Health Care to Face Rising Economic Pressures

Keynote speaker touches on increasing need to cut waste and to address disparities in access to health care.

A combination of factors, from slowing economic growth to rising income inequality, is expected to exert substantial pressures on the health care system in the United States and around the world in the coming years. In a keynote address at TCT 2014, Uwe E. Reinhardt, PhD, of Princeton University, spoke about those pressures and the challenges of continuing to improve medical care in such an economic environment.

“We spend twice as much as the other developed nations,” Reinhardt said. “Increasingly, people are asking why.” For example, the cost of an MRI is between $300 and $700 in much of the world, whereas in the United States the average is $1,100, and in some areas the cost is far higher, he said. “At some point, health care providers will have to address that: Why do prices vary so much?”

Opportunity costs and slowing growth 

A big source of pressure on health care economics that results from health care spending is related to opportunity costs: When we spend more on health care, we spend less on something else. In the United States, Reinhardt said, these opportunity costs often take the form of reduced spending on desirable things such as education, infrastructure and science research and development. Because state budgets generally need to be balanced, analysis has shown dramatic increases in health care spending have a direct effect on both elementary and higher education, transportation and public assistance.

Reinhardt noted that economic growth is projected to slow around the world, including in China where growth rates have been astronomical for many years. As a result, health care will “fight for the dollars” against the other major spending sectors such as defense and education. “You will experience more pressure on revenues, both through utilization and price pressures,” Reinhardt predicted.

Income inequality, excess and waste 

Income inequality, which has also risen markedly in recent decades, represents another pressure on the economics of health care. The median household income in the United States in 2012 was just over $51,000; and yet, the annual medical cost for a family of four that year was close to $21,000. Reinhardt questioned the feasibility of affording $20,000 worth of health care from that amount of income. “A lot of poor people increasingly are being priced out of health systems,” he said. “This will happen everywhere, in every country. It is more pronounced here, and it is very pronounced in emerging markets.”

Waste is also an important piece of health care economics, as trends in the United States make clear: the World Bank has showed that the United States spends far more on health care per capita than any other country, but receives far less benefit in terms of average life expectancy than most European countries.

A recent Institute of Medicine report estimated that 31% of the $2.5 trillion spent on medical care in the United States in 2009 could be considered excess or waste. Of that total, $210 billion came from “unnecessary services,” and an amazing $190 billion came from “excess administrative costs,” Reinhardt said, adding that administrative costs in the country are three times those in Canada. “That doesn’t even come near the clinician; that’s pure waste of paper shuffling and insurance,” he said. “Imagine if we had an extra $190 billion to do research for medical technology. We could fund four or five NIHs for that!”

Taken together, these pressures have already created a difficult health care environment in this country. However, refocusing the dollars in the right directions will provide substantial benefit. “We’re beating up on [research and development] in this country, and wasting it on administration and insurance, torturing the doctors, torturing the patients,” Reinhardt said. “That, to me, is obscene.”

Disclosures: 

• Reinhardt reports no relevant conflicts of interest.