As we look at health care costs they are just like the costs in any other business enterprise. You can see them growing and the issue is why. Regrettably politicians and Congress specifically just are incapable of digging down deep and ascertaining what the problems and and how to fix them. First a general observation may be of some value.
The two segments of our economy which have costs growing well beyond inflation are health care and education. All of our other segments, the private ones, have increasing productivity. Someone should ask why. The general answer is increased regulation. In higher education there are more and more administrators whereas the faculty to student ratio is constant. In fact there are frequently fewer faculty. There are just more staff, and to do what, fill out forms and meet Government mandates. We know that health care administration is the fastest growing sector as well.
Now to several facts. First the expenses. We show these below for 2007.
Here we see hospitals have 31% of the total and physicians have 21%, and these are the top two totalling 52%. Drugs are just 7% despite the cry that they are a major factor. Nursing home care and home health care currently represent 10% of the total.
Second, the rate of growth of these expenses is large. We show this in the following Figure.
Presented this way these rates look frightening. Home health care and administration stand out. This should be a concern. Administration is 7% of the total costs and frankly they may be greater since there are administrative costs hidden in physician costs.
Fact 3 is that if we subtract inflation and population growth numbers some areas are showing productivity gains and others stand out. We show these below.
Presented in this manner we see that home health care. hospital care and physicians still stand out above the norm. The reasons must still be determined. One must remember that hospitals get almost half of their income from Medicare and Medicaid and these are highly controlled to DRGs, diagnostic related groups, and thus it is generally more difficult to have inflation if the Government is directly controlling costs. In addition and on the negative side there is an increase in uninsured which does drive up ER costs.
Fourth, physician costs are dominated by specialists as we show in the following Figure.
Fifth the specialists costs a greater deal, usually twice, what the internist does and there are many more of them as shown below.
We show this also in the Figure below:
But it still leaves us with the question regarding physicians; is it their salaries which are increasing, their overhead, the number of procedures, the cost per new procedure, the technology of the procedure, and so on. There is also the question of whether the costs have provided more benefit in terms of outcomes to the patient, the often heard cry for health care reformers. We argue that it will require digging down deeper into the details to determine this and the the following Figure presents a paradigm to do so:
The total costs are readily broken down on a per person basis by disorder, its frequency, the medical service required, the processes per service and the costs per process. To date we have seen no such analysis from the Government and several private groups have done some preliminary work but not to the level required. This analysis is the necessary first step in both determining what is wrong in health care and what can be changed.
The problem is simply stated; reduce costs while maintaining or increasing the positive outcomes. This is unachievable until we first solve the above simple problem. It is just data gathering and the ultimate responsibility is the Governments, but they seem to have no ability to address this issue. As an aside, even getting the data from the Government web sites is near impossible. In contrast we have the financial data from the St Louis Fed site being sine qua non in ease of access and ease of use. The St Louis Fed is somewhat of a Government entity but then again it is in St Louis and not Washington.
The two segments of our economy which have costs growing well beyond inflation are health care and education. All of our other segments, the private ones, have increasing productivity. Someone should ask why. The general answer is increased regulation. In higher education there are more and more administrators whereas the faculty to student ratio is constant. In fact there are frequently fewer faculty. There are just more staff, and to do what, fill out forms and meet Government mandates. We know that health care administration is the fastest growing sector as well.
Now to several facts. First the expenses. We show these below for 2007.
Here we see hospitals have 31% of the total and physicians have 21%, and these are the top two totalling 52%. Drugs are just 7% despite the cry that they are a major factor. Nursing home care and home health care currently represent 10% of the total.
Second, the rate of growth of these expenses is large. We show this in the following Figure.
Presented this way these rates look frightening. Home health care and administration stand out. This should be a concern. Administration is 7% of the total costs and frankly they may be greater since there are administrative costs hidden in physician costs.
Fact 3 is that if we subtract inflation and population growth numbers some areas are showing productivity gains and others stand out. We show these below.
Presented in this manner we see that home health care. hospital care and physicians still stand out above the norm. The reasons must still be determined. One must remember that hospitals get almost half of their income from Medicare and Medicaid and these are highly controlled to DRGs, diagnostic related groups, and thus it is generally more difficult to have inflation if the Government is directly controlling costs. In addition and on the negative side there is an increase in uninsured which does drive up ER costs.
Fourth, physician costs are dominated by specialists as we show in the following Figure.
Fifth the specialists costs a greater deal, usually twice, what the internist does and there are many more of them as shown below.
We show this also in the Figure below:
But it still leaves us with the question regarding physicians; is it their salaries which are increasing, their overhead, the number of procedures, the cost per new procedure, the technology of the procedure, and so on. There is also the question of whether the costs have provided more benefit in terms of outcomes to the patient, the often heard cry for health care reformers. We argue that it will require digging down deeper into the details to determine this and the the following Figure presents a paradigm to do so:
The total costs are readily broken down on a per person basis by disorder, its frequency, the medical service required, the processes per service and the costs per process. To date we have seen no such analysis from the Government and several private groups have done some preliminary work but not to the level required. This analysis is the necessary first step in both determining what is wrong in health care and what can be changed.
The problem is simply stated; reduce costs while maintaining or increasing the positive outcomes. This is unachievable until we first solve the above simple problem. It is just data gathering and the ultimate responsibility is the Governments, but they seem to have no ability to address this issue. As an aside, even getting the data from the Government web sites is near impossible. In contrast we have the financial data from the St Louis Fed site being sine qua non in ease of access and ease of use. The St Louis Fed is somewhat of a Government entity but then again it is in St Louis and not Washington.
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