Sunday, October 07, 2012

When you think about it that way . . .

A friend of mine jokingly said, "What's all this talk about the US health care system being inefficient?  If we consider that the system was designed to transfer money from consumers to the various parts of the health care industry, we are twice as effective as the world average! Why would we expect that a free enterprise health care system designed by hospitals, doctors, pharmaceutical and device companies, IT firms, and industry consultants and suppliers would do anything other than maximize transfers of this sort?" 

Look below, and you can see that he is correct.  In this chart, the world average (including the US) of the percent of the economy devoted to health care is about 8%.  In the US, it is closer to 14%.  (Source is this web page.  Every chart I have seen shows slightly different numbers.)

But seriously, these kinds of charts don't really tell you much.  In most other countries, the health care budget is actually a budget, set by the parliament or other legislative body.  That acts as a brake on overall spending.  But when you have an administrative determination of a nation's health care budget, you don't know if that is the right amount to properly serve the public.

Recall my conversation a few years ago with a hospital CEO in Iceland, where

[t]he parliament uses, as a rough guide, a desire to maintain overall health care costs at a certain percentage -- 10 or 11% -- of GNP. The US, at 15% is viewed as too high. Other European countries, at under 10%, are viewed as too low.

Is this percentage based on a quantified assessment of the actual health care needs of the public, i.e., is it driven by public demand (e.g., a growing aging population)? No. Does it take into account the government's expectation for certain quantifiable levels of service quality, medical quality, or operational efficiency of hospitals and other parts of the system? No.

In essence, this appropriation by the parliament is a politically derived decision, just as it would be for any appropriation for a program of important national priority, and it therefore competes with other worthy national programs for resources.

Or let's recall what we learned in Denmark:

Denmark currently spends about 8% of its GDP on health care (not counting the educational subsidy to those studying to be doctors and nurses.) There is an expectation that this will be quickly rising, to over 10%, within just a few years. There is pressure on the government to spend more to enhance and expand services. For example, while treatment of heart disease is excellent, cancer care is considered less than adequate by US standards, with less use of imaging and chemotherapy; and there is a desire to upgrade it. There is also a huge building program going on -- eight new hospitals are under construction. Too many hospitals are engaged in high-level procedures, and there is a need to consolidate those, but there is reluctance from those currently engaged in those arenas. I had heard previously that the primary care system was very good, with quick care and integrated electronic medical records. The former is true. It is easy to get an appointment quickly, and the care is excellent. The latter is not. Integrated EMRs are not present at the primary care level, although they are at the hospitals. Finally, there is budget pressure: When the end of the fiscal year arrives and a hospital is behind on its budget, it "manages by congestion," delaying procedures until the next year. A colleague here jokingly said, "I don't know why people from abroad come to visit, thinking our system is wonderful. We think it is awful."

Putting aside my friend's sarcastic view, there are reasons for the variation in health care costs around the world.  The numbers in each country, over time, reflect the public's demand for services and the body politic's willingness or unwillingness to pay for those.  When it comes to reducing costs, it is important to remember that one person's costs are another person's income.  The politics of reallocating that money are very complex, in that legislators do not like to take things away from their constituents.  It is much more appealing to be additive rather than subtractive when you are in a legislature.

So don't expect big changes in the current situation.  Directionally, though, we can expect for the US a convergence with what we have seen elsewhere in the world.   We will likely see a move towards a more egalitarian (government provided or government-influenced) offering of insurance products for the majority of the workforce, combined with a less egalitarian offering of premium services for those with higher incomes.  For the rest of the world, likewise, we can expect a convergence with what we see in America, a less egalitarian offering of premium services for those with higher incomes overlaying a national system offering basic insurance coverage for the majority of the population.

In all jurisdictions, the ability to deliver better value care will ultimately depend on the redesign of work in hospitals to improve quality and increase efficiency, whether by Lean principles or otherwise.  Unfortunately, this kind of approach will only be adopted by a small percentage of institutions.  It takes vision and leadership commitment, which are generally lacking in the industry.

Meanwhile, though, attempts by the government or insurers to bolt on financial penalties and the like will have modest impacts.  In those attempts they are trying to get people who are not motivated by finances (doctors and nurses) to reduce costs or to get people who are highly motivated by finances (insurers, device and pharmaceutical companies, IT companies) to not invent ways to "transfer money from consumers to the various parts of the health care industry."

My prediction, therefore, is (with some minor ups and downs) a gradually increasing percentage of national budgets devoted to health care.  The demographics will drive this--older people living longer; Baby Boomers reaching the age of hospitalization, combined with a sense of entitlement about serving their aches and injuries; and a younger generation that is sedentary and overweight.  The body politic will allow this increase in national health care budgets to happen because it is just too hard to take things away from the voters.


Aaron Hefel said...

From Facebook: perhaps there might be growth opportunity for US health systems after all...somewhere outside the US? ...or as it sounds, in almost every developed country outside the US?

Paul Levy said...

Maybe especially for the ones with market power. Concentration is on its way!

James said...

agreed - we shouldn't anticipate any different reactions in a private market industry where margins are 1 - 2 %. I wonder if there's a direct correlation with dollars spent on QI initiatives in the less profitable organizations compared to those with greater successes?

Anonymous said...

I can't seem to find the paper, but there was an interesting piece out of the University of Chicago a few years ago that argued in defense of health care spending.

Essentially the argued that dollars spent on care could easily be recouped by the amount of income generated by the productive lives extended, in addition to what went towards well paying jobs, large community employers, technological advances, etc.

Of course, you could easily argue that spending your health care dollars more wisely would generate the same outcome with less.

Howard said...

Unfortunately, politicians have proven time and time again, how challenged (read: inept) they are in reducing expenditures, regardless how dire the circumstances are for future generations. Spend now and let the next generation (or politician) worry about it.

Those of you who follow David Walker, former US Comptroller and expert on healthcare finances, has been highlighting this mess for years...

It really is maddening!