Healthcare’s Coming Economic Crisis

Is healthcare too big to fail? Or is failure exactly what we need?

There is a looming challenge facing hospitals in the United States, which find themselves being forced either to reduce costs, thus potentially harming the local communities they serve, or else taking less aggressive cost-cutting measures and risk going broke.

The backdrop to this veritable “Sophie’s Choice” has developed through a series of public policy and market moves to shift financial risk onto local health systems that have little experience in such areas. When the hospital is the largest employer in town (as is so often the case), with financing coming from insurance companies and mutual funds, we have the makings of systemic risk in the style of the 2008 financial crisis.

This year, nearly one out of every five dollars of the US gross domestic product will be spent on healthcare. As a percentage of gross domestic product, this is nearly twice the global average, yet we receive no clear benefit from a significant portion of this spending. The US ranks first in per capita healthcare spending, but last in the Commonwealth Fund’s assessment of health system performance in 11 major developed countries. As a society, we have a healthcare return-on-investment problem.

Healthcare spending should be reallocated to physicians’ offices, new virtual care modalities, and more effective drugs
Healthcare’s Coming Economic Crisis

Sam Glick on the risk of our current healthcare spending.

Healthcare Expenditures

The United States spends more on healthcare than most developed countries

Source: OECD

About the Author

Sam Glick is a San Francisco-based partner in Oliver Wyman’s Health and Life Sciences practice and
co-director of the Oliver Wyman Health Innovation Center Leaders Alliance.

This article is adapted from one that first appeared on Brink.

Healthcare’s Coming Economic Crisis