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How About Some Health Care for a Changeup?

By December 19, 2021Commentary

As the world’s leaders and experts once more demonstrate that they haven’t learned anything about responding to the epidemic, how about a couple of uplifting health care research stories for a change.  Okay, maybe not so uplifting.

One area that fascinates me is how much variation we see in how physicians and other clinicians practice medicine.  This difference exists despite all the work on “evidence-based” medicine and care guidelines.  It results in large differences in costs and utilization.  And generally it isn’t associated with better or worse quality outcomes.  A number of interventions have been tested to attempt to reduce variation and increase adherence to guidelines.  There is an extensive research literature on this geographic variation and its potential causes and these interventions.  The variation exists not just between states or metropolitan area, but within them, so whatever factors drive different practice patterns isn’t purely geographic.  This study looked at differences in use of common procedure for chronic venous insufficiency and whether showing physicians benchmarking data on how they compared to peers would reduce it.  There was very wide variation across the country, and the intervention reduced it significantly.  So at least physicians will respond if shown that their practice pattern may be an outlier.  (JAMA Article)

On to a more depressing topic, national health spending.  The US spends a lot of money on health care, primarily because we have very high unit prices–for medical products like drugs and for medical services.  We pay our physicans a ton, we pay our hospital executives a fortune, so our services cost a lot.  We actually do a pretty good job of controlling utilization, despite a lot of unhealthy behavior and people.  Every year, the Office of the Actuary at Medicare releases data on national health spending and trends in that spending, and the current report covering 2020 is out.  As you might expect, 2020 was a bit of an unusual year.  (HA Article) (You can find the data as well at the HHS website, go to CMS and the Office of the Actuary links.)

In 2019, health spending rose 4.3% year-over-year, which is in excess of inflation.  But in 2020, it rose 9.7% to $4.1 trillion.  Federal spending rose 36% largely due to CV-19.  Although there was a lot of CV-19 spending (much of it wasted), there was reduced spending in some other areas.  2021 is going to be another weird year and it will take several years for everything to sort out.  We are spending almost 20% of our GDP on health care.

The report contains data for several years and if you want a primer on who pays for health care and where the dollars go over time, it is very useful for that purpose.  In recent years, businesses and consumers have paid for about 55% of health care and governments for most of the remainder, but the reality is that individuals pay for 100% of it in taxes, premiums, health benefits in lieu of wages, higher prices for non-health care goods and services, etc.  So don’t delude yourself that someone else is paying for your health care.  In 2020, due to all that great federal spending, government’s share of spending rose to about 50%, while that of businesses and consumers fell to the same level.

Where does all this money go?  Hospitals get about $1.27 trillion of it for inpatient and outpatient services, or well over 25%.  Physicians and other clinicians get about $1.07 trillion, also around 25%.  Drugs and devices are about $490 billion.  Home health care is $124 billion.  Nursing home care is $197 billion.  Now here is some real waste–the costs for governments to administer their inefficient health care programs–$301 billion.  That is administrative cost, not the cost of the services paid for by programs like Medicare and Medicaid.  Private health insurers add another $224 billion in administrative costs and profits.  The cost of administering both government and private health care went up greatly in 2020, and private insurers made a lot of money.  And about $192 billion was spent on research and buildings.

You would justified in wondering what we get for all this spending and if there isn’t a better way to finance it.

Join the discussion 5 Comments

  • voza0db says:

    “health care”… since March 2020 there is no bigger oxymoron than that!

    Be Responsible. Take Good and Proper Care of your own Organism. That’s the best form of Health Care I know of!

  • Rob says:

    The better way to pay for it is to pay for it yourself directly instead of a third party paying it. But the average American turns apoplectic if you suggest such a thing. At the very least insurance companies as actual mutual societies rather than as publicly traded corporations would be advantageous but the reality of risk pools upsets the average American for the same reasons.

    The institutions and people making money hand over fist will do everything they can to keep the gravy train running, and as long as people are deluded into believing the costs are being paid by others that train is going to keep rolling at increasing speed. When you’re on a runaway train the choice is to jump off (certain injury and possibly fatal) or stay on and hope it slows down on its own (if the boiler keeps getting stoked it won’t slow down and the crash will be certain injury and likely fatal). Elected officials and bureaucrats simply have only one setting – keep shoveling. They think adding regulations is applying the brakes but it only adds fuel to the fire.

  • LA_Bob says:

    “One area that fascinates me is how much variation we see in how physicians and other clinicians practice medicine.” And howdy. Probably far more art than science at least at this point in our social evolution.

    My impression is, in general,

    * More treatment is not necessarily better treatment
    * More research is not necessarily better research
    * More money spent is not necessarily money well spent

    The entire subject is possibly the Moby Dick of “wicked problems”.

  • Joseph Lampe says:

    A long time ago I realized that people want unlimited medical care at zero personal cost.

  • guest says:

    With respect to healthcare spending, I recently heard about a statistic comparing the growth in number of physicians vs growth in number of administrators. The percentage growth in administrators is stunning.

    “In an economy run on soft money, intermediary business models and professional roles designed to extract value from the money that originates at the center (the central bank) and flows outward into an economy (through successively lower tier banks and eventually to businesses and consumers) start popping up everywhere. These intermediary functions add little value to an economy yet capture a disproportionate share of the value of economic output; a dynamic commonly called ‘rent-seeking’ that is unsurprisingly pervasive in industries that suffer from extensive government meddling like healthcare, education, and banking. After the last vestiges of hard money were abandoned in 1971, rent-seeking has exploded; consider the case of healthcare:

    [Chart (image) showing “Growth in Physicians and Administrators” from 1970 to 2009]*R7c9uE0IVD7YCQj4ZbXS-w.png

    Meaningful work is being compromised by central banking. There has been a demographic shift from value-additive to value-subtractive positions – as evidenced by the training of more bankers than engineers, or the academic credentialing transition from medicine to finance. In a free market, compensation is reflective of a role’s usefulness to society. But with monetary socialism, there are greater financial incentives to work closer to the spigot of fiat currency in roles that are mostly non-productive and extractive.”

    The excerpt brings to mind the phenomenon of “b.s. jobs” that seems to be a feature for an industry going through financialization and government intervention.

    As this pertains to topics you touch on occasion on your blog, one is the high compensation of healthcare executives receive – often executives of “non-profits”. As awkward as that executive compensation seems, the number of administration jobs in the healthcare industry (e.g., billing, insurance) seems more awkward, and the money pie for those administration roles dwarfs the healthcare executive compensation.

    Another topic is the “froth in capital markets” with respect to healthcare-related companies. I’m thinking of an earlier post where you wrote:
    “More froth in the capital markets as R1 RCM pays $4.1 billion for CloudMed. R1 RCM helps health care providers with billing and other practice management software and services and CloudMed supposedly brings artificial intelligence to those activities.”
    I question how much value these types of companies bring; and all this money thrown around that can be classified as for “healthcare” seems more to do with finance/admin than with patient care. Oh well; just some ramblings.

    article source:
    “An Open Letter to Ray Dalio re: Bitcoin” by bitcoin proponent Robert Breedlove. (No, I’m not leaving this comment to argue about the pros or cons of bitcoin.)

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