Wednesday, September 28, 2011

Health Care - Looking at Some Numbers

This year we will spend roughly $2.6 trillion on health care in the United States, $8,000 per capita, twice as much as any other country spends.  Because our health care system is inefficient, variable in quality, and disorganized, by many measures it produces what can only charitably be characterized as mediocre outcomes compared with many other countries that spend far less.

Five federal organizations largely oversee the health care system, each has its own budget and the discretion and power to affect how health care dollars are spent.  The National Institutes of Health is the research arm and acts as the conduit to put new findings into practice.  The Centers for Disease Control and Prevention deals with public health issues such as infectious diseases.  The Agency for Health Care and Quality and the Centers for Medicare and Medicaid Services focus on the organization, delivery and financing of the system.  The Food and Drug Administration has oversight of medical devices and drugs.  Each of these organizations is highly politicized and as a result subject to the lobbying efforts of a diverse set of constituencies on both sides of almost any relevant issue.    

An examination of how the $2.6 billion is allocated shows that approximately 20% is for physicians services, 30% goes to hospitals, 10% for medication, and 7% is spent on administrative expenses, with the remainder going to long term care, government health activities and other ancillary health care programs  So fifty percent of the health care costs are accounted for by physician and hospital charges.

In 1970, there were approximately 330,000 licensed physicians in the country, the population was 208 million and we spent about 7% of the GDP on health care. Thirty years later, by the year 2000 the population had increased to 282 million - an approximately 35% increase - there were 700,000 physicians - a 109% increase - and health care costs were 13% of GDP.  In the last ten years, the population has grown by 10% to 310 million, there are now almost 1 million physicians, a 42% increase, and we are spending 17% of the GDP on health care.    

These data are consistent with the claim that physicians in the United States are paid on average twice that in Western Europe and Japan. It turns out to be also is true for medical administrators.  This is in part due to the concentration of physicians in high tech specialties as contrasted with primary care doctors where the former report average incomes in several specialties of over $1 million/year  The uneven distribution of physicians throughout the country, with wide variation in the ratio of physicians to population from state to state and between cities and rural areas, contributes to variability in medical costs.  One factor stands out in determining the location of medical practitioners; namely the ability to pay for medical care as evidenced by per-capita income of the people of the community.  Where a community is financially able to support physicians, medical practices are established. 

In order to rationalize our expenditures on medical care it is necessary to recognize that it is a unique commodity.  The consumer recognizes they don't have the capacity to critically judge the quality or value of care they receive, sometimes even after the fact.  Historically, physicians had complete control of the process; from judging a patient's need for service to the timing and conditions under which to provide it .  Now, in some cases these decisions are being shared with third party payers.

Since matters of life and death are involved, patients believe only one physician should be vested with the authority to provide care.  There is enormous resistance from patients to the idea of permitting any other agency to be injected into this process and they are often reluctant to consider a different provider which they would do if the forces of economic supply and demand were operating - as they do in almost every other business transaction.  The conditions surrounding the delivery of medical care are unlike those which characterize ordinary economic phenomena because the commodity itself is often priceless. The inherent inequality between the patient and the physician contaminates the entire transaction.  The notion of informed consent is at best only a shadow or outline of a patient's understanding of the essentials of the transaction.   Perhaps the most important change that would affect how we spend fifty percent of our health care budget is to correct this imbalance. 



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