Healthcare: GAO Health Care System Crisis

Growing Challenges Point to Need for Fundamental Reform

This Powerpoint presentation was a part of the GAO Health Care Forum, held on January 13, 2004. I don't want to reproduce the slides here at the blog, but it's a very good explanation of the severe healthcare crunch that we are facing in this country.

Health Care System Challenges

With respect to health care, both the private and public sectors are losing ground in their efforts to balance competing goals of sustainable cost, broad access, and good quality.

Slide 9

"Broad access" and "good quality" are both clear enough - but what does the GAO mean by sustainable costs? That's the idea of keeping costs low enough to maintain access levels but not endanger quality. This is pretty easy to understand - in the normal course of events, the higher the costs, the higher the quality of service provided, and therefore the more narrow the access. Not everyone can afford the highest level of healthcare. It's the law of supply and demand.

But as we've seen from the Kangas page, costs are skyrocketing in this country in a way that isn't being reflected in a higher level of quality. The GAO report agrees with this: they show that a high level of spending doesn't translate into a higher level of healthcare resources. Other industrialized nations enjoy a better healthcare system with broader access and lower costs than the United States. What is going on? What are we buying with our healthcare money?

For that I turn back to the CDC report, Table 115 on page 309 (pdf 314). Their latest numbers are from 2001, and they tell us that we spent over $1.4 trillion dollars on healthcare that year. Professional services accounts for 32.5% of health spending. That includes physician and clinical services, dental services, other professional care, and other personal health care.

Hospital care runs a close second at 31.7%.

Retail sales of drugs and other medical products are 13.4% of the national total, and nursing home/home health costs are 9.3%.

This is the bulk of the spending on healthcare in the United States. Prescription drugs purchased retail are 9.9% of the total amount, around $140 billion. That doesn't include prescription drugs taken in the hospital or in nursing homes, though. I'm going to be conservative and say that between 15% and 18% of the $1.4 trillion we spend on healthcare goes toward prescription drugs. The retail sales alone has the highest annual percent change from year to year. From 1997 to 1998, the increase was 12.8%. From 1998 to 1999, 19.7%. From 1999 to 2000, 16.4%, and from 2000 to 2001, there was a 15.7% increase in spending on retail sales of drugs. Room-a-zoom-zoom.

That's the first place the money is going. Pharmaceuticals are vacuuming up healthcare money in this country.

The second biggest expense, hospital care, is another area of concern. This article compares Canadian hospitals to American hospitals:

Canadian acute care hospitals have more admissions, more outpatient visits, and more inpatient days per capita than hospitals in the United States, but they spend appreciably less. The reasons include higher administrative costs in the United States and more use of centralized equipment and personnel in Canada.

The Canadian system is a nationwide healthcare plan, of course, which allows for greater centralization of equipment and personnel, and lower administrative costs. This lets them spend less while offering broader access and maintaining high quality of care.

These two problems aren't the only challenges that our healthcare system faces. The GAO report stresses the role of the coming baby boomer retirees in forcing costs to unsustainable levels in programs like Medicaid and Medicare. Also, since 43 million people go without health insurance in this country, they go without preventative health care as well. Other countries focus on preventative measures, to help keep costs down. But those of us without health insurance simply put off doctor visits until absolutely necessary. This helps skew the numbers like life expectancy down and push death rates higher.

And there's plenty more in the GAO report. I expect to be referring to this site for quite some time in this series, so go ahead and leaf through the slides. It's not a pretty picture, and all Americans are going to be facing some tough questions and answers on the subject.

But for now, I think that we've identified two large problems in the numbers right now: a decentralized healthcare system and runaway drug prices. Both deserve some more examination, and that will be coming up.