The Problem: Medical Debt

Fifteen percent of the $1.7 trillion in annual medical expenses is not covered by public or private insurance.  This growing patient responsibility for healthcare bills creates problems for many.  Patients often convert their medical bills into consumer debt (now a leading cause of bankruptcy); hospitals and other providers end up in unsustainable financial situations due to never paid bills; and debt and unpaid bills discourage people, insured and uninsured alike, from seeking medical care. 

Middle and working class families are shouldering the burden of medical debt and there is no relief in sight.  If anything the problem is getting worse as patient responsibility for healthcare costs increases.

The Underlying Foundation: The Cash Market

With funding from the Rockefeller Foundation, Criterion Ventures embarked on an eight month process to study this issue and look for a solution.  The process, through interviews and three summits, has engaged a number of experts in the field.  A comprehensive solution will require participation by all the affected parties, including hospitals and providers, patients, governments, and financial services companies.

    
The solution lies in the realization that the US healthcare market is really two markets:

• A dominant insurance market, and
• A stunted – yet very large and growing – cash market

Although $265 billion was paid out of pocket by consumers in 2006, the cash market is viewed as an “exception” to the broader insurance market and has not been developed into a market of its own.  The existing cash market is irrational and the underlying systemic issues to this irrationality prevent access to appropriate care.  While the affects of an irrational cash market affect all consumers, there is a disproportionate impact on those most economically vulnerable in our society.   It is a social issue rooted in a broader market failure. 

The existing healthcare system has numerous problematic characteristics.  For example,

• There is not a single price for medical service, nor is it clear what percentage of the price the consumer must pay.
• Consumers experience multiple types of payments – premiums, co-pays, deductibles, etc. – for a single medical event.
• Insurance companies have instituted a variety of methods to increase patient responsibility (including higher co-pays and deductibles) to reduce utilization  - with both intended and unintended consequences.
• An increasing number of people are not accessing healthcare when they need it because of the cost barriers, which often leads to dire consequences requiring costlier interventions down the road. 

The Solution: Rationalize the Cash Market

While whole system change is not likely in the near future, these problems can be alleviated by rationalizing the cash market.  Attention to the cash market will both increase access to care and increase the financial stability of low and moderate income Americans.  Because of the nature of the cash market and the relative size of cash payments, there is the possibility for innovation in pricing and payment mechanisms.  We have the responsibility and the opportunity to define standards of practice that will sustain an effective, rather than predatory, market.

To address the needs of the cash market of healthcare, Criterion Ventures is launching a new venture that will adapt existing financial services and connect them with consumers through affinity groups. 

The cash market currently lacks the rational pricing, products, services and intermediaries needed to deliver health care affordably and in a way that maximizes access.  In the end, consumers are not getting the best value per dollar spent.  By introducing and bringing to scale innovative products and services, and connecting them to consumers through existing affinity groups whose members are struggling with the impact of the cash portion of healthcare, we will be able to rationalize the market.   By creating a rational market we will bring greater value to consumers for their healthcare dollars and increase access to care.