One of the stats that always bothered me when I heard it was that 5% of people are responsible for 50% of the spend in healthcare (and there are other variations that are quite similar). This is quoted so many times at conferences, that it’s almost annoying to hear it now. While this stat is accurate, it’s never sat quite right with me and I never could articulate why.
In a recenty twitter thread by Jay Parkinson, MD, MPH, I finally figured out at least part of why I was always uneasy hearing this stat. Here’s Dr. Parkinson’s thread:
If 5% of people consume 50% of a population’s health spend, 95% of people consume 50%. Yet, I bet 95% of all VC investments are targeting that 5%. Here’s what’s crazy about that:
In that 5% of high spenders, there are 3 cohorts. 1: Ppl with 1 or more chronic conditions that could be improved or controlled; 2: Ppl who suffer a one time catastrophic event; 3: Ppl with severe chronic conditions who can’t be returned to good health.
Cohort 1: “Sick but malleable.” There are things you can do for this cohort. Consume 15% of a total pop spend. If you reduce the total cost of care in this group by say 20%, you save 3% in costs for the whole population.
Cohort 2: Zero predictability. Consume 17.5% of a total population spend. Nothing you can do to predict or prevent, say, a ski accident. Payors are stuck with these costs. And next year, almost all go back to being low spenders.
Cohort 3: It’s super easy to predict the expensive folks who are dying. Typically there’s 6 months of cash cow and then 2 weeks of relatively inexpensive hospice. Almost no ROI to intervene in that 6 months as the system is set up to profit massively.
So that means nothing we can do for cohorts 2 and 3. And getting 20% better (damn near impossible!) at Cohort 1 reaps a total of 3% reduction in population spend. Yet! 95% of VC and innovation is spent tackling those three cohorts. Fascinating eh?
At it’s core, I guess it always bothered me that we would spend so much time and effort on the 5% and kind of forget about the 95%. Maybe I’d have felt different if 5% of people were consuming 95% of the healthcare spend. However, 95% of people still represent 50% of the spend and that’s a lot of money.
What I hadn’t done that Dr. Parkinson did so well was dive into the 5% of people that cost so much. He’s 100% right that patients in this 5% are extremely hard when it comes to costs. Not that the other 95% are easy, but way too much investment is focused on the 5% and so little on the 95%. I’m heading to the HLTH conference in Boston this weekend. I’m going to keep track of how many are focused on the 5% and how many are focused on the 95% that are largely “healthy.” Plus, I want to see how many times this stat is shared on stage. Hopefully those on Twitter will take part too.
Why is it that we don’t focus more health IT solutions on the 95%? There’s still a huge opportunity to lower healthcare costs. Plus, if we lower those costs for the 95%, it could mean those costs are lowered for a longer time. Let us know your thoughts in the comments and on social media with @hcittoday.
