• Study:The Anatomy of Health Care in the United States

    From JAMA. I reformatted the abstract, and broke it up into paragraphs to make it easier to read:

    Health care in the United States includes a vast array of complex interrelationships among those who receive, provide, and finance care. In this article, publicly available data were used to identify trends in health care, principally from 1980 to 2011, in the source and use of funds (“economic anatomy”), the people receiving and organizations providing care, and the resulting value created and health outcomes.

    In 2011, US health care employed 15.7% of the workforce, with expenditures of $2.7 trillion, doubling since 1980 as a percentage of US gross domestic product (GDP) to 17.9%. Yearly growth has decreased since 1970, especially since 2002, but, at 3% per year, exceeds any other industry and GDP overall.

    Government funding increased from 31.1% in 1980 to 42.3% in 2011. Despite the increases in resources devoted to health care, multiple health metrics, including life expectancy at birth and survival with many diseases, shows the United States trailing peer nations. The findings from this analysis contradict several common assumptions. Since 2000,

    1. price (especially of hospital charges [+4.2%/y], professional services [3.6%/y], drugs and devices [+4.0%/y], and administrative costs [+5.6%/y]), not demand for services or aging of the population, produced 91% of cost increases;
    2. personal out-of-pocket spending on insurance premiums and co-payments have declined from 23% to 11%; and
    3. chronic illnesses account for 84% of costs overall among the entire population, not only of the elderly.

    Three factors have produced the most change:

    1. consolidation, with fewer general hospitals and more single-specialty hospitals and physician groups, producing financial concentration in health systems, insurers, pharmacies, and benefit managers;
    2. information technology, in which investment has occurred but value is elusive; and
    3. the patient as consumer, whereby influence is sought outside traditional channels, using social media, informal networks, new public sources of information, and self-management software.

    These forces create tension among patient aims for choice, personal care, and attention; physician aims for professionalism and autonomy; and public and private payer aims for aggregate economic value across large populations. Measurements of cost and outcome (applied to groups) are supplanting individuals’ preferences. Clinicians increasingly are expected to substitute social and economic goals for the needs of a single patient. These contradictory forces are difficult to reconcile, creating risk of growing instability and political tensions. A national conversation, guided by the best data and information, aimed at explicit understanding of choices, tradeoffs, and expectations, using broader definitions of health and value, is needed.

    My frustration? That anyone treats any of this as news. At some point we need to stop diagnosing the problem and start doing something about it.

    The whole thing is worth a read. But none of it will be news for regular visitors to TIE. Why isn’t everyone reading this blog already?!?!?!


    • Well, a big part of the problem is that we can’t agree on what ‘doing something about it’ should look like. Broadly speaking the bloggers here at TIE see the problem and say “Ah ha, need more central planning’ while I and my ilk see the problem and say ‘Ah ha, need more markets.’

      On a more substantive note, I see that over the time period studied the share of government expenditures has grown, the share of personal expenditures has declined, and the pace of health care expenditure growth has not moderated. Connection? I fear I’d see this as reason for ‘need more markets’ and you’d see this as ‘need more central planning.’

      • Sean, this last statement is false: “and the pace of health care expenditure growth has not moderated. ”

        As the abstract notes, the pace has moderated since 1970, and especially since 2002. So, even though the share of government spending has increased, and the share of out of pocket expenditures have decreased (in short, as there has been less “skin in the game” for individual consumers), the growth in health care spending has slowed. The implication is directly contrary to the one you suggested.

        Would you care to rethink anything in light of this information?

        • Well, I suppose it all depends on the time frame you’re talking about, your metric being used, your sources, etc. I was speaking generally about what I’d recalled seeing in the literature, from a variety of sources. So here, for example, is Peter Orzag’s testimony to Congress in 2008 titled ‘Growth in Health Costs,’ http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/89xx/doc8948/01-31-healthtestimony.pdf. Note Figure 1 labeled ‘Total and Per Capita Spending On Health Care, 1965-2005.’ It’s been a while since my college calculus classes, but as I recall the shape of the curve in the graph suggests accelerating growth.

          I’m sure there are other measurements based on different definitions, some of which will reinforce my point and others that will tend to refute it. Regardless, I think the point still stands – 45+ years of government playing a major role in health care spending has not produced much in they way of health care spending restraint.

          • Sean, this is a very weak response. First, a constant annual growth rate in costs compounds, so it shows up as “accelerating” (upward curving) costs when presented in constant dollars, as figure 1 does. You didn’t have to remember your calculus, or even 9th grade algebra and trigonometry, to see that the rate of growth has actually been declining. You only had to look at the very next graph, figure 2.

            Second, it doesn’t really depend on the dates you pick. You have to try very hard to cherry pick dates in a way that shows accelerating rate of growth. It’s a pretty robust, consistent and long-term result. If you haven’t absorbed this central fact of US health care costs yet, your credibility is undermined.

            So the point stands: as out of pocket costs have taken a smaller share of total costs, and as government has taken a larger share, the rate of growth has declined. Exactly the opposite of what you believe. So, will you revise your belief?

      • Help me understand how markets can help the situation. When I think of a market, I imagine a open agora where buyers and sellers can meet without restrictions and where the goods/services being sold are easily understood by the buyers and prices are clearly labeled even when the label price is only the starting point to the haggling process. This vision is antithetical to the reality of medical care. Suppliers are strictly limited by limited places in medical schools, state rules, boards for certification, etc. Buyers are often in real need of guidance regarding what they need. The services are hard to understand-is there a clear answer to the best approach to many common conditions? Prices can’t be found out. You may need medical care during a crisis when it is hard for you to make a dispassionate market decision; while having severe chest pain you will have trouble deciding between surgery/stenting/medical therapy. Hospitals are driving out or buying up competitors creating large systems. Hospital systems often have vertical integration with an insurance product, owned primary care and specialty care clinics, regional labs,etc. As I see in this situation was not imposed by a central planner; although, I certainly see lots of regulatory capture where the government becomes the enforcement arm of a private entity as in letting the AMA RUC decide the value of surgical procedures.
        Is not this process an integral component of economic life in general? In the past fifty years there are a lot fewer airlines, fewer forestry product companies, fewer locally owned department stores, fewer gas stations, and fewer locally owned banks. Exxon has merged with Mobil and the big pharma companies have bought up lots of smaller ones.
        To me free markets represent an appeal to an Eden that was never an actual part of this earth.
        Are you proposing more medical schools to increase the number of providers? Who would build those?
        Are you proposing new hospitals to break up the power of the hospital systems that are in place now?

        • Oncodoc says:

          “Help me understand how markets can help the situation. When I think of a market, I imagine a open agora where buyers and sellers can meet without restrictions and where the goods/services being sold are easily understood by the buyers and prices are clearly labeled even when the label price is only the starting point to the haggling process.”

          You sound like one of those many pre-meds I was tasked to instruct in baby-math and baby-physics and who never really mastered any STEM or economics. Can you imagine a market such as those at Walmart, eBay, Amazon and Craigslist? I buy there all the time, and often I buy things I don’t fully understand, like iPads, security cameras, shortwave radios and model airplanes. While it is nigh impossible to find a “good doctor,” using word-of-mouth or Angie’s List, I can easily find retail products online by googling information, reading the product description and online product, installation and service manuals,
          consulting the user reviews and, ultimately, relying on the fact that they publish their prices and compete in an open market.

          I’ve seldom met a doc who understood all that is involved in buying a quality pencil, for chrissake, and certainly none who could begin to make one. How the market manages that feat without central control of design, mining, manufacturing and distribution was well explained by Adam Smith and Milton Friedman, two geniuses who don’t figure in the education of doctors.

          Docs and hospitals, on the other hand, not only do NOT publish their prices, they do all they can to hide the ball: they maintain phony price lists, give hidden discounts to insurance companies, Medicaid and Medicare patients and charge me, the cash paying customer, for their office overhead that I don’t need and what amounts to some 40% of a typical bill. The only benefit in dealing with a doctor is that you can ask for, and usually get, a 5% discount for paying in cash, which you can’t do at Amazon, eBay or Walmart. But that is chump change, considering that the typical doc has to maintain detailed records by CPT code for insurance, Medicare and Medicaid payers, justify every charge, wait for payment, dispute the charges and then sometimes write it all off. The poor cash-paying patient supports all this nonsense. Give me a break!

          Furthermore, many docs practice double-dealing, recommending more expensive treatment at their own clinics and over-utilizing their own expensive CRTs and MRIs.

          No, doc, hiding the ball, abusive pricing, vertical integration, and self-dealing are NOT “an integral component of economic life in general.”

          There may well be “a lot fewer airlines, fewer forestry product companies, fewer locally owned department stores, fewer gas stations, and fewer locally owned banks” than when you were a child, but air travel is much faster and cheaper, and retail purchasing (Walmart, Amazon and eBay), plywood and banking are better and cheaper. The medical industry in the USSA has the unique distinction of being slower, less available and far more expensive. Who the hell would cross the Mexican border (or fly to Thailand, India or Prague) to buy gasoline, airline tickets, iPads, computers, lumber or video games?

          There are thousands to are doing so to avoid Amerikan medical treatment. When I deal with Walmart, they never do a wallet biopsy or ask if I have insurance when I walk in the door, nor do they discriminate against me for being a young, single, childfree male. The insurance-medical industry, on the other hand, practices discrimination that would put Jim Crow to shame.

          And you ask who would build more medical schools to increase the number of providers. Who the hell is building all those servers needed to run the internet? Who is running Wikipedia or Craigslist? Hint: it is not the government or anyone licensed by the government.

          Who is educating Amerikans regarding government control of their lives? Hint: he is NSA’s Enemy Number One.

          Yes, the government is incompetent and evil when it comes to professional licensing and controls on wheelchairs and drugs. Thank Darwin the government doesn’t (yet) set food prices or pretend to control web searches, web encyclopedias, web dictionaries or Craigslist! And thank Darwin that we still have an open border to Mexico.

          I suggest you go back to school and pick up some of that STEM and economics stuff you missed the first time around.

          • Jimbino: You may already be aware of this, but lots of doctors are cash-only, and don’t take any insurance. As such, they’re able to offer better prices than the insurance-accepting doctors. You can find ways to access them here: http://theselfpaypatient.com/selfpayhealthcaremarket/

            There’s also some other information you may find helpful there, I’ve tried to bring together a lot of the different elements of the self-pay health care market. Hope this is useful to you!

          • Jimbino:
            Thanks for your comments. I acknowledge that I have a limited understanding of economics. Frequently the call for free markets sounds like an appeal to something that does not exists especially in the medical arena, and you list several obstacles to that market that I agree with. Regulatory capture is a big one as I see things.
            I my own defense, I would like to say that I did take big-boy (it was all male in those days) physics since I did pretty good in my calculus class. I was the only person to get a B; a few skinny physics majors got A’s and the majority engeering students got C’s.

        • To answer your last question/point first, I’m a longtime opponent of certificate-of-need laws and a proponent of, among other things, physician-owned hospitals and surgery centers. So yes, I’m suggesting that new hospitals and medical facilities would be built in a free-market system.

          And a great deal of the other problems you cite I do attribute, at least partially (often substantially) to government involvement, with the original sin being tax favored status for employer-provided health care.

          Rather than go through and try to address each and every thing you mention and try to cram an entire economics lecture into whatever space this blog allows, I’ll simply state the obvious – there is a free market in health care today, more or less. No, I don’t mean that the way most advocates of greater government control over healthcare mean it, which is basically “look, there’s an insurance company making profits, it’s the free market!” I’m talking about the self-pay market, which I report on regularly at my blog, The Self-Pay Patient. It’s composed of doctors that don’t accept insurance, medical tourism destinations, surgical facilities that offer cash ‘package’ prices, insurance policies that provide a lump sum payment for diagnosis of an illness or an injury, and similar arrangements that put patients in the role of buyers and providers in the role of sellers without much in the way of government direction.

          Yes, there are government licensing requirements, and some other government involvement as well. Generic drugs, for example, are heavily dependent on patent law and the speed at which the FDA approves things. I’d probably tweak a few things here and there if I were the regulator of these industries, but by and large it’s a ‘light touch’ in terms of government involvement.

          So, it exists, and it seems to work fine for many of the people who are in it. I wish public policy was oriented more towards allowing people to access this relatively free market, along the lines of how food stamps allow the poor to access the relatively free market in food (yes, I know about subsidies – note my use of the term ‘relatively’). Instead we have the desire to emulate something akin to Stalin’s collectivization of the farms (sticking with the food metaphor).

          I personally have little doubt that most people would do just fine if they were in something more closely resembling the self-pay market. At the same time, I’m perfectly happy to let someone who wants to simply ‘have health care done to them’ as opposed to being a participant in their treatment buy a policy that will give them their $5 copays and zero deductibles. That too is part of a free market.

          Hope this explains a little bit of what I’m suggesting would be a better direction for public policy.

          • Sean, I am intrigued by your comments and plan to start reading your blog. I must admit though that right now I am skeptical about two of your claims. First, you state that self-pay seems to work fine for many of the people who are in it. How do you know that? Can you direct me to any data supporting your claim? Second, you state you have little doubt that most people would do just fine in a self-pay market. For me to better evaluate this claim I hope that you can provide a description what characteristics are necessary in a person to do just fine in a self-pay market.

            • Regarding #1, I’m relying on my personal experience as well as those of the people I’ve encountered. It’s admittedly a qualitative rather than a quantitative assessment, and for people who’s idea of being a self-pay patient is “I’ll go to the ER if I need to and pay the bill if I feel like it” then this isn’t a very good option.

              And that’s the answer to your second question as well, I think. The single most important characteristic of someone for whom being a self-pay patient will work, in my opinion, is someone who is willing to prepare to be a self-pay patient and engage in the market. That includes arranging some form of alternative coverage or getting a high-deductible plan (self-pay, at least the definition I use, doesn’t mean not having any insurance, it just means having to pay for most of your own care directly) – unless you’re in that 1% that some people rave incessantly about, not having some form of coverage is probably a pretty bad idea. It also means shopping for care and considering various options, not just turning yourself over to your doctor and expecting that your role from that point consists of being an inanimate object that ‘has health care done to it.’ as I am fond of saying.

              Hope this helps. Again, the best answer I can provide to the question “can a free market in health care work” is that it is working right now for those that are part of it. We can debate and discuss what ‘working’ means of course, but I have a hard time basically being told that if something works in practice I should ignore that in favor of the theory that says it can’t work.

          • I visited the sites you recommended and I agree entirely with the approach. I must point out, however, that the main thing that differentiates USSA medicine from a free market is the total lack of price signalling.

            You and other medical bloggers could do medical consumers a great service by merely publishing the Medicare or Medicaid tables of government allowances per procedure by CPT code. It would have to be done state-by-state and would no doubt require FOIA requests, since everyone from the AMA to the local practitioner and clinic will do everything they can to obstruct publishing the information.

            • Thanks Jimbino, I should probably mention that it’s my own site – disclosure and all that.

              And there are sites that disclose the Medicare and Medicaid price schedules, but not being a fan of price controls and frankly not seeing a lot of value in prices set through a political/bureaucratic process, I’ve elected not to do so. There are sites I recommend though, including Healthcare Blue Book (https://www.healthcarebluebook.com/) that can give insights into what the averages are that are being paid by many insurers and consumers.

              But the best source of real prices are, in my opinion, the providers themselves that offer real prices. If I’m going to the PATMOS Clinic in Tennessee, for example ), it doesn’t matter what Medicare or Medicaid would pay for treatment of a simple burn, because Dr. Berry doesn’t care – he charges $95. A patient can wave all the Medicare and Medicaid documents in front of his face that they want to, it won’t change his price, or the prices of anyone else who only accepts cash.

      • Given that medical prices have risen faster than incomes, it should be expected that individuals’ contributions lag behind. Further, individuals’s expenditures on healthcare are growing. (Auerbach & Kellerman).

        So looking at it from the side of the family, expenditures are escalating, a sign of market failure and time for a different approach. I will note that almost all other developed countries have as good outcomes for less money and a much bigger Gov’t role.

    • I have commented many times that the crisis in health care spending is attributable to an explosion in the number of people with chronic illnesses (I include old age as a chronic illness since there’s no cure for it) and that consolidation and clinical integration will increase costs. Yet, chronic illnesses received little attention in the national debate about health care reform, and, inexplicably, consolidation and clinical integration are an essential feature of current U.S. health care policy. For the millions with chronic illnesses (cancer, heart disease, diabetes, etc.), they continue to run the risk of financial ruin. And with fewer independent hospitals and physicians, and with more procedures being performed in the hospital rather than in much lower cost outpatient facilities, costs will escalate rapidly over the coming years. Dr. Carroll is right: chronic illnesses and competition, that’s where policy makers must direct their attention.


      “Why isn’t everyone reading this blog already?!?!?!”

      The good Dr. Carroll pitches up a rhetorical slow ball for us to take a swing at:

      As a people, we Americans are largely anti-intellectual. (No surprise there, one supposes.) Fact-based reasoning is not our strong suit. Thus do we avoid it as much as we can. And hence so many are not “reading this blog already.”

      We Americans prefer tautological reasoning, such as that “the American healthcare system is the best in the world”—because it’s the only healthcare system in the whole world that’s “American.”

      Facts and logic such as The Incidental Economist provides give the rest of us a foundation necessary for doing whatever we can to work around the raised fists of anti-logic and get inside for the eventual knockout punch.

      AKA “socialized medicine” like the VA and Medicare is the inevitable outcome. It’s just a matter of doing what little we can to hurry things along. Maybe save a few lives and a few bucks along the way. In the mean time—and for now—we have Obamacare:


      (($; -)}

    • Of course, cynics believe that consolidation and clinical integration is a Trojan Horse: that with few providers, the task of controlling (fixing) prices will be much easier. Is that the cynical view, or is it the optimistic view?

    • “My frustration? That anyone treats any of this as news. At some point we need to stop diagnosing the problem and start doing something about it.”

      You speak for so many of us yet those many live in the on-line, academic, bitching echo chamber. The vast majority of the others have healthcare or are young invincibles who drink the Kool-aid, see unicorns, and believe all is good. They think doing something will harm them.

    • price (especially of hospital charges [+4.2%/y], professional services [3.6%/y], drugs and devices [+4.0%/y], and administrative costs [+5.6%/y]), not demand for services or aging of the population, produced 91% of cost increases;

      Growth of administrative costs seems to be a big problem in the USA in schooling also. I wonder why this is happening and ask myself can looking at the 2 together can help us better understand the problem.

    • Aaron, can you explain point #2 about personal spending on premiums and copayments going from 23% to 11%?

      23% of what?

      The sentence as presented kind of jumped out at me. In the employer markets, personal shares of premium and copayment percents have gone up steadily for virtually all employers. Something does not compute for me.

      Maybe sentence #2 was roping in Medicare and Medicare. With Medicaid HMP’s and some of the Medicare Advantage plans,the personal share might have gone dowm.

      But not for the rest of us!!

    • I agree that this isn’t really news. Many of us inside healthcare have said for years now that the major diver of costs that we see are administrative costs, and the proportion with chronic illnesses.

      In terms of changing the healthcare system, however, I’m not sure the public has ever resoundly voted for doing that. Don’t get me wrong, everyone seems to want to lower costs. But no one wants to do what has to be done to get there. In the current healthcare “system” there is hardly any way to do so that without, in some way, limiting access.

      The issue is that we really don’t want to do away with our current health care system; we want to modify it to fit current needs. What we really need are three health care systems. We already have the best system in the world at treating acute illness. If you have a heart attack, or are in a car wreck, or get cancer, there is no better place in the world than the US. But if you have diabetes, or hypertension, or had your heart attack 15 years ago, what you need is a disease management system, which is very, very different than acute care. We don’t do that well; in part, that is because disease management is actually a very young science which is not taught particularly well to physician trainees. I am a cardiologist, and spent nearly all my training in the hospital dealing with acute illness. But in my clinical practice, I spend a majority of my time in my office dealing with chronic disease management: my patients with heart failure, or high blood pressure, or known coronary disease, or who had their heart attacks weeks, months, or years ago. How often should they be seen? What is the best therapy to prevent acute exacerbations or recurrences of their disease? Is one class of medication better than another at keeping them “stable” and out of the hospital? Do routine tests help, hurt, or make no difference at all? Our system is starting to grapple with these issues, but only just starting.

      We are great at acute care. We are trying to rapidly learn best practices in disease management to care for those with chronic disease who drive most of these healthcare costs. And the third pillar that we need, which we do exceedingly poorly, is disease prevention. What tools do we have, and what do we need, and what works, and what doesn’t? This has not even begun to be discussed in the medical literature, and should be.

      The last thing I’ll say about this is that what complicates healthcare is that individuals move rapidly between these three aspects of a healthcare system with sometimes rapid, sometimes upredictable, and sometimes urgent necessity. Many people who haven’t paid any attention to disease prevention, for instance, suddenly find themselves needing acute care – say by having an MI. Then afterwards they now need chronic disease management for their coronary artery disease and h/o MI. Perhaps they now have a form of heart failure too, and need disease management for that. And of course these chronic disease states will have acute exacerbations at some frequency. But that same patient may also now live long enough to develop cancer, or a neurological disease, or have a car wreck. So while they passed beyond disease prevention for cardiac care and now are in a disease management bucket, they may still be in a disease prevention bucket in another area – such as cancer prevention.

      We desperately need our “system” to get a better grasp on how to prevent acute and chronic disease, and how to manage chronic disease, better, more cheaply, and with better outcomes. But we don’t want to let go of our systems ability to deal with episodes of acute illness – everything from broken bones to heart attacks, strokes, and the like – while this transformation occurs. That is the real danger with these social engineering attempts at transforming, reforming, or trying to reshape the healthcare system.