 16% of beneficiaries, with annual costs estimated at $22.5 billion in 2019.[1, 2] These figures are expected to increase with the aging of the U.S. population along with increases in obesity and diabetes.[3]
- Falls among older adults are a significant public health issue, costing the U.S. healthcare system over $50 billion annually (in 2015), with Medicare and Medicaid covering approximately 75% of these costs.[4]
- Optimal care can reduce these costs, yet payors typically do not track these costs, employ only partially effective programs to reduce wounds and falls, and often lack access to necessary data to measure intervention effectiveness.
Wound Care
The U.S. provides excellent wound prevention and care through high-tech interventions such as special mattresses and cushions to prevent pressure ulcers, and lower-tech interventions such as proper skin care, nutrition, and hydration to prevent skin breakdown. In addition, new opportunities are being addressed by startups,[5] including pressure-sensing compression therapy; wireless monitoring of patient wounds; and smart wound dressings that use optical technology to indicate signs of infection and pressure. Not all these startup solutions will succeed. But their existence suggests that wound care is an area where improvements can be made.
However, much of the opportunity to lower costs and improve wound care is for known, low-tech approaches, including:
- Training PCPs, their staff, home care providers and other caregivers to manage routine wounds.
- Closing gaps when patients do not receive necessary assistance.
- Dispensing generic drugs when appropriate (branded drugs, which comprise 20%+ of wound care expenses, are often dispensed instead of generics[6]).
Falls
Falls are a common and serious health threat to adults 65 and older. According to the Centers for Disease Control and Prevention, using self-reported data to monitor falls, more than 3 million people were treated for fall injuries in emergency departments in 2018. Every year, about 40,000 older adults die from a fall. More than 1 in 4 older adults fall, but identification of high-risk patients is challenging given that only half of falls are reported to the patient’s healthcare provider and many falls cause minimal disability.
Many vendors offer programs to promote exercise or home safety through interventions like non-slip mats, nightlights, bathroom grab bars, wearable devices that can alert emergency services, and flooring solutions that detect falls.
However, while payors commonly employ these vendors, many payors do not regularly track the number and cost of falls. And researchers who do track falls often need to deal with varying definitions of what constitutes a fall[7] and underreporting by seniors due to fear of being confined to a nursing home if they report a fall.
As with wounds, much of the opportunity to lower the human and financial cost of falls is for known approaches such as:
- Expanding programs that promote exercise.
- Encouraging providers to treat the potential for falls in their routine interactions with older patients, including assessing modifiable risk factors (e.g., use of psychoactive medications or poor gait and balance), and recommending interventions to reduce this risk (e.g., medication management, referral to physical therapy or recommending supplements where appropriate).
- Keeping the homes of seniors safe by evaluating for tripping hazards and need for grab bars, for example.
- Supporting caregivers who are often overwhelmed with the demands of care giving.
- Promoting the Stopping Elderly Accidents, Deaths & Injuries (STEADI)[8] program offered by the CDC.
Ideal Situation
In an ideal scenario, payors would track wounds and falls as rigorously as they track other key cost drivers such as demographics, service types, provider, site of care, and dates of service. This would involve enhanced reporting, regular reviews by medical and product leadership, improved data collection, and ongoing evaluation of cost-reduction initiatives.
The investment and process changes needed to reduce the cost of wounds and falls would be different for different providers and payors, depending on how mature their current processes are. Entities that are farther along the maturity scale would use their current data sourcing and reporting/analytics. They would likely focus on measuring current cost management programs, expanding those with good outcomes, while slowing down or cancelling ineffective programs. In addition, they would use advanced analytic tools like artificial intelligence and machine learning to identify new opportunities. On the other end of the spectrum, less analytically mature companies might need to use their resources to develop basic reports and dashboards as a start. As they mature, they could eventually find additional data sources and apply more advanced tools to that data. These companies would also likely need to initially rely on vendors that could be quickly evaluated for programs that create value for the company.
But, given the inattention that is currently being placed on the reporting of cost for wounds and falls, it is likely that some actions are needed by most payers. Examples include:
- Identify wounds and falls as areas for regular structured reporting just like demographics, service types, provider, site of care, and dates of service (problem identification).
- Implement common definitions for wounds and falls (data), which sounds easy but can be complicated since the primary ICD-10 condition may be a disease, but the contributing or precipitating cause of the treatment could be a wound or a fall.
- Promote the collection of clinical information on wounds and falls (data).
- Highlight the cost and change in cost of these items (insight).
- Leverage artificial intelligence and machine learning to refine cost driver analysis (insight/problem identification).
- Measure the effectiveness of interventions (insight/action).
- Compare cost and health impacts across different payers (insight).
- Encourage the adoption of new vendor solutions for falls and wounds (action/execution).
Conclusion
Here are a few key takeaways to help your company maximize value by optimizing current resources or enhancing processes:
- Structured Value Creation: A structured approach helps identify opportunities, set clear goals, and measure progress, ensuring efficient use of resources and alignment with your company’s strategy.
- Analytical Tools: Leading companies use tools ranging from basic reporting to advanced analytics that reveal both “what” is happening and “why,” enabling better decision-making.
- Assess Your Analytical Maturity: Determine your current analytical capabilities to identify the most effective next steps for growth.
The falls and wounds problem described here is a good example of how healthcare leaders can prioritize exploring new cost drivers to uncover future cost-saving opportunities. We think it would be beneficial to apply the concepts in this paper to other critical areas that are frequently underreported and ripe for improvement.
To shine more light on the reasons medical costs are high, our next paper will focus on expanded analysis of optimal care delivery by physicians.
Patrick Getzen, MAAA, FSA, is a former Chief Actuary and Chief Data and Analytics Officer for Blue Cross Blue Shield North Carolina. Patrick currently advises health plans and health companies on a variety of topics, focusing on value-based care and financial/risk strategies.
Dave Nelson, MAAA, FSA, is a 40-year Fellow of the Society of Actuaries and a former Chief Actuary for Blue Cross Blue Shield of Michigan. Currently with Havarti, Dave leverages his extensive experience in actuarial leadership to advise health plans and healthcare entities on risk-taking product and financial strategies.
Karen Johnston, MD, has been the Chief Medical Officer at Havarti Risk Services since 2021. Karen, an internist, was a partner at a multispecialty group practice in Silicon Valley; ran an academic cardiovascular prevention program in NYC and co-founded a venture-backed cardiovascular start-up.
Endnotes[1] Marissa J. Carter et al., “Chronic Wound Prevalence and the Associated Cost of Treatment in Medicare Beneficiaries: Changes between 2014 and 2019,” Journal of Medical Economics, Volume 26, 2023, Issue 1.[2] Samuel Nussbaum et al, An Economic Evaluation of the Impact, Cost and Medicare Policy Implications of Chronic Nonhealing Wounds,” Value in Healthcare, Vol. 21, Issue1, Jan. 2018.[3] Chandan Sen, Human Wounds and Its Burden: An Updated Compendium of Estimates, Advances in Wound Care, Vol. 8, No. 2, 2019.[4] Curtis S. Florence, “Medical Costs of Fatal and Nonfatal Falls in Older Adults,” Journal of American Geriatrics Society, Volume 66, Issue 4, 2018.[5] StartUs Insights, “Discover the Top 10 Wound Care Trends in 2023,” accessed August 31, 2024.[6] “Wound Dressings Have a Significant Impact on Total Cost of Care,” Healthcare Finance News, March 11, 2021.[7] Jehu DA, Skelton DA, “The measurement and reporting of falls: Recommendations for research and practice on defining faller types,” Journal of Frailty, Sarcopenia and Falls, Dec. 2023.[8] Centers for Disease Control and Prevention, “STEADI Older Adult Fall Prevention Program.”
The Election and Health Policy
Health policy is one of the primary areas that could be affected by the recent election results and incoming Trump administration. The Academy’s work was instrumental during the process of implementing the Affordable Care Act (ACA) after its passage in 2010.
As David Dillon, a faculty member at the Academy’s annual Life and Health Qualifications Seminar held every November, points out, “Staying nimble-especially on the health insurance side, because things can change quickly-is important in addressing changes that regulatory and political changes can create.”
The Academy will continue our work in this and other fields as we engage with policymakers and regulators in 2025 and beyond.