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Health Spending, Health Reform, and Physicians

Posted Jan 15 2009 7:07pm

The Centers for Medicare and Medicaid Services released 2007 US healthcare spending data in late December.  Since then several publications have come out analyzing this information.  The most comprehensive is probably a Health Affairs article which highlighted a slowdown in the growth in spending for prescription drugs and government administration.

The Center for American Progress also recently issued a paper comparing the US healthcare system in 2007 to the situation in 1994.  This paper concluded:

“The status quo of American health care is spending more money to cover fewer people, yielding disappointing outcomes. Effective reforms, which would invest in measures to improve the quality and delivery of care, reform payment to reward outcomes, and provide affordable, accessible, comprehensive health insurance for all Americans, are long overdue. The best time to fix American health care was over a decade ago. The second best time is now.”

While it is certainly true that the US healthcare system has evolved greatly since 1994, not everything has gone in the wrong direction.  There have certainly been improvements in therapies and data collection and analysis tools - primarily through computerized information technologies.  And while, it is certainly true that our healthcare system isn’t producing the clinical outcomes that are widely believed possible, the good news is that the rate of spending increases appears to be slowing - see chart below.

US National Health Spending Annual Increases: Actual and CPI AdjustedUS National Health Expenditures 1960-2007
Sources: CMS & BLS

Causes of Changing Rates in Increased Health Spending
Closer examination of the healthcare spending trends reveals that there have been peaks and valleys.  The increasing rates leading up to the peak in 2001 is believed to be due to the declining influence of managed care in the mid to late 1990s, when employers were striving to hire and keep workers in the booming economy.  Since finding and retaining employees was so hard, containing healthcare costs became secondary to making employees happy.  Of course, after the economy stumbled in 2000, not surprisingly, the growth in healthcare spending also declined.

An alternative explanation for the timing of the peaks and valleys in the rate in healthcare spending could also be the number of sunspots. As can be seen in the chart below, (see peaks in 1979, 1990 and 2001), there is a correlation between the 11 yearly cycle of peaks in sunspot activity and the rates of increase in healthcare spending.  [This “clearly” demonstrates that correlation probably doesn’t not prove causation - since it could also be posited that greater rates of increasing health spending in the United States “causes” sunspot.]

Sunspots 1965-2008

Back to the Reality of Increasing Healthcare Spending
From the first chart it can be seen that the rate of increasing health spending has declined each year since 2002.  Looking forward, it appears that the economic downturn in the second half of 2008 is reigning in healthcare spending.  Therefore, it would not be surprising if the trend in the growth in health spending continues to decline into 2009, and the CPI adjusted growth rate heads toward zero.

However, additional health spending in the Federal stimulus legislation and/or in health reform could bump up health spending. While increased spending in certain areas of heatlhcare can certainly be worthwhile investments, the rhetoric of healthcare policy seems to always present a contradictory proposition, i.e. more healthcare spending to create jobs and improve the economy is good, but at the same time increasing spending more than GDP growth is bad…… This conundrum seems like trying to have your cake and eat it too.

Next Steps in Health Reform
What is missing or minimized in most of the discussions about increasing health spending is how the the structure and operations of the healthcare delivery system is a fundamental factor causing and maintaining high health spending. Health reform proposals often avoid directly addressing changing the organization of healthcare delivery because it is a complicated, daunting task, and physicians, other clinicians and their patients present a very strong, locally effective lobbying force.

However effective organizations such at the Institute for Healthcare Improvement have made great strides in the care delivered in hospitals, and the Medicare Payment Advisory Committee and physician organizations have made recommendations involving concepts such as Medical Homes, which involve transforming clinical care delivery - although there may be differences in what each organization means by “Medical Homes” and similar terms, and how the proposed changes would actually increase integration and accountability.

Connection Between Transforming Outpatient Clinical Care and Healthcare Spending
The connection between outpatient care and health spending is illustrated in the pie chart (see below) of where US healthcare spending goes:

US Health Spending in 2007 By Type of Service and Activity2007 US Health Spending
Source: CMS

As can be seen, while physicians receive 21% of all health spending in the US, their actions control another 50-60% - so they directly or indirectly are responsible for 70-80% of the $2.2 Trillion in health spending.  Therefore, it should be obvious that it will be crucial to change how healthcare is delivered if health care costs are to be controlled.  And just as obvious is that reforming healthcare delivery will require physicians’ involvement and support. Otherwise, even the best planned and intentioned efforts will fall short of controlling costs and improving quality.

(p.s. Last summer I wrote about the the trends in this health spending and the confusion some physicians have about these numbers.  This post might also be of interest.)

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