The Cart Blog

We’re #1! We’re #1!

In healthcare spending.

The big brains over at McKinsey Global Institute have come up with an analysis of our healthcare spending (free registration required). Even if you’re not a US resident, it’s worth spending some time reading it just for the mental stimulation that thinking about large, difficult problems provides. Unlike the presidential candidates of both parties, they feel that there’s no silver bullet - and there’s not even a whole lot of low-hanging fruit.

Some of the key points:

• They developed a metric called Estimated (healthcare) Spending According to Weath (ESAW), and found that the United States was 30% above where it should be. So the argument that we spend more because we’re richer doesn’t hold water.
• The US system doesn’t deliver objectively better quality and access despite the higher cost.
• Disease mix and burden does not explain the higher cost.
• Excess administrative expenses are the chief component of higher cost; the comprise a quarter of the excess spend.
• Drug costs are 70% higher in the United States than in peer nations.
• Outpatient centers are taking away high margin procedures from hospitals, and leading an increase in testing, since many of these facilities are physician owned.
• Only 4% of excess spend is attributable to malpractice insurance costs.

My thoughts:

Thinking about healthcare spending, especially as a trend over time, is fraught with false comparisons because the basket changes over time. We can have a meaningful conversation about the price change from 1967 to 2007 of, say, the food budget of a family of four. But it’s incredibly difficult to talk about the price changes from 1967 to 2007 in health care costs for that same family because many things that are common now simply were not available at any price in 1967.

The McKinsey synthesis is only 17 pages and is incredibly readable. In fact, even Paul Krugman liked it.