After years of spiraling healthcare costs, healthcare spending has slowed to record lows. Spending grew only 3.9 percentage points per year on average from 2009 to 2011, versus 8.8 percent growth from 2001-2003. That’s certainly good news in the short term, but it’s unlikely to be permanent.
A multi-month analysis of the slowdown by the Kaiser Family Foundation and the Altarum Institute found that 77 percent of the slowdown can be explained by economic weakness – people delay treatment when times are bad. That means costs will almost certainly increase at a higher rate as the economy recovers. But every cloud has a silver lining. Kaiser also suggests the other 23 percent of cost reduction is due to system improvements, including “increased consumer cost-sharing, tighter managed care and modifications in payment and delivery.” These improvements should be commended and must continue; in fact, I believe technological improvements can significantly accelerate these efficiency gains.
I wrote in an earlier blog post that the global economy is perched on a new wave of productivity gains thanks to a convergence of the Industrial Revolution – machines, fleets and physical networks – with the Internet Revolution: intelligent devices, networks and decisioning. This convergence is the Industrial Internet, and it’s just beginning to profoundly transform global industry by increasing speed and efficiency across different sectors. Healthcare is one such sector.
Last year, I co-published “Industrial Internet: Pushing the Boundaries of Minds of Machines” with my GE colleague Peter C. Evans, in which we argued that digitalization of health care holds the unique promise for far reaching efficiency improvements. It is estimated that more than 10 percent of global health expenditures are wasted from inefficiencies in the system, meaning the global cost of healthcare inefficiencies is at least $731 billion per year. Clinical and operations inefficiencies, which can be most directly impacted by the Industrial Internet, account for almost 60 percent of this total inefficiency cost. We estimate that deployment of the Industrial Internet can help drive these costs down roughly 25 percent, or about $100 billion per year in savings. Even a 1 percent reduction in costs translates to $4.2 billion in savings per year.
How can this be accomplished? At GE Software, we are using our knowledge of data and analytics to develop system-level applications that open the possibility of creating a “care traffic control system” for hospitals. These types of solutions, which represent the beginning of the Industrial Internet in healthcare, directly improve resource utilization and patient and business outcomes, and will begin to eliminate the nearly trillion dollars wasted on healthcare, clinical and operations inefficiencies.
For example, consider the benefits of enhanced MRI scanning and diagnostics that can be enabled by the Industrial Internet. Currently when an MRI is conducted, a nurse usually serves as the middleman, making sure the images get to the appropriate radiologist for interpretation and then shuttling that interpretation to the patient’s primary doctor. Now imagine if this imaging data were better connected and knew when and where it needed to go without human intervention, automatically delivering itself to the correct doctor and filing itself in a patient’s digital medical records.
This type of proactive, secure routing of data may seem like a simple upgrade in workflow. However, I believe this example represents one of the promising ways that the Industrial Internet can boost productivity and treatment outcomes, particularly as relatively small improvements in efficiency at the individual level could have sizeable benefits when scaled up across the entire system. GE’s healthcare division estimates that innovations like these can translate into a 15 to 30 percent reduction in hospital equipment costs and permit healthcare workers to gain an additional hour of productivity on each shift. These Industrial Internet-powered solutions can help transform our healthcare system from “see and treat” to “predict and prevent,” helping America and the world rein in its health costs over the long-term.
Marco Annunziata is the Chief Economist and Executive Director of Global Market Insight at General Electric Co, responsible for global economic, financial and market analysis to support GE’s business strategy. Prior to GE, Marco held positions with Unicredit and Deutsche Bank and spent six years at the International Monetary Fund in Washington.