A breakdown of healthcare costs…

If cost is one of the largest (if not the largest) issues facing healthcare (not to speak of access or quality yet), then that’s where one should start–understanding the cost. Any cost distribution is a snapshot, a point in time view, of the cost picture. It can not speak to trends or changes in healthcare costs and so can not necessarily answer the question of what has been driving the cost increase. We have to look at various snapshots over time to get a better understanding of that issue. But, looking at snapshot distributions can shed light on where the money goes. It’s a very good start at least to understanding the scope of the problem. At 2.1T dollars a year (16% of GDP), healthcare expenditure is massive. This excludes spending on many health related activities like complementary and alternative medicine, yoga and gym memberships, lifestyle/health consultants, wellness programming, etc. There are many ways to draw up a pie chart of cost distribution–by who pays the bill (insurer, employer, government, individual), by what the money is spent on (interventions, counseling, equipment, hospital room and board, pharmaceuticals), by diagnoses of illness (cancer, diabetes, accident, heart disease), by preventative (smoking induced, accident induced, stress induced) ) or non-preventative illness, or by a value chain analysis (prevention, diagnosis, prep, intervention, rehab). Unfortunately, good data is very very hard to come by…if not impossible. A good data model for healthcare is clearly a major obstacle to really being able to analyze cost. (See http://e-patients.net/archives/2009/04/imagine-if-someone-had-been-managing-your-data-and-then-you-looked.html for a good review of the quality of data in healthcare settings)  That said, there are pieces of cost analysis that are quite telling.  For example, the CDC states that the costs of patients with chronic illness account for 75% of US healthcare costs. In Massachusettes, 5% of the population accounts for 50% of the cost and 50% of the population accounts for 95% of the cost. While these statistics may tell us where the bulk of the money goes (by one cut of the data), they do not tell us why costs have gone up so quickly in recent years.

Are there a lot more really sick people? Have the costs of raw materials risen dramatically (e.g. doctors, medical technology, drugs)? In the US, the ratio of specialists to primary care physicians is 70/30. In peer nations, that ratio is reversed. This is a recent development in the US. Specialists are far more expensive and aggregate results show we are no healthier than peer nations…is this supply of specialists worth it? What about pharmaceuticals? The US accounts for 50% of global big pharma profits. Why? Many quote practice pattern variation (underuse, overuse, and misuse) as a major cost driver. And what about the rise of ever more expensive treatment and technology? Do the costs merit the outcomes? The truth is that there is no consistent or public measure of value within the healthcare system (medical outcomes achieved per dollar spent). Is a 1B dollar treatment worth an extra day of life? This sort of, dare I call it, rationing is an essential part of the cost equation. The bottom line is that better data and measurement is essential to the future of managing healthcare costs, but clearly this project needs to progress in the absence of perfection. So, where should we start?

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