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Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics and Health Policy, Carnegie Mellon University; University of Bristol; National Bureau of Economic Research Health Policy Essentials National Health Policy Forum, February 6, 2015

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Page 1: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Health Care Spending in the United States

What? Who Cares? Why? What Do We Do About It?

Martin Gaynor, PhD E. J. Barone Professor of Economics and Health Policy, Carnegie Mellon University; University of Bristol; National Bureau of Economic Research Health Policy Essentials National Health Policy Forum, February 6, 2015

Page 2: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Introduction

• Purpose of talk – Introduce you to basic facts about US health

care spending, put it in context, understand issues, drivers, consider policy approaches

• Organization of Talk: “W W W W” – What? – Who Cares? – Why? – What Can We Do About It?

2

Page 3: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

What?

What’s Happening with Health Care Spending? Who Pays? Who’s

Covered?

3

Page 4: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

US Health Care Spending is High • Total health care spending in 2013: $2.9 trillion; 17.4% of

GDP – About 1 out of every 6 dollars in the US is spent on health care – $9,255 per person (not household); GDP per person $53,160 – “5th largest economy in the world”: US $15 tril, China $7.3, Japan

$5.9, Germany $3.6, France $2.8, Brazil $2.5, UK $2.4, Italy $2.4, Russia $1.9

• US health care sector larger than the economy of France.

• Hospital care 5.6% of GDP; physician services 3.5%;

insurance 1%

* Sources: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Department of Commerce, Bureau of Economic Analysis; World Bank and U.S. Bureau of the Census.

4

>

Page 5: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Spending Growing, but Slower Recently • Total health care spending growth in 2013: 3.6%

– Slower than in 2012 (4.1%) – GDP growth in 2013: 3.7% – Health care share of GDP has been constant since 2009

• Predicted to rise to almost $5.2 trillion by 2023 – More than 150% of current levels – 19.3% of GDP in 2023; $15,000 per person – US govt. share: 26% 2013; 31% 2023 – $826 billion increase

* Sources: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Department of Commerce, Bureau of Economic Analysis; World Bank and U.S. Bureau of the Census.

5

Page 6: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

US Health Spending as Percent of GDP

6

*Source: National Health Expenditure Accounts

Page 7: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Not a New Problem

7

by Andy Warhol (CMU ‘49) ~ 1985-86 (Was) Available via Christie’s $15-20,000

Page 8: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Part of US Economy

• Largest single industry in the U.S. economy. – Agriculture, forestry, fishing, and hunting (1.0%); Mining (including oil and

gas extraction) (0.91%); Construction (3.9%); All manufacturing (13.8%); Computer and electronic products (2.8%); Motor vehicles (1.1%); Furniture (0.3%); Food and beverage and tobacco products (1.4%); Apparel and leather (0.16%); Broadcasting and telecommunications (3.2%); Legal services (1.3%); Performing arts, spectator sports, etc. (0.4%); Brewing (0.15%).

• Largest single share of federal government expenditures (2013). – Health: $856.1 billion (24.8% of federal spending) – Social Security: $813.6 billion (23.5%); Defense: $633.4 billion (18.3%);

Education: $72.8 billion (2.1%).

8

*Source: US Census Bureau, Bureau of Economic Analysis, US Department of Commerce, US Bureau of Labor Statistics, US Office of Management and Budget

Page 9: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

International Health Spending as % of GDP

9

US

*Source: OECD Health Data

US

Page 10: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

International Growth in Health Spending, 2000-2011

Source: OECD Health Statistics 2013, OECD (http://www.oecd.org/health/healthdata)

US

Page 11: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Where Does the Money Come From?

11

12%

35%

22%

16%

4% 11% Private Out-of-PocketPrivate HealthInsuranceMedicare

Medicaid

Other Public

Other 3rd Party

*Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group

Page 12: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Average Annual Growth in Spending per Enrollee, 2009-2013

12

3.60%

0.52%

0.96%

2.60%

1.34%

0%

1%

1%

2%

2%

3%

3%

4%

4%

Private InsuranceMedicareMedicaidGDP per capitaGDP Price Deflator

*Sources: Health Care Cost Institute; Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group

Page 13: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Privately Insured (ESI)

13

$3,960

$4,192

$4,349

$4,514

$4,681 $4,684

5.6% 5.9%

3.7% 4.0%

3.7% 3.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

$3,400

$3,600

$3,800

$4,000

$4,200

$4,400

$4,600

$4,800

2008 2009 2010 2011 2012 2013

Spen

ding

Gro

wth

Per C

apita

Spe

ndin

g

Note: All data weighted to reflect national, younger than 65 ESI population. Source: Health Care Cost Institute, www.healthcostinstitute.org

ESI Per Capita Health Spending and Spending Growth: 2008-2013

Page 14: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Publicly Insured (Medicare)

14

$9,960

$10,362

$10,500

$10,722 $10,711 $10,737 5.4%

4.0%

1.3%

2.1%

-0.1% 0.2%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

$9,400

$9,600

$9,800

$10,000

$10,200

$10,400

$10,600

$10,800

2008 2009 2010 2011 2012 2013

Spen

ding

Gro

wth

Per E

nrol

lee

Spen

ding

*Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group

Medicare Per Enrollee Spending and Spending Growth: 2008-2013

Page 15: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Publicly Insured (Medicaid)

15

$7,308

$7,412

$7,483

$7,434

2.2%

1.4% 1.0%

-0.1% -0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

$7,200

$7,250

$7,300

$7,350

$7,400

$7,450

$7,500

2008 2009 2010 2011

Spen

ding

Gro

wth

Per C

apita

Spe

ndin

g

Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group.

Medicaid Per Capita Spending and Spending Growth: 2008-2011

Page 16: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Health Insurance Coverage

16

Employer-Sponsored Insurance,

49%

Medicaid/Other Public, 18%

Medicare, 13%

Private Non-Group, 5%

Uninsured, 16%

*Source: Kaiser Family Foundation, KCMU/Urban Institute analysis of the 2012 ASEC supplement to the CPS.

Total = 307.9 million

Shrinking

Growing

Page 17: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Who Cares?

Private Spending, Public Spending, Who Really Pays?

17

Page 18: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Who Cares? • So what if we spend almost $3 trillion on

health care? – We’re a rich country – we have to spend the money

on something • How many refrigerators or cars can we have anyway?

– Health care has been getting better, more valuable – Spending on computers and telecom (voice,

internet, TV) has been rising rapidly • No speeches by politicians about controlling the growth in

spending on computers, no Hill briefings on reining in runaway computer expenditures, no comparisons to Japan, Britain, France…

• Health care is valuable, but…

18

Page 19: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

This Is a Big Problem for the US • Health care spending crowding out spending (or investment) on

more valuable goods and services • Increased health spending entirely ate up increases in income

for a family of 4 over the past decade. – Income would have increased by $355/month if health spending grew

at inflation. • Government spending on health has grown more than twice as

fast as national income. – Spending growing faster than our ability to pay for it. – Publicly financed spending generating an increasing burden: higher

taxes or reduced spending on education, housing, infrastructure, etc. – This spending will eventually crowd out growth in the overall economy.

– “Social security is Grenada; Medicare is Vietnam.” Douglas Holtz-

Eakin, former Director, CBO.

19

Page 20: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Private Health Spending

• Increased health spending completely wiped out increases in income for average family of 4, 1999-2009. – Income would have increased by $545/month

if health spending grew at inflation. • $335/month if health spending grew at GDP growth

rate + 1%.

– Income actually grew by $95/month net of increased health spending.

20

D. Auerbach and A. Kellermann, Health Affairs, Sept. 2011, 30: 1630-1636.

Page 21: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Premiums Rising Faster Than Inflation and Wages

12 13

15 17

18 18 18 18 19 20

22 23 24 25 26 26 27 28 29 30 31

0

5

10

15

20

25

30

35

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

0

25

50

75

100

125

150

175

200

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Health insurance premiumsWorkers' contribution to premiumsWorkers' earningsOverall inflation

*Source: Kaiser Family Foundation, Commonwealth Fund

Projected average family premium as a percentage of median family income,

2013–2021

Cumulative changes in insurance premiums and workers’ earnings,

1999–2012

Percent Percent

180%

47%

38%

Projected

172%

21

Page 22: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Health Spending and the Federal Budget • Gov’t health spending per capita grew 2.29 times as

fast as GDP per capita 1970-2002. – Health spending is growing faster than our ability to pay

for it. – The US is becoming “a health insurance company with

an army.”

“Think of the United States government as a gigantic insurance company with a sideline business in national defense… This particular insurance company has made promises to its policy holders that have a current value of $20 trillion…in excess of the revenues that it expects to receive….. It is an accident waiting to happen.”

Peter Fisher, Undersecretary of the Treasury, November 2002

22

Page 23: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Federal Spending on Health Care

23

In 20 years, Medicare and Medicaid will take over the majority of the US government budget (excluding debt service).

Page 24: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Projected Health Spending by Payer 2013–2023

28% 26% 26% 26%

25% 24% 18%

18%

18%

28%

31%

32%

0

1000

2000

3000

4000

5000

6000

2013 2018 2023

Federal government

State and localgovernment

Private employers(including "otherprivate revenue")

Households

$2.9 trillion

$4.0 trillion

$5.5 trillion

*Source: Commonwealth Fund.

NHE in $ billions

% GDP: 17.9% 18.7% 20.5%

$0.81 trillion

$1.24 trillion $1.76 trillion

Fed govt $ ↑ > 2X in 10 years

24

Page 25: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Who Pays for Increased Health Spending?

• All of us – Employer sponsored health insurance costs come

out of workers’ pockets $ for $ • Reduced total compensation: pay, share of premiums,

cost-sharing, benefits, loss of health insurance entirely,… – Government health care programs paid for by

taxpayers • Current and future generations • Reduces education funding,…

– “Tax expenditures” • Tax revenues foregone by exclusion of ESI from taxation. • $238 billion in 2013, 1.5% of GDP (CBO).

25

Page 26: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Now for Some Good News! Health Care Cost “Slowth”

• The rate of growth of health care costs has slowed substantially over the past few years – Hovering around 4% past few years; very close to

rate of growth of GDP • Will this continue, or will cost growth speed up

again? – We don’t know; – BUT

• I’ll take it • We should NOT take our foot off the gas

26

Page 27: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Health Care Cost Growth 2007-2013

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

2007 2008 2009 2010 2011 2012 2013

National Health Expenditures Annual Growth Rate

National Health Expenditures Annual Growth Rate

27

Page 28: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Longer Term • More good news

– Growth rate has been slowing continuously since 2002 • 9.68% in 2002 • Slowing, but not steadily, since 1981; 16.01%

• But,… – Growth rate has cycled for a long time – Periods of slow growth followed by resumption of faster

growth – 1973, 11%; 1976, 15% – 1978 12%; 1981, 16% – 1986, 7%; 1988, 12% – 1998, 6%; 2002, 10%

28

Page 29: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Perc

enta

ge C

hang

e

Year

National Health Expenditures Annual Growth Rate

National Health Expenditures Annual Growth Rate

Health Care Cost Growth 1961-2013

Page 30: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Cost Growth Cycles • Reasons for cycles not entirely clear

– Business cycle – Attempts to control costs followed by attempts to

undo them • Political economy • Private efforts: “gaming” the system

– Patients, hospitals, doctors,… • 1970s: wage & price controls (Nixon); “voluntary effort”

(Carter) • 1980s: prospective payment system (Reagan) • 1990s: managed care • Parallel phenomena in other countries

30

Page 31: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Is This Slowdown for Real? • We can’t really tell

– Not enough information • Reading the tea leaves

– Things that might be suggestive • The economy - recession • Other countries - experiencing same thing • Medical technology – big advances • Population health • Increased consumer cost sharing • The ACA/supply side reforms • Health care employment • Health care capital projects

31

Page 32: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Impacts on Economy

• Council of Economic Advisers: 1% decline in annual rate of growth of health spending → – GDP 4% higher by 2030 (that’s a lot of $$$) – Median family income $6,800 higher by 2030 – Budget deficit lowered by up to 2% by 2030 – 0.16 percentage point lower unemployment

rate by 2030; 320,000 additional jobs

32

*Source: The Economic Case for Health Care Reform: Update, Council of Economic Advisers, December 14, 2009, www.whitehouse.gov/sites/default/files/microsites/091213-economic-case-health-care-reform.pdf

Page 33: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Why?

PxQ, “Whodunnit?”

33

Page 34: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

What’s Driving Health Spending? Decomposition

• Spending = Price × Quantity – Increases in spending have to be due to P ↑ or Q ↑

• (or patient mix, or intensity of care) • Is health care spending increasing mainly due to increasing

prices or increasing quantities? – Overall – Private – Public – quantities, not prices (short-medium term)

• Why do we care? – Who benefits from increased spending?

• Prices go up – sellers benefit • Quantities go up – consumers may benefit (or maybe not) • Another possibility – quality goes up, but supply limited, so prices go up,

quantity does not, but (some) consumers benefit, as do sellers – Where to look – what’s behind increased spending

34

Page 35: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Overall Components of Health Spending Growth

35 Hartman M et al. Health Aff 2015;34:150-160

Page 36: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Private Spending? It’s The Prices (mostly)

36

Components of Health Spending Growth, Private Employer Sponsored Insurance, 2012-2013

Source: 2013 Health Care Cost and Utilization Report, Health Care Cost Institute, http://www.healthcostinstitute.org/2013-health-care-cost-and-utilization-report

-2.3

0.8

-0.8 -0.5

4.5

0.7

6.9

3.4

1.7 1.8

-0.5

1.8

-3

-1

1

3

5

7

% C

hang

e

Utilization Unit Price Intensity

Acute Inpatient Professional Outpatient - Visits Outpatient - Other

Page 37: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Whodunnit? • So what’s driving health spending?

– Suspects • Aging population • Increased income • End of life care • Malpractice • Market power • Incentives

– Patients » Cost sharing

– Providers » Provider payment

• Uncertainty about what works • Technology

37

Page 38: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Innocent • Aging

– Nope. Aging population did lead to increased spending, but doesn’t account for much of total.

• Income – Nope. Income has increased, but same story as aging.

• End of life care – Nope. Medicare deaths (6% per year)→27-30% of

Medicare $. But, # hasn’t changed in decades. Total US deaths per year (< 1% of the population)→ 10-12% of $.

• Malpractice – Nope. At most ~2% of spending . A problem for

physicians, but not a driver of health spending.

38

Page 39: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Under Suspicion • Market power

– Suspicious – could be. • We know that price increases are a major driver of private

spending increases. • We know there’s been a tremendous amount of provider

consolidation. – Most hospital markets in the US dominated by 1-3 systems – Doctor-hospital consolidation growing – Branding and market power – “must-haves”

• We know that there are substantial barriers to new entry into markets.

– Medical school, immigration, non-MD providers – Hospital costs of entry, regulations

• We know that consolidation → higher prices (across markets). • Don’t know if consolidation → increased spending.

39

M. Gaynor, "Health Care Industry Consolidation“, Statement before the Committee on Ways and Means Health Subcommittee, September 9, 2011.

Page 40: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Market Power • There is a lot of variation in prices.

– Northern Virginia: Prices vary by up to a factor of 1.4 across hospitals.

– Massachusetts • Hospitals: payments vary by up to a factor of 4 across hospitals. • Physicians: payments vary by up to a factor of 3 across practices.

– San Francisco prices 43% higher than in Miami. – Not explained by patient severity, Medicare, Medicaid or

indigent patient share, academic or teaching facility, or costs.

– Explained by provider size, “must-have” status, i.e., bargaining leverage.

• Hospital mergers can lead to price increases of up to 53 percent.

• Quality of care lower where hospitals face less competition.

40

Page 41: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Guilty As Charged • Incentives – Yep.

– Consumers – Yep. • Tax exclusion of ESI → too generous insurance, higher spending, higher premiums.

No major change in decades, but… • Low cost sharing → incentive to choose higher tech (more $) care.

– Providers – Yep. • Fee-for-service payment provides incentives to do more?

– Nope. Depends on levels of fees relative to costs (profitability) – think Medicaid. • But, high fees and fee growth can → incentive to do more.

– Esp. associated with higher tech services/procedures.

• Uncertainty about what works – Yep. – Patients and providers uncertain about effectiveness of alternative

treatments. • Technology – the smoking gun – Yep, Yep, and Yep.

– Technology has been advancing very rapidly in medicine. • Very few technological advances in medicine are cost-saving. They mostly are cost-

increasing. • Advances improve medicine & make it more valuable. Hence, consumption

increases, as we would expect if a good becomes more valuable. • Payment incentives for patients and providers. • The “technological imperative” for both doctors and patients.

– If it’s new, fancy, high-tech and expensive, it must be good. 41

Page 42: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

“The Technological Imperative”

42

Page 43: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Example – Proton Beam Therapy

43

• Treatment for prostate cancer. $120 million to build. No idea if this works. Medicare pays $1,400 per treatment; typical man gets 20 treatments = $28,000. This is very expensive, we lead in its adoption, and it has unproven benefits. • In general, ½ of medical treatments are of “unproven effectiveness” (i.e., we don’t know if it works!), http://clinicalevidence.bmj.com/x/set/static/cms/efficacy-categorisations.html

Page 44: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Low Tech/”No Tech” Examples

• Antibiotics for viruses • Annual physicals • PSA tests

44

Page 45: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

Combination of Factors

• Consumer Incentives • Provider Incentives • Technological Advances

45

Page 46: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

What Do We Do About It?

46

Page 47: Health Care Spending in the United States...Health Care Spending in the United States What? Who Cares? Why? What Do We Do About It? Martin Gaynor, PhD E. J. Barone Professor of Economics

What Can We Do About Health Spending?

• The rate of growth of health spending is unsustainable without causing serious harm – “Slowth” is helping a lot, but don’t assume it will last, and

don’t let up on the pressure. – But, remember, it’s not all bad

• Health care generates a lot of value • There’s no “silver bullet”

– No single policy to address the problem – Goal isn’t necessarily to reduce health spending, but to slow

the rate of growth – Some different issues in private and public

• Private – high prices, price growth • Public (Medicare) – quantity, shift to expensive treatments • Overall – technology, expensive treatments

47