Healthcare System Stakeholders Cheat Sheet
A not-so-brief guide to our healthcare stakeholders: providers, payers, pharma, and patients
The US healthcare system is an enormous and complex web of institutions, patients, providers, payers, researchers, and regulatory frameworks, intricately interconnected to deliver a wide range of health services, yet challenged by issues of cost, access, and quality.
If you have had any interaction with the healthcare system whatsoever, you have probably experienced the labyrinthine nature of its processes, from navigating insurance coverage and understanding medical bills, to coordinating between different healthcare providers, all of which highlight the complexity and potential for confusion inherent in the current system.
In this article, I’ll dive into the key stakeholders, aka the four P's of healthcare—Providers, Payers, Pharma, and Patients
By exploring the roles, incentives, and interdependencies of these stakeholders, we can gain a better understanding of why our healthcare system works the way it does.
Healthcare providers: the labyrinth of patient care
At the heart of the US healthcare system are its healthcare providers. These are the doctors, nurses, and healthcare professionals who deliver direct care to patients. They operate in a variety of settings, ranging from private practices and hospital systems to nursing homes and home healthcare.
Hospitals
Healthcare providers in the US are largely private. According to data from the American Hospital Association, approximately 49% of hospitals are non-profit, 20% are for-profit, and 18% are government-owned. There are nearly 1M beds across these hospitals, and there were over 34M admissions in 2021.
Just because a hospital is a non-profit does not mean it does not profit. In fact, one study found that mean operating profits in 2019 were $58.6M for nonprofit hospitals and $43.4M for for-profit hospitals. But they use those profits to provide charity care, right? Actually, nonprofit hospitals have been found to have worse ratios of charity care to total expenses than for-profit hospitals. And 86% of nonprofit hospitals do not provide more charity care than the value of their tax exemption. So while 49% of hospitals are nonprofit, they may not necessarily be fulfilling the charitable mission that their tax-exempt status implies. This raises important questions about the accountability and social responsibility of nonprofit hospitals, leading to a broader debate on how healthcare should be delivered and financed in a way that prioritizes patient care and public health.
Another important thing to understand is how hospitals set prices and get paid. Hospitals create a “chargemaster” list of all billable activities, which they are now required to publish (you can find them online, here are all hospitals in California). Private insurers generally negotiate a discount to the chargemaster. And public insurers (Medicare) pay the lowest rates given they set their own prices using something called Inpatient Prospective Payment System (IPPS). The ones who pay the most are uninsured, cash-paying patients.
Physicians
Physicians, undeniably, are at the forefront of the US healthcare system, providing a wide array of services from preventative care to acute treatment and chronic disease management. Their roles, numbers, and ways of remuneration have evolved significantly over time and are crucial components of our understanding of the healthcare system.
The number of physicians in the United States has been on an upward trajectory. Today there are over 1M active physicians, an increase of more than 17% over the last decade. This number is growing mostly because of an increase in specialists. The number (and percent) of primary care physicians (PCPs) has actually fallen in this time.
Yet many believe we are facing a looming physician shortage, with estimates from the Association of American Medical Colleges (AAMC), suggesting a shortfall of between 37,800 and 124,000 physicians by 2034. What’s driving the shortage? The time and cost of medical training, increasing physician burnout, rising malpractice suits, and growing disenchantment with the complexities and inefficiencies of the healthcare system.
Nurses
As the most trusted profession for the last 20 years, nurses make up the highest percentage of the US healthcare workforce and serve as the primary providers of patient care.
We know the critical role nurses play in our healthcare system. They are the backbone of patient care. A 2018 meta-analysis found that the higher the level of nurse staffing in a hospital, the fewer patient deaths there were.
A 2018 meta-analysis found that the higher the level of nurse staffing in a hospital, the fewer patient deaths there were.
Unfortunately we’re also facing a nursing crisis and looming shortage. One study showed that more than 70% of healthcare workers in the country have symptoms of anxiety and depression, 38% have symptoms of PTSD, and 15% have had recent thoughts of suicide or self-harm.
The pandemic exacerbated the looming nursing shortage across the country. And a recent McKinsey survey found that more than 30% of nurses are currently thinking of leaving direct patient care. Not only will this be an even bigger strain on the nurses who stay, but it also puts patients' lives at risk.
Pharmacists
Pharmacists play a crucial, often under-appreciated, role in our healthcare system. These highly-trained professionals are not simply dispensers of medication; they are an integral part of the healthcare team, providing patient care that optimizes the use of medication and promotes health, wellness, and disease prevention.
The scope of pharmacists' roles has expanded significantly over the years. They now provide even more services, including administering vaccinations, conducting health and wellness screenings, providing personalized medication counseling, and managing chronic diseases such as diabetes, asthma, and hypertension in collaboration with other healthcare providers.
Pharmacists are one of the most accessible healthcare professionals. The vast majority of Americans live within five miles of a pharmacy, providing easy access to patients, particularly those in otherwise underserved areas. This accessibility puts pharmacists in a prime position to act as front-line healthcare providers, answering patients' questions and addressing health concerns.
Health insurance: the cornerstone of access
Access to healthcare in the US largely hinges on health insurance. This system, rather than a single-payer or entirely government-funded model, is the dominant method of accessing and paying for healthcare services.
Employment-based insurance
Most Americans access health insurance through their employers, which is bonkers since people stay in jobs on average of four years. I can’t even count how many health plans I’ve been on, and the headache every time I need to select a new plan.
Employment-based health insurance is a quirk in our system that was solidified during World War II when, due to wage and price controls, employers began providing health benefits to attract and retain employees (a practice further encouraged by the IRS's tax-deductible status for these contributions).
Today, employer-sponsored plans cover about half of the population. These plans are primarily provided by private insurance companies, although employers bear a significant portion of the costs.
This model of health coverage has disadvantages:
Job-lock. This is when people feel stuck in their job because they need the benefits, reducing mobility across jobs and creating inefficiency in the labor market. And it means employees are somewhat insulated from understanding true costs of insurance premiums.
Bad for small businesses. It puts small businesses— which make up 99% of employers and 66% of new private-sector jobs— at a disadvantage. Since they don’t benefit from a larger pool of insured employees, it leads to higher administrative costs. The escalating cost of healthcare can be a significant burden for small employers, potentially impacting their competitiveness. (Don’t get me started on how hard it is to offer health insurance to employees of a startup with employees distributed across the country!)
Inefficient. These tax incentives can lead to over-insurance and the use of excessively generous plans by some. This contributes to increased spending on low-value care and higher overall healthcare costs.
Regressive. But most concerningly, allowing healthcare insurance premiums to be excluded from income results in tax expenditures (subsidies) that are inequitably concentrated in higher income individuals. In fact, research shows that lower-income families with employer coverage spend a greater share of their income on health costs than those with higher incomes. Families making under $52K annually pay 7.7% of their income on employer-based health insurance premiums, versus just 2.3% for high earners.
In addition to employer-sponsored insurance, many Americans receive coverage through government programs. These include Medicare, which provides health coverage for individuals aged 65 and older or with certain disabilities, and Medicaid, which provides health coverage for low-income individuals and families. The way I was taught to remember it was: we care for the elderly (via Medicare) and we aid the poor (via Medicaid)
Medicare and Medicaid
Established in 1965, Medicare and Medicaid are two critical payers. Together, they provide health insurance coverage for 37% of the US population (equally divided between the two).
Medicare is a federal program that provides health coverage for people aged 65+ or with certain disabilities. It is divided into parts A, B, C, and D, each of which covers different types of health services. It is administered by the Centers for Medicare & Medicaid Services (CMS), and interestingly, administrative costs are only 2% (compared to about 17% for private insurers).
The Affordable Care Act (ACA), also known as Obamacare, introduced significant reforms to the way Medicare payments are handled with the aim to improve healthcare quality and reduce costs. This included:
Value-based purchasing. This program adjusts payments to hospitals based on the quality of care they provide. Hospitals are assessed on a variety of measures, including patient satisfaction, the efficiency of care, and patient outcomes. Hospitals that perform better on these measures receive higher payments.
Readmission reduction program. To discourage unnecessary hospital readmissions, the ACA introduced financial penalties for hospitals with higher-than-expected readmission rates for certain conditions. This incentivizes hospitals to improve discharge planning and post-discharge care to ensure patients don't need to return to the hospital.
Bundled payments. The ACA expanded the use of bundled payments, which provide a single payment for all services related to a specific treatment or condition, instead of paying for each individual service. This encourages care coordination and efficiency among providers.
The ACA also established the Medicare Shared Savings Program (MSSP), which encourages the formation of Accountable Care Organizations (ACOs). ACOs are groups of doctors, hospitals, and other healthcare providers who come together voluntarily to provide coordinated, high-quality care to their Medicare patients. The goal is to ensure that patients get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors. If an ACO meets quality performance standards and their spending is less than a defined benchmark, they are allowed to share in the savings they achieve for the Medicare program.
Medicaid is a joint federal and state program that provides health coverage to people with low income, including some low-income adults, children, pregnant women, elderly adults, and people with disabilities. Medicaid programs must follow federal guidelines, but they vary somewhat from state to state.
Most states require that Medicaid enrollees participate in Medicaid Managed Care. There are two types of managed care models (in addition to fee-for-service):
Managed Care Organization (MCO), where states contract with MCOs, which are private insurance companies. The state pays the MCO a set amount per enrollee (capitation), and the MCO is responsible for providing for their healthcare needs. The goal is to manage the care of Medicaid recipients more effectively and efficiently, potentially saving money and improving health outcomes.
Primary Care Case Management (PCCM), where states pay a monthly fee to primary care providers for case management (in addition to fee-for-service primary care).
Managed care is intended to help control costs while also coordinating care more effectively, particularly for patients with multiple healthcare needs. However, evidence on spending, utilization, and health outcomes is mixed. One of my MPH professors talked about the “Notch Effect”, when a Medicaid-eligible person has to make the trade-off between earning a higher income versus losing their Medicaid benefits. While it makes sense, I could not find any reliable and recent studies on the topic.
The uninsured
Despite these various forms of coverage, a portion of the American population remains uninsured. According to the U.S. Census Bureau, 8.3% of the population are uninsured (as defined as not having health insurance at any point during the year). This nationwide figure, however, masks significant disparities among states. In 2021, the uninsured rate ranged from 2.5% in Massachusetts to 18.0% in Texas. These variations reveal the impact of different state policies, economic conditions, and demographics on healthcare coverage. Such a wide range points to the complex challenges in achieving universal coverage and also raises questions about equity and access, as those in states with higher uninsured rates face greater barriers to essential healthcare services.
Fee-for-service (FFS) vs capitation
FFS and capitation are two different models of payment. Under the FFS model, healthcare providers are paid for each individual service they render, such as tests, procedures, or consultations. This model incentivizes “supplier induced demand”, as the more services a provider renders, the more they are paid. This model could lead to overuse of services, potentially driving up healthcare costs and increasing the risk of unnecessary care.
Capitation is a payment model where a physician or a group of physicians receive a set amount for each enrolled patient assigned to them per period of time, regardless of how much care each member receives. This amount is determined in advance and is meant to cover the cost of providing a predefined set of services. The capitation model incentivizes preventative care, as providers are encouraged to keep their patients healthy to avoid costly ER visits. However, this model can also potentially lead to under-provision of care, as providers might be incentivized to offer fewer services to save costs.
Pharma: a peek into the nation’s medicine cabinet
With 60% of US adults taking at least one prescription drug and 25% taking four or more prescription medications, the pharmaceutical industry is a key player in our healthcare system.
The US pharmaceutical industry leads the world in the development of new medicines, particularly in areas of unmet medical need. Fueled by extensive research and development (R&D) activities, pharmaceutical companies invest billions of dollars annually in the pursuit of new and improved treatments.
Why are drugs so expensive?
Prescription drug prices in the US are significantly higher than in other nations, with prices averaging 2.56x those seen in 32 peer nations. In 2019, we spent $1,126 per capita on prescription medications, compared to $552 per capita in comparable countries (this includes spending from insurers and out-of-pocket costs).
So why are drugs so expensive? If you ask pharmaceutical companies, they’ll tell you it’s because innovation is expensive. They’ll point to the fact that R&D costs as a percentage of sales is higher for pharma than other industries.
But if you talk to others, you may hear that it’s simply because pharma can raise prices on drugs, and no one (in the US) is stopping them. Pharma is the only major healthcare stakeholder that is able to exercise relatively unrestrained pricing power. They can set the prices paid by Medicare and Medicaid for new drugs. They also have the upper hand with private insurers who are obligated to cover many new drugs.
Are taxpayers subsidizing pharma’s R&D?
Every one of the 210 new drugs approved by the Food and Drug Administration (FDA) from 2010 to 2016 was associated with scientific research funded by the National Institutes of Health (NIH). This research — paid for by taxpayers — encompassed over 200,000 years of grant funding, amounting to more than $100B.
Public funding has been instrumental in basic research exploring the biological targets for drug action. And while it doesn’t fund the development of the drugs themselves, it certainly offsets some of the initial R&D costs that would otherwise be incurred by pharmaceuticals. So thank you, taxpayers, for laying the groundwork for many medical advances.
Given that large pharmaceutical companies have median net income margins of 13.8% (other large corporations in the S&P 500 are at 7.7%), some think taxpayers should benefit more from the research we fund. I’m inclined to agree.
Given that large pharmaceutical companies have median net income margins of 13.8% (other large corporations in the S&P 500 are at 7.7%), some think taxpayers should benefit more from the research we fund.
Pharmacy benefit managers (PBMs)
PBMs emerged as a somewhat peculiar byproduct of the idiosyncrasies ingrained within our healthcare system. Operating entirely in the background, PBMs are (enormous) stand-alone businesses that manage prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers, and other payers.
The primary purpose of PBMs is to negotiate with pharmaceutical manufacturers and pharmacies to secure lower drug costs for their clients. Their methods include implementing formularies (lists of preferred drugs), negotiating rebates from manufacturers, and establishing pharmacy networks.
Formularies are designed to encourage the use of lower-cost drugs, typically by placing them on lower 'tiers' with reduced copays. PBMs leverage the sheer volume of the potential patient base to negotiate rebates and discounts with pharmaceutical companies, who obviously want to have their drugs included in these formularies.
Some argue that while these rebates may lower costs for insurers and PBMs, they don't necessarily translate to lower out-of-pocket costs for consumers. In fact, the list price of drugs, which is the starting point for these negotiations, continues to rise, which especially affects the uninsured or with high-deductible plans.
Patients: the ultimate stakeholder (or should be)
In this healthcare labyrinth, the patients are the epicenter. We bear the direct impact of the steps (and missteps) of every other stakeholder.
Patients are the end consumers of healthcare services. We use the care offered by providers, rely on the medications produced by pharma, and depend on payers to help us navigate and pay for it all. We’re not merely passive receivers of care, but active participants who make decisions about our health. To do this effectively, we need the right information, resources, and support.
Yet, patients face numerous hurdles in their healthcare journey. It’s a bit like navigating this labyrinth blindfolded. The system is confusing, information is often hard to understand, and the cost of care is completely opaque until you're already knee-deep in bills.
A majority of patients also report feeling rushed during doctor visits, as if they're a cog in this machine. This lack of personal attention and time constraint can prevent patients from fully understanding their health issues and the care they're receiving.
The healthcare experience can also be disjointed, with poor coordination among multiple providers. This fragmentation can lead to duplicated services, medication errors, and even conflicting advice.
Americans are not pleased with the state of our healthcare system
The US has highest dissatisfaction with healthcare. And according to a recent Gallup poll, the perception of the quality of US healthcare is worsening. Less than half of the respondents, 48%, rate the healthcare system as "excellent" or "good." This represents a slight dip from the 50% in 2021, and it is notably below the 62% peak achieved twice in the early 2010s and the average rating of 55% since 2001. A record 21% now categorizes the system as "poor," with an additional 31% rating it as "only fair."
Furthermore, 20% of people believe our healthcare system is in a state of crisis, the highest level since 2013. Cost remains a major pain point: 76% are dissatisfied with the total cost of healthcare in our country. Read more about why healthcare is so dang expensive.
Patient engagement and empowerment
There's a lot of buzz around patient engagement and empowerment. It's about shifting from a paternalistic model of care to a partnership model, where patients are active participants in their health. This includes things like shared decision-making, where patients and providers work together to make healthcare decisions.
However, patient engagement and empowerment isn't just about individual behavior. It's also about changing the healthcare system to better support patients. This could involve everything from improving health literacy, to promoting patient rights, to creating patient-friendly healthcare environments.
Healthcare consumerism
Regina Herzlinger, often dubbed the "Godmother" of consumer-driven healthcare, was early in positing that making healthcare more consumer-centered would lead to increased efficiency, improved quality of care, and greater innovation in the sector.
Herzlinger advocates for a system where consumers have the ability to choose their own healthcare providers and insurance plans. The rationale is that when consumers have the power to choose, it fosters competition, which can lead to improvements in quality, cost, and service. Consumers should have full access to information regarding costs and outcomes, which would empower them to make educated decisions about their healthcare.
And a key tenet of the consumer-driven approach is increased transparency in pricing and performance. Patients should have the ability to compare the prices of procedures, treatments, and medication between different providers or pharmacies, much like how they would compare prices for any other product or service. Likewise, transparency about provider performance would allow patients to compare the quality of care between different healthcare providers or institutions.
The idea is that a more consumer-driven healthcare system would spur innovation. When consumers are actively choosing and paying for their healthcare, providers are incentivized to innovate in order to attract and retain patients. This could lead to the development of new treatments, technologies, and care delivery models.
The future patients want (and need)
The US healthcare system remains a multifaceted and challenging landscape for patients, who stand at the epicenter. The recent dip in satisfaction ratings, coupled with persistent dissatisfaction with costs, reflects the myriad hurdles patients face in obtaining quality, affordable care. Whether it's the feeling of being rushed during medical visits or the complexity in pricing and treatment options, the patient experience is often marked by confusion and dissatisfaction.
The current discourse around patient engagement, empowerment, and consumer-driven healthcare reflects an urgent need for a wholesale transformation. A more transparent, coordinated, and patient-centered approach could lead to a more efficient, quality-driven healthcare system that places the needs and preferences of patients at its core. Innovations in care delivery, transparent pricing, and a focus on shared decision-making might hold the key to transforming this intricate labyrinth into a more navigable and responsive system.
The quest for a healthcare model that is not only consumer-friendly but also encourages and rewards innovation is paramount in shaping a future where patients are not just passive receivers of care, but informed and empowered partners in their health journey.
Summing it up
In the journey through the US healthcare system, with its extensive network of stakeholders, complexity often overshadows clarity. Our healthcare system, while striving to deliver health services, is persistently challenged by concerns over cost, access, quality, and satisfaction.
Our healthcare system is complex not because it needs to be, but because of the multifaceted interactions between various stakeholders, conflicting interests, lack of transparency, regulatory requirements, and a legacy of decisions and random quirks that have accumulated over time (e.g. employment-based health insurance as explained above). Such historical nuances have contributed to layers of bureaucracy and inefficiency that often serve the interests of certain stakeholders at the expense of others, particularly the patients. The challenge ahead is to untangle this complexity, creating a system that prioritizes patient needs and promotes innovation, accessibility, and quality care for all.