Thursday, September 10, 2009

The Cost Conundrum in Health Care

Atul Gawande, New Yorker, writes in What a Texas town can teach us about health care:

"It is spring in McAllen, Texas. The morning sun is warm. The streets are lined with palm trees and pickup trucks. McAllen is in Hidalgo County, which has the lowest household income in the country, but it’s a border town, and a thriving foreign-trade zone has kept the unemployment rate below ten per cent. McAllen calls itself the Square Dance Capital of the World. “Lonesome Dove” was set around here.

McAllen has another distinction, too: it is one of the most expensive health-care markets in the country. Only Miami—which has much higher labor and living costs—spends more per person on health care. In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.

The explosive trend in American medical costs seems to have occurred here in an especially intense form. Our country’s health care is by far the most expensive in the world. In Washington, the aim of health-care reform is not just to extend medical coverage to everybody but also to bring costs under control. Spending on doctors, hospitals, drugs, and the like now consumes more than one of every six dollars we earn. The financial burden has damaged the global competitiveness of American businesses and bankrupted millions of families, even those with insurance. It’s also devouring our government. “The greatest threat to America’s fiscal health is not Social Security,” President Barack Obama said in a March speech at the White House. “It’s not the investments that we’ve made to rescue our economy during this crisis. By a wide margin, the biggest threat to our nation’s balance sheet is the skyrocketing cost of health care. It’s not even close".”


This is an excellent article and worth reading in it's entirety. I think that the key point of the article is that the cost of health care, in aggregate, is not related to income, but in the business model used to deliver that health care. In McAllen, Texas, the author reports, “In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.” On the other hand, “ Rochester, Minnesota, where the Mayo Clinic dominates the scene, has fantastically high levels of technological capability and quality, but its Medicare spending is in the lowest fifteen per cent of the country—$6,688 per enrollee in 2006, which is eight thousand dollars less than the figure for McAllen.”

The difference between these two examples is that in McAllen, the doctors, labs, hospitals, etc. are all run as businesses, and the Mayo Clinic is run as a service and the doctors collaborate and are paid salaries.

I've been a small voice against the rationalization of the business paradigm to shareholder economic value added and its adoption in other industries (such as health care and education, since 2003 (The Evils of EVA and the Myth of Shareholder Value and Its Relation...). Now we have discovered that can be disastrous even when applied in the financial industry. Healthcare should not be run as a business. Nor should government run it.

Outside of mainstream business, society is learning that openness, decentralization and collaboration are required to tackle large problems and some of these concepts are being applied successfully in business (Coase's Penguin, or Linux and the Nature of the Firm and Wikinomics). We haven't learned that yet in healthcare.

Furthermore, as reported in the Cost Conundrum, the amount of Medicare spending is inversely related to the quality of health care. “Two economists working at Dartmouth, Katherine Baicker and Amitabh Chandra, found that the more money Medicare spent per person in a given state the lower that state’s quality ranking tended to be. In fact, the four states with the highest levels of spending—Louisiana, Texas, California, and Florida—were near the bottom of the national rankings on the quality of patient care.”

In order to get a sense of the problem, let's look at a few statistics about healthcare in the US.

The United States Department of Labor, Bureau of Labor Statistics reports:

* As the largest industry in 2006, health care provided 14 million jobs—13.6 million jobs for wage and salary workers and about 438,000 jobs for the self-employed.
* 7 of the 20 fastest growing occupations are health care related.
* Health care will generate 3 million new wage and salary jobs between 2006 and 2016, more than any other industry.
* Most workers have jobs that require less than 4 years of college education, but health diagnosing and treating practitioners are among the most educated workers.

According to

“Escalating health care costs continue to remain an issue of great concern for many employers and providers of health care services. Here are some of the latest statistics concerning health care:

* Preventable illness makes up approximately 80% of the burden of illness and 90% of all healthcare costs.
* Preventable illnesses account for eight of the nine leading categories of death.
* The United States spends more on health care than any other industrialized nation in the world and yet, in many respects, it's citizens are not the healthiest. (2)
* More than one-quarter of children without health insurance coverage had no usual source of health care in 1997, compared with 4 percent of children with health insurance. (4)
* Uninsured children were nearly three times as likely as those with health insurance to be without a recent doctor's visit in 1997. (4)
* The US healthcare system is the most expensive of systems, outstripping by over half again the health care expenditures of any other country. (2)
* In 1997, health care costs in the US totaled in excess of $1 trillion. (2)
* Health care costs in the United States exceed 14% of the gross domestic product. (2)
* The average cost of health care per person in the United States approximated $3,925 in 1997. (3)
* Lifetime medical costs average approximately $225,000 per person. (1)
* Some 18 percent of lifetime costs for medical care--over $40,000--is estimated to be incurred in the last year of life. (1)
* Despite expenditures in excess of $1 trillion, the number of people without health insurance continues to increase reaching 43.4 million--16.1% of our population--in 1997. (2)
* The Health Care Financing Administration's analysts recently projected that, beginning in 1998, national health spending would again begin to grow faster than the rest of the economy. (2)
* By 2002, the HCFA projected that national health expenditures would total $2.1 trillion--an estimated 16.6 percent of the gross domestic product. (2)”

In a study done 2008, the US lagged behind 18 other nations in halting preventable deaths, according to

“The U.S. today finds itself last on a new list of countries seeking to curb preventable deaths in people younger than 75.

Not only does the U.S. have the worst spot on that list, its rate of improvement is also slower than the other 18 industrialized nations included in the study.”

“...the slow decline in U.S. preventable deaths 'has coincided with an increase in the uninsured population,'”

Some of the preventable diseases can be prevented by vaccines. WebMD reports, “Diseases easily preventable by adult vaccines kill more Americans each year than car wrecks, breast cancer, or AIDS.
Yet relatively few in the U.S. know much about these diseases -- and far too few adults get vaccinated, find surveys by the CDC and the National Foundation for Infectious Diseases (NFID).

'It may surprise you to learn that over 50,000 adults die each year of diseases that are potentially vaccine preventable,' NFID president-elect William Schaffner, MD, said at a news conference held to announce the survey results.”

Other preventable diseases include most cardiovascular problems and diabetes. Obesity is an epidemic.

Watch the short video.

The CDC reports:

“CDC addresses six critical types of adolescent health behavior that research shows contribute to the leading causes of death and disability among adults and youth. Other important issues that affect children and adolescents are also addressed:

1.Alcohol & Drug Use
Alcohol is used by more young people in the United States than tobacco or illicit drugs, and is a factor in approximately 41% of all deaths from motor vehicle crashes.

2.Injury & Violence (including suicide)
Injury and violence is the leading cause of death among youth aged 10-24 years: motor vehicle crashes (30% of all deaths), all other unintentional injuries (15%), homicide (15%), and suicide (12%).

3.Tobacco Use
Each day in the United States, approximately 4,000 adolescents aged 12-17 try their first cigarette. Each year cigarette smoking accounts for approximately 1 of every 5 deaths, or about 438,000 people. Cigarette smoking results in 5.5 million years of potential life lost in the United States annually.

Healthy eating is associated with reduced risk for many diseases, including the three leading causes of death: heart disease, cancer, and stroke. In 2007, only 21.4% of high school students reported eating fruits and vegetables five or more times daily (when fried potatoes and potato chips are excluded) during the past 7 days.

5.Physical Activity
Participation in physical activity declines as children get older. Overall, in 2007, 35% of 9-12 graders had participated in at least 60 minutes per day of physical activity.

6.Sexual Risk Behaviors
Each year, there are approximately 19 million new STD infections in the United States, and almost half of them are among youth aged 15 to 24. In 2007, 39% of currently sexually active high school students did not use a condom during last sexual intercourse.

These behaviors usually are established during childhood, persist into adulthood, are inter-related, and are preventable. In addition to causing serious health problems, these behaviors also contribute to the educational and social problems that confront the nation, including failure to complete high school, unemployment, and crime.”

The CDC also reports that chronic diseases are largely preventable:

“Chronic diseases are noncommunicable illnesses that are prolonged in duration, do not resolve spontaneously, and are rarely cured completely. Examples of chronic diseases include heart disease, cancer, stroke, diabetes, and arthritis.

* Chronic diseases cause 7 in 10 deaths each year in the United States.
* About 133 million Americans—nearly 1 in 2 adults—live with at least one chronic illness.
* More than 75% of health care costs are due to chronic conditions.
* Approximately one-fourth of persons living with a chronic illness experience significant limitations in daily activities.
* The percentage of U.S. children and adolescents with a chronic health condition has increased from 1.8% in the 1960s to more than 7% in 2004.

Although chronic diseases are more common among older adults, they affect people of all ages and are now recognized as a leading health concern of the nation. Growing evidence indicates that a comprehensive approach to prevention can save tremendous costs and needless suffering:

* Heart disease and stroke are the first and third leading causes of death, accounting for more than 30% of all U.S. deaths each year.
* Cancer, the second leading cause of death, claims more than half a million lives each year.
* Diabetes is the leading cause of kidney failure, nontraumatic lower extremity amputations, and new cases of blindness each year among U.S. adults aged 20–74 years.
* Arthritis, the most common cause of disability, limits activity for 19 million U.S. adults.
* Obesity has become a major health concern for people of all ages. 1 in every 3 adults and nearly 1 in every 5 young people aged 6–19 are obese.

Chronic diseases are the most common and costly of all health problems, but they are also the most preventable. Four common, health-damaging, but modifiable behaviors—tobacco use, insufficient physical activity, poor eating habits, and excessive alcohol use—are responsible for much of the illness, disability, and premature death related to chronic diseases.”

In effect, like Walt Kelly's Pogo comic strip drawn for Earth Day in 1971, to a large extend in heathcare, we are causing a lot of our healthcare problems by our lifestyle and choices.

These selected statistics are not to all inclusive. They were selected to indicate the scope of the problem of healthcare. The healthcare system is one of the large systems in the US that we have to interact with and depend upon. It is a complex system and interaction with it is complicated.

I don't know a solution to the problem, but what I do no that any attempt to “fix” healthcare in this country will fail without addressing the complete system. Most of the solutions talked about in the media and by the politicians focus only on the financial part of the system.

As you can see from the statistics, the major elements of healthcare costs are preventable diseases, the business paradigm applied through out the system, and our lifestyle.

Some major elements of preventable disease are vaccinations, tobacco, and obesity. The combination of these three elements alone touch upon all elements of the existing healthcare system as well as many business interests outside the healthcare industry. And, don't forget all the jobs that would be lost in the healthcare industry if we were to reduce costs by 90%.

Contrary to what John Mackey, CEO of Whole Foods has written , the Declaration of Independence does indeed speak to the people's right to health:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed ...” I contend that you cannot have life, liberty or happiness without your health.

The Preamble to our Constitution : We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.” The definition of welfare is health, happiness, prosperity, well-being.

We do have a right to health and should hold our governments accountable to assure that all people have equal access to that right.

1. Fries, J.; Koop, C.E.; Beadle, C.E.; et al. "Reducing health care costs by reducing the need and demand for medical services." The New England Journal of Medicine, 329: 321-325 (July 29), 1993.
2. Iglehart, J.K. "The American health care system--expenditures." The New England Journal of Medicine, 340(1): (January 7), 1999.
3. Kuttner, R. "The American health care system--employer sponsored health coverage. The New England Journal of Medicine, 340(3): (January 21), 1999.

4. Center for Disease Control (CDC) - CDC RELEASES NEW REPORT ON U.S. HEALTH STATISTICS (July 26), 2000.

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