Demystifying U.S. Health Care Spending--Some Surprising Information
Paul Ginsburg, of the Center for Studying Health System Change, has just authored a new report, "High and Rising Health Care Costs: Demystifying U.S. Health Care Spending." The report is part of the Robert Wood Johnson Foundation's Synthesis Project.
This paper reviews existing literature in search of a more clear understanding of U.S. health care costs, the drivers, and the trends.
It is an encyclopedia of the research on U.S health care costs and required reading for any health policy wonk!
I found the following notable:
- Technology is the key driver in health care spending accounting for an estimated 38% to 65% of spending growth.
- "Obesity is a significant factor driving health spending, accounting for an estimated 12% of the growth in recent years." However, any gains from reducing obesity would be concentrated in the short and intermediate period "because some of the savings will be offset by increased longevity and the cost of disease that are most prevalent during old age." The irony is that obese people die sooner thereby avoiding the high medical costs associated with living longer.
- If we insure more people our health care system will cost more not less. "The increase in the percentage of people with health insurance accounted for approximately 10% to 13% of the historical growth in spending." The uninsured has not contributed to the recent growth in health spending in the aggregate and will not be a driver in the future unless we find a way to insure more people.
- Aging will not be a major factor in driving health care spending, and will not become one, despite aging baby boomers.
- Medical malpractice is not a major driver of spending trends. Medmal does contribute to health spending at any moment in time, but is not a large factor nor a significant factor in overall growth of health care spending.
- "Productivity gains in the health care sector have probably been lower than in other industries."
- U.S. health care cost increases continue to outstrip those in other industrialized nations by a large margin. Excess health care growth in the OECD nations was 0.6% between 1985 and 2002 compared to 2% in the U.S. for that period.
- When compared to the health systems of other industrialized nations, "prices, efficiency, and insurance administration are the most important differences."
- Drug prices are 70% higher in the U.S., physician compensation is 6.6 times per capita GDP for specialists and 4.2 times for primary care compared to 4 and 3.2 in OECD nations, the U.S spends 54% more for the top five inpatient medical devices, and the U.S. spends six times more for administration than the OECD nations.
- "Overall our understanding of high and rising costs is fairly solid. Our most pressing needs are not as much on the research side as on the development side, that is, all of the technical work needed to pursue many of the reforms..."
Are these the "inconvenient truths" in health care reform?
The data would seem to say they are.
So does this mean we should back off on tackling obesity, forget medical malpractice reform, and scrap plans to reduce the uninsured?
No. I'd respond it's fair to say that is not what the author has in mind.
There is a moral imperative to deal with the uninsured. Being obese may save the system some money in the long-term because the person dies a lot earlier--hardly a desirable policy objective. That obese person still costs us a lot more in the near term and typically suffers from chronic disease in the meantime. Our medical liability system needs reform if only to reduce the rate of medial errors and the human toll those take.
But when it comes to health care costs, the real target needs to be productivity--or said another way cost containment.
One finding from this report really struck me: "If the efficiency of the delivery of services could by increased by 20% over 10 years, this would roughly close the gap between health care spending and GDP over that period." The bottom line is that if we want to contain our health care costs we need to find productivity improvement in things like technology use, treatment patterns, and administrative overhead.
Today, most health care reform plans focus on things like expanding the number of the insured and wellness initiatives. Those are good objectives.
But covering more people will cost more not less. Improvements in lifestyle--particularly obesity--can help.
But we cannot afford to stop there. Literally.
The big-ticket play is in productivity--the more discriminate use of medical technology, consistently practicing outcomes-based medicine, and reductions in system overhead particularly in the insurance system.
The problem with the health care productivity issues is that you have to step on some very powerful toes amongst the stakeholders to make any big gains--it's a lot easier to talk about insuring everyone and promoting wellness.
If we only increase access and don't hit the health care productivity issues head-on we will simply craft a system we will never be able to sustain.
15 comments:
Thanks for the post Robert. These findings confirm what I've believed to be fundamental truths for a long time: 1) technology plays a paradoxical role within the context of costs (specifically, medical technology); 2) increasing coverage also increases costs (just look at MA - my home state); 3) reducing admin costs needs to be a continuous, system-wide focus...not a one-time hatchet job every 3-5 years.
A couple of other points...
First, for the last several years, payers have invested millions upon millions in wellness programs, disease mgmt, incentives, etc...but I believe the increased overhead of these programs quickly erodes the ROI from the medical cost containment that may result.
Second, the entire system needs to address the fact that the US is paying dramatically higher prices than other countries for the same drugs, medical devices, and basic physician services. There isn't enough policy discussion on this element of cost containment at all...
Dear Dr. Laszewski,
I was at the National Press Club yesterday, I am sorry that you had to leave in a hurry. You are quite the scrapper! I appreciated your comments.
I had two questions for you that we could not get to because of the time:
One: In our Nation's healthcare debate why does access (covering the uninsured) always float to the top over cost? Costs touches us all, especially all of us that do vote. We loose sleep at night worrying about the cost of our healthcare. I doubt seriously that anyone looses sleep over the uninsured. And the uninsured are largely non-voters. Why does is float to the top over costs consistently election after election when the uninsured do not vote? (oh, and you cannot say its our moral imparative. there are lots of moral issues that do not get addressed in election years that are far more important that insuring the uninsured. Afterall, it is not as if they receive no healthcare at all.) Is it just he greedy healthcare service providers that want to get paid by the 47 million uninsured, and the fact that these providers have excellent lobbist?)
Two: The productivity arguement. O.K., it makes reasonable sense. At bottom though, it is the physician who is the gatekeeper of these services. The point of the inverted triangle is directly on the physician. "Joe" physician is prepared for this burden? "Dr. Joe" just trying to run his practice, pay his employees, hang on to his patients, and keep his wife happy with a better of standard of living. He is not trying to innovate in a way that will reduce to less productive services he provides and sells to his patients. Is it not unfair to ask the physician to assume this responsibility.(grant it they have lobbied for it during the last 100 yrs) I asked Dr. G Ginsburg the similar question. His response,..." of course it is fair, who else should it lay upon?"
Your take professor?
Cosby:
Thanks for your questions.
With respect to the uninsured, this issue is a two-edged sword. First, it is important, beyond simply a moral imperative to provide access to everyone, because many folks covered today are just a layoff away from joining these ranks. So, it is an economic insecurity issue for most people.
The other part is that dealing with the uninsured is the high cost part of health care reform. So, when we get past the platitudes re the uninsured we haven't so far found the dollars. I also think that when we get to debating just how we will deal with the uninsured we enter the realm of more government health care programs and that starts to breakdown any consensus for change among people concerned about more government programs and entitlements.
When the day is done, 92% of the people who voted last year (a Lake poll) had health insurance. When it gets to moving forward on the uninsured, the people who vote have health insurance and, for all their anxieties, a comprehensive health care plan has tended, at least so far, to give them even more anxiety.
I think your second question has to do with the role the physician needs to take in our moving toward a more productive health care system.
The short answer is a big one because it is the doc who can best judge the cost quality trade-offs. That said, it is a very tough thing to do as witnessed by the failure of capitation in the early 90s. That is a bigger issue than this comment section can allow for.
But if your question is whether the doc needs to be at the center of any reformed system, my answer is clearly yes. When we get to the docs responsibilities and incentives so we don't have the runaway system we had under earlier forms of fee-for-service, it gets a lot more complicated.
Robert,
I thought yesterday's panel was as good as it went. Too often the panelist just make a speech and then respond to a question. What is most enlightening is when the panelists themselves engage in discourse--that is when the exchange of ideas is exciting.
Anyway, I'd love to see an expanded post from you on the productivity angle you discussed there and here briefly.
Dr. Laszewski,
Thank you for your thoughtful comments.
As a follow up to the physician topic.....I was passionately in love with capitation. Especially during my masters work at GWU during 1997 to 2000. Every chance I had I elected capitation as my focused subject. Sadden when it died an unnatural death. I really felt it was at the heart of the overuse and low productivity issue. An address to the perversion. And from the insurance prespective a 3 year capitation does not need to be trended by 12% annual at the annual health insurance renewal. R.I.P. capitation.
Thank you for that convenient summary of a very important study, Bob. I hope that kind of intelligent analysis will somehow worm its way into the public debate past Joe the Plumber, Bil Ayres and other simplifications and irrelevancies.
Whe you say "there is a moral imperative" regarding the uninsured, I really hope you will develop that proposition more fully in a further post. When I see unconditional, categorical phrases like "there is a moral imperative regarding the uninsured" or "health care is a right" made with the same confidence as "the sun is hot" and "water is wet", I feel that these conclusory statements are lacking in intellectual rigor and, since you are exceptionally clear-eyed about issues in this field, I am hopeful that you will supply the analysis underlying your assertion some day.
The average primary care doc is already working in a high volume, low margin environment. Seeing more patients at lower cost when the average visit time is now less than 15 minutes is not realistic, safe or cost effective.
Nurse Practitioners have been touted as a cost saver. What we're seeing in our area is NP salaries coming closer to private practice Family Physician pay. Nurse Anesthesia personnel actually make more than the average family doctor and get more time off.
To say that Medical Malpractice has an insignificant effect on costs is counterintuitive. As a rural FP/OB in IL I pay $50K/yr. in malpractice. With my margin of $50 per visit, I have to see 1000 people in the office just to pay for my insurance. 40 days of work per year just to pay the insurance. This is killing primary care and student interest in it. Lack of available, cost effective primary care is putting the US behind.
If you total up the total amount spent on healthcare then the total malpractice bill would seem a small fraction. Primary care physicians who have the lowest profit margins suffer the most from rising malpractice rates. The systemic fallout from that and the negative effect on the primary care pipeline appears to have been unappreciated.
You can't grow a healthy system by choking primary care off at the roots.
I’ve known and admired Paul Ginsburg since the late 70’s when he was teaching health economics at Duke and I was teaching health economics down the road at UNC. And since then I’ve also done studies of the factors associated with increases in health care spending. Paul’s analysis is thorough, but in a sense incomplete. Identifying technology as the driver for 38%-65% of the increases only tells us “how” we are spending this money, not the “why.” If as a nation we had tax-advantaged employment-based boredom insurance we might similarly find that technology was a major culprit in the cost crisis in home entertainment.
I’d suggest that an alternative major culprit in health cost escalation in the U.S. is that we keep finding ways to eliminate competitive returns to low prices in health care services. Paul mentions in passing that there is little price competition in health care but that’s as far as he goes. There are competitive forces in health care as shown in pricing for otherwise uninsured lasik surgery, and in the annual open enrollments for FEHBP and the relatively new Medicare Part D. But with Medicare’s physician fee schedule coupled with the limiting charge regulations, all docs in a locality get the same payment for any particular service. A newbie can’t really attract patients with a lower fee and an experienced and/or higher quality doc can’t get any higher payment to reflect higher value or perhaps support additional patient education efforts. Pete Starke, the OIG, and the Justice Department perceive physician discounts to patients to exemplify nothing more than illegitimate trolling for patients to enhance revenues. I’m not going to hold out to argue that hospitals regularly compete in price, but under pre-PPS Part A cost increases got rewarded and cost cutting didn’t save hospitals very much, if at all. Hospitals compete for patients by competing for physicians in office amenities or specialized equipment.
All in all, cost increases get absorbed because patients rarely know what they are spending, and most of their insurance is funded through employment-based insurance that most workers consider to be “other people’s money” rather than their own earned compensation. In fact, at least one view of the conventional wisdom is that the best health insurance for families or individuals is that for which you don’t pay anything. No co-payments and no premiums. As occasionally a pointy-headed economist, I have to say that there aint no such thing as a free health insurance plan. Workers, families, individuals pay for their health coverage—not employers. Further, if one examines the private insurance data from the National Health Accounts, patients are paying out-of-pocket higher real amounts but in fact ever smaller shares of health costs. In 1960 private health insurance “paid” 31% of the bills—patients paid 69% out-of-pocket. By 2006 this was more than reversed: 74% insurance, 26% out-of-pocket. That’s a 236 percent increase in the implicit replacement value of health insurance not considering any changes in prices or moral hazard. And that equates to a 1.9 percent annualized increase in health insurance premiums.
I would argue that because the returns to low prices are negligible the bulk of productivity changes we observe in health care are value enhancing rather than cost reducing. (“Productivity” is not solely about efficiency. And Baumol in 1967 suggested why one might not always observe increasing efficiency in health care.) If cost reductions can’t or don’t attract additional volume, then improved productivity goes into better products or products with more bells and whistles. Health care is different from many other markets, but contrast it with other high tech spheres such as computers or cell phones. Real costs in those markets have tumbled in addition to making standard what otherwise would be just more bells and whistles. Recent advances in health care have allowed treatments for previously untreatable conditions. Some clearly are over-utilized, but their productivity improvements cannot be denied.
Finally, health care cost increases are nearly worldwide—not just a U.S. phenomenon. In particular, the developed world is spending more and more on health. (The comparisons may depend on what time frames are under consideration.) The OECD website yields a variety of data. If one examines the decade from 1996-2005, per capita health spending in U.S. dollars (using purchasing power parity—PPP—calculations) reveal the U.S. to be 20th out of 29 listed OECD countries in annualized growth: 5.3%. Looking at the annualized growth in health spending as a percent of GDP, the U.S. is 15th of 29: 1.4%. [OECD Health Data 2008 - Frequently Requested Data http://www.oecd.org/document/16/0,3343,en_2649_34631_2085200_1_1_1_1,00.html]
Health care should be a right in the richest nation on earth. What are our taxes for - just launching three trillion wars on lies and pretexts? Doing the next round of bailouts for giant corporations that the governement has gotten into the business of deregulating since Reagan?
We need and can afford a single payer system but the titanic health care lobby has half the nation convinced this would mean Americans would have to start carrying little red books and burning the flag.
It's absurd. Social Security and Medicare are examples of single payer systems. They're needed for things that are as fundamental as living up to our responsibilities to the old and the sick.
Cetainly do not feel healthcare is a right. We have many rights in this country but none places the burden upon others to pay for the excercise of that right by another. Especially not considering the same excessive wastseful healthcare system insured enjoy. Certainly you should have a right to purchase the healthcare of your choice.
Just like when evaluating drug studies, It always important to find out who is supporting the foundations who back these types of studies so you can be aware of possible bias. In this case,having looked into RWJ in the past,I know it receives significant funding from a number of organizations with ties to trial lawyers.I had to order it's disclosure statement by snail mail in 2000 to find out, but there it is. A cursury search of the author's website does not reveal any obvious listing of his funding sources, which always raises a red flag when dealing with clinical research.
Perhaps this is the source of the assertion that med-mal dies not drive cost, A phenomenon I have personally witnesses daily for twenty years. Perhaps there is no bias we would never know because it has not been disclosed.
Bob, you really should note that before you tout a publication such as this.
I don't know of two organizations that play it more down the middle than RWJ and The Center for Studying Health System Change.
That comes from 20 years of watching both of them.
The study does not say medmal doesn't drive costs: Medmal does contribute to health spending at any moment in time, but is not a large factor nor a significant factor in overall growth of health care spending.
The current blog has gotten more response than usual. I guess that reflects the controversy it arouses. Kudos to you, Robert, for these efforts.
This study by Paul Ginsberg cuts across ideological lines. First, the misapprehension that health insurance equals health care. That flaw in reasoning is the basis of why the insurance industry -which by the way includes the cabal between govt and private insurance (MCR,MCD)- has established hegemony. One did not need an expensive insurance plan until the Great Society. Now my patients will come to my office and discover that is their insurance does not cover a particular service or drug, they do not need it, or it is not worth it if they have to pay more than a $20 co-pay. The famous 40 millions include illegals, those who "self-insure" and those between jobs. That leaves ~ 9 million, which is bad enough and could change if we allowed individuals to pay for insurance with pre-tax dollars.
Technology is more expensive and hospitals have an open season to charge s much as 5-6 times what would be charged by a private doctor in an outpatient setting, in part due to excuses for technology costs. A hospital with a billion dollar reserve spent $80 million on a EMR system because it had the money. This is a result of government meddling in health care economics. It should be no surprise that government favors the best and highest priced lobbyists (read the trial lawyers and the hospital lobbies - and not the AMA).
And when we talk about costs, if the above, Cosby uses his master's work as his reference> " I fell in love with capitation." Well, I wonder if he would feel the same if college professors had the same rules. Who takes the risk? Will he as a college professor give up tenure or be willing to do 20 classes per semester instead of three because his capitated teacher's salary forces him to do so? Who writes the capitation rules? Unfortunately, pointy headed professors fail to treat health care economics as they do other areas of the economy. As for a "health care right," do we need say more about why health care costs are catastrophic.
I appreciate "David a"s comment about capitation. However, his analogy that medical capitation is to classroom capitation does not fairly apply here. Perhaps if the University would charge by the Major or Degree instead of per credit hour then we would see more focused curriculums, and hence efficiencies. Physicians want the autonomy to make medical decisions without regard to limited resources or intervention by third party payers. The burden to limit these services has to fall on the physician if the physician wants to maintain exclusive autonomous decision making authority. Capitation forces, at the point of decision making, one to balance needs with costs. With the perks of decision making must come equal responsibilities. Capitation does work and I have seen smart providers make it work and be very profitable.
I would like to share few comments as a nephrologyst. First, I treat many patients wha are illegal. I previde care to them for free and dialysis units also do the same. Hospitals get reimbursed for emergency care from gov. but outpatient services are not. Since this situation is created by federal gov. which allowes illegal to work etc in USA for yeas without enforcing existing laws should not fed. gov. pay for those services? It seems as a double standard, as with the requiremant to previde translator for medicaid patients in physician office, but fed. gov. will require costumers who do not speak english to bring a translator. I am not aware of other country which prevides healthcare on chronic basis to illegals. It is different from emergency care to visitors, etc. Even that care will be previded in many countries after you pay.
We talk of cost of care, but in our country wqe have duplication of services which is paid by fed. gov. I am talking about VA services. It prevides care to mostly elderly who have medicare and go to VA clinics to obtain free medicins. All VA clinics serve mostly that function. It would be more cost effective to give veterans supplemental insurance covering medications and tests and eliminate VA cost. VA was founded before we had medicare system and it outlived its calling. That money can be used for true military hospitals so we do not have WR Hosp. situatioins.
I also want to touch on the situation of non for profit hospitals and ins. companies. If they paid taxes it would cover many uninsured. CEO'S of hospitals are making multi million dollars a year and claim the institutions are non for profit. It seems that non for profit couse also outlived its calling in USA, or at last is well defined. I belive tat some hospitals would suffer and go out of business, but so what? 50% of US hospitals are below WHO minimal standards to begin. Maybe it would create even field in industry for more efficient and well organized to previde quality care.
We also spend serious dollars on research, most of it is sponsored by pharmaceutical industry. Researchers and so called national experts are on pharmaceutical industry payroll. We need system which supports objective research as NIH etc. I belive that we need pharmaceutucal companies to pay to NIH and then studies would be administered by NIH and by independent researches. If you want to know why we have conflicting findings on studies, follow the money. When I go to conferances, all pannel members and presenters are on pharmaceutical companies payroll. If we have objective studies, then maybe we can develope clinicly objective policies.
Cost of computerized healthcare needs to be evaluated as well. EMR adds significant cost to practices and to hospitals. It dose not make delivery better, it makes it more costly. Time which physician spende with patient is about 25%, and 75% with computer and chart,etc. The some goes for nursing. Nurses are diverted from direct patient care to virtual world of documenting staff which was never done. It looks good on the computer, but dose not improve outcomes, or patient care. We always look for magic cure to the problem, spend significant resources and then are stuck with the product and question what to do with it? Computers are very usefull, but are not the replacement of quality previders.
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