The Economist: Transforming American health care

U.S. health care expenditures have grown from 5 percent in 1960 to about 17 percent today

The coming political and industry debates in health care will continue testing our institutional systems — democracy, law, finance, technology and business innovation. The challenges in health care are economically more complex than any other sector, and the industry is large enough to threaten our future national economic vitality.

Our system is the most expensive in the world and highly effective. As a percent of GDP, U.S. health care expenditures have grown from 5 percent in 1960 to approximately 17 percent today, while life expectancies have increased from 69.8 to 79.3 years.  During the same period, average expenditures in the developed world increased from 3.7 percent to 8.7 percent of GDP and many nations surpassed the U.S. as our life expectancy fell from 16th to 31st. 

Germany and Japan, both known for efficiency and efficacy, cover all their citizens and spend about 11 percent of GDP, with life expectancies of 83.7 and 81 years respectively. If the U.S. were to mirror Germany and Japan, we would be cutting health care expenditures by one-third relative to GDP.  In the world of process improvement, this falls into the arena of re-engineering or radically redesigning how we do things.   

Re-engineering and continuous process improvement is exactly where the health industry currently operates. Hospital staff around the country attempt to increase throughput to spread the high fixed cost of health care over more patients, thereby lowering the cost per patient. This is important as the cost of new hospital beds in the U.S. appears to run between $1.2 million and $1.5 million per bed, while the demand for beds is increasing — thanks to an aging population and critical technology, which will often only fit in a room serving a single patient. The goal is to become more efficient while maintaining positive patient outcomes

Another approach being pursued is value-based care focused on “value over cost over time,” according to the Dartmouth-Hitchcock health system. This model is the focus of Centura Health in Colorado involving a wide range of lower cost enhancements such as moving some service delivery to the patient’s neighborhood. A critical element of any value-based system is measurement, which requires an understanding of costs and probable outcomes over time. Communicating the information to all parties is also critical. This is not happening in health care. Pricing typically is not available to consumers — and in many cases, doctors — until after the insurance company has taken markdowns from all service providers. Couldn’t there be a national website where I enter my procedure to get a range of bottom-line pricing?

Sometimes, looking at extremes is useful to gain perspective. My wife is a nurse and health care administrator. As a result, our international trips always involve a visit to a health care provider. I always ask the same question to those on the front line of care – nurses.  “What is your No. 1 frustration in delivering care?”  Ten years ago, in rural South Africa (8.8 percent of GDP spent on health care with a life expectancy of 62.9 years), the answer was, “Cultural propaganda by top government agencies support ignorance in the spread of HIV.”  Last year in China (5.5 percent of GDP spent on health care, 76.1 years life expectancy), the answer was, “Families becoming violent with staff as they contend with patients four to a room and beds in the hallway.”  In the U.S. (17.4 percent of GDP, 79.3 year life expectancy) nurses most often respond, “Seeing the same people coming back with the same condition due to inability or unwillingness to change lifestyles.”

As we move forward to fix American health care, we need to acknowledge we live under a socialized system already and have for many years.  Patients can show up at the emergency room or get treatments for critical ailments regardless of their ability to pay (not necessarily the case in South Africa or China).  The only question is, who pays for what, and who gets what? 

Policy makers must focus on getting incentives right for consumers, providers and insurers.  This means supporting efforts to use new medical and information technologies to re-engineer processes for efficiency and pursue value-based medicine.  It also means that if one cannot pay through insurance premiums or out-of-pocket, they should be required to pay through personal accountability whenever remotely possible.  Finally, it means that appropriate and even lifestyle campaigns, and at times regulations, are needed to change behaviors.

Categories: Economy/Politics