There is a battle ahead, and it is going to be ugly. The United States finds itself in a remarkably challenging situation – a confluence of factors we have never experienced in the entire 248-year history of our young country.
But, don’t just take my word for it. Yesterday, a sobering New York Times article detailed a September 18 report from the Commission on the National Defense Strategy, which plainly stated: “The threats the United States faces are the most serious and most challenging the nation has encountered since 1945 and include the potential for near-term major war.”
In short, the U.S. needs to dramatically increase military spending, and will likely do so partly by making major changes to Medicare and Social Security. Topline concerns include:
- Ten cold or hot wars around the world.
- National debt of $34.5 trillion (~120% of GDP, higher than it has ever been, including during World War II).
- $4.5 trillion per year is spent on healthcare (~20% of GDP). This number is expected to reach $7 trillion by 2030.
- An aging population. By 2030, all 70 million Baby Boomers alive will be 65 or older.
Unsustainable Spending
According to another recent article in the New York Times, the U.S. faces a mounting debt crisis exacerbated by ongoing military engagements and domestic spending challenges. The national debt, now at $34.5 trillion, is straining the economy and forcing difficult decisions regarding budget allocations. At present, $1 trillion is added to the national debt every 100 days.
Additionally, a HealthCare Innovation Group article highlights how the U.S. healthcare system is on a “$7 trillion burning platform.” The piece emphasizes that without reform or industry disruption, the financial burden of the healthcare sector will increase dramatically.
It is entirely possible that one or two of the cold/hot wars happening right now will pull the U.S. into a regional conflict or worse, a third world war. Many experts in geopolitics suggest that this scenario is already in motion. Such entanglements often take 10-20 years to resolve and cost trillions of dollars.
In this case, the U.S. government will need to dramatically increase spending on military and defense. The 13.3 percent of the federal budget spent on defense in 2023 may need to increase to something close to 30 percent. With high interest rates, a spiraling deficit and low tax revenues, the government will look for ways to make substantial cuts, and it will very likely be cuts to Medicare/Medicaid spending.
Cuts in Medicare/Medicaid spending would force the closure of 1,500-2,000 of our nation’s 6,000 hospitals in a very short period of time. This would push healthcare spending back on individuals and families who are already at a breaking point. This situation underscores the urgent need for systemic reform to ensure timely and effective healthcare for Americans.
The Way Out
It’s time for the healthcare industry to do the right thing, because we no longer have an alternative. But, take heart. I believe there is a future healthcare delivery system in the U.S. that will allow us to deliver better healthcare at more reasonable prices and in ways that our citizenry will appreciate and find to be positive and functional.
The coming crisis will leave us with challenges that the government will not be able to address (because our government will be broke, and focused on the war machine). The market will inevitably step in to address the demand. This means a totally different way of doing things. As we have seen time and time again over the past several hundred years, technological advances tend not to make the “old way” more efficient and less expensive. But rather, technology tends to wipe out the old system and replace it with a much better overall one.
Examples are plentiful over time (and notably all of these major advancements were invented by Americans):
- Electricity
- The Internal Combustion Engine
- Microprocessors and Personal Computers
- The Internet
- The Smartphone
Role of Technology and Innovation in Healthcare
To effectively address the looming crisis in U.S. healthcare, it is imperative that we embrace technological innovation and private market-driven solutions. These advancements offer the potential to transform the healthcare system, making it more efficient, accessible, and cost-effective.
Let’s take Telemedicine as an example. Telemedicine has emerged as a “disruptor” and presented an incalculable amount of opportunities for private investment in recent years. In the wake of COVID-19, we saw a 4,000% increase in telehealth visits. This increase showed a jump from a $3 billion spend to $250 billion.
Measuring the value of virtual care by quantifying clinical outcomes post-COVID brought about lucrative long-term investment opportunities. Telemedicine exemplifies the potential of technological innovation to transform the healthcare industry. Its rapid adoption and integration with other advanced technologies have created opportunities driven by the promise of improved patient outcomes and cost efficiencies. Today we see the emergence of many other “disruptors,” promising similar transformative effects on the healthcare landscape.
Conclusion
The clash between Defense and Healthcare spending in the U.S. is an impending crisis that requires immediate attention. As the nation faces cost challenges in both budgetary categories, the efficient use of resources is critical. Our current trajectory is unsustainable without intervention.
We are about to see enormous changes enabled by advances in technology. These shifts will start on the administrative and back-office sides of healthcare. Over a period of time, many of the non-clinical jobs in our industry will be replaced by artificial intelligence. In the second half of this ballgame, we will begin to see clinical functions enhanced by AI.
We will see more change in the next two decades than we have seen in the last hundred years. In that time, our national healthcare spending will moderate toward the 9-11% of GDP, similar to what most major western democracies spend on healthcare. Advanced technologies will be the secret weapon that makes this a reality, creating a very different and overall better healthcare system in the U.S.
For more on this topic, read Caduceus Capital Partners’ full whitepaper, Trouble Ahead: The Impending U.S. Budget Showdown: Defense vs. Healthcare.
___
About Dave Vreeland, Senior Managing Partner, Caduceus Capital Partners
With more than 30 years of experience in the healthcare industry, Dave is a well-known expert on digital health, healthcare IT and the future of the healthcare industry. Currently, he is senior managing partner at Caduceus Capital Partners, a venture capital firm dedicated to investing in and accelerating the growth of digital health startups. With a deep understanding of the intricacies of the healthcare industry, Caduceus’ leadership team executes a refined and proven methodology to successfully source, grow and exit companies.