How our healthcare spending is like that drunk joke

You know that joke about the drunk crawling around under a street light? A cop comes up to him and asks what he is doing. The drunk explains that he is looking for his wallet. The cop, getting ready to help the man, asks where exactly he dropped it. The drunk points to a distant corner of the dark side of the street. The cop, baffled, inquires why the man is looking here. With inimitable logic the drunk responds, "This is where the light is."

What does this story have to do with anything? Well, I went to a great HIT tweet-up in Cambridge yesterday, organized by Scratch Marketing and led by Janice McCallum. No, they did not at all remind me of the drunk in the joke. But the lively discussion about data by about two dozen attendees inspired by Janice's thoughtful presentation certainly made me realize that our healthcare policy is like that drunk. Here is what I mean.

Our healthcare expenditures are completely devoid of any attempt at probabilistic thinking. I thought about the old Rand Corporation data, which I have presented here before. Juxtaposing them with the data on our National Healthcare Expenditures really drives home my message that we need to get a whole lot better at applying probabilities to our decisions. And this specifically applies to policy.

Just look at the glaring imbalance: while fully 60% of all premature deaths are due to behavioral, social and environmental factors which reside in the realm of public health, 97% of all NHE is spent on the medical side. If I add the 2% of the total NHE spent on research into the public health piece of the pie (this is exceedingly generous, as public health research gets a bafflingly tiny portion of the total US research budget), we still have 95% spent on personal health and its administration and only 5% on public health. 

So, if the probability of premature death due to a public health-related condition is 60%, why are we only spending 3% of all the healthcare dollars on fixing it? Another way of posing this question is, if the probability  of premature death from issues related to access to adequate medical care is 10%, why are we spending 97% of all the NHE on that piece of the pie?

If this isn't just like that joke, I don't know what is. Only in this case it is much less funny than in the case of the drunk.



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National Healthcare Expenditures, 2009 (In pictures)

Well, it's that time of the year again: CMS has given us the accounting of our National Healthcare Expenditures (NHE) in a paper published in Health Affairs. I am sure you have already heard that the spending only went up by 4% this year over last, an all-time low.

At the same time, we have achieved the highest ever NHE as a proportion of the GDP (17.6%) and as expenditures per capita ($8,086). But the GDP proportion is a somewhat deceptive number on the one hand, as the GDP has suffered a substantial drop from its 2008 value of $14.4 trillion to $14.1 trillion in 2009. On the other hand, this implies that healthcare is eating into the rest of our expenditures on life. At the same time the per capita expenditures have continued their relentless rise.

Let us look at the components of the NHE individually and see what they can tell us.

As usual, the bulk of the expenditures went to personal health care (85%). Public health got a measly 3% of the total NHE, and this continues to be one of our gravest misappropriations. You may recall that about a year ago I did a post where I cited some startling statistics about some broad categories of causes of premature death in the US. Access to medical care accounted for a measly 10% of those, and the rest were attributable to behavior, genetics, environment and social factors. So, while, by inference, fixing medicine may impact 10% of these premature deaths, in reality 97% of the entire NHE goes to medicine rather than to potentially more impactful public health interventions. And the real travesty is that, despite these astronomical expenditures, we are still losing 1,000 lives per day to our broken healthcare system.

Looking a bit more closely at the "personal health" category, we see that, just as in years past, hospital costs and professional services comprise the bulk of this spending.

The "professional services" category, 81% of which is physician and other clinical services, is a bit murky. Yet, without too many leaps of faith we can say that if this expenditure buys us better preventive care, it may be a cost-effective area. At the same time we know that we can make this area a lot more efficient by streamlining and realigning incentives to promote better health rather than more care. Hospital expenditures, on the other hand, are a juggernaut that without a doubt requires containing. It is very likely that exchanging our inflated personal healthcare budgets for well placed public health funding along with reimbursement reform and improved end-of-life decisions, could substantially alter this category of spending.

One final data point that interested me was the breakdown of what are considered investments in the healthcare system. This broadly includes government-funded research and allocations for structures and equipment. Now, I am not sure what "structures and equipment" means, so, if any of my readers know, please, enlighten me. I do know what "research" means, however, and am rather disappointed about this breakdown. What I do not understand is, given that structures and equipment should have some kind of a half-life and not be replaced annually, how it is that this budget also grows consistently year-over-year at a steady rate? Would love to get more details on this.

To be sure, the total research expenditure of $45 billion is nothing to sneeze at. The big question is, however, are we spending it on the right research. I am not at all sure that the answer is yes, given that we still struggle with the same issues at the bedside that we have been struggling with for over a decade. But more on this later.