Innovation, Infrastructure, and a Bankrupt Government

Since I’m on the topic of healthcare costs lately (and will be for a while, probably), I’d like to talk about the potentiality of healthcare spending bankrupting our national government. Is it possible? I don’t really know, but that’s obviously the worst-case scenario with all this crazy spending we’re doing. I’ve heard a number of different quotes that say effective, cost-curve-flattening health reforms would solve virtually all of the federal government’s fiscal woes. At 18-ish percent of GDP, that’s not that hard to believe.

But there is a little-known upside and a somewhat-known upside to huge amounts of spending.

The somewhat-known upside: innovation. Yes, America’s health system is best known for more than just spending. It’s the source of more healthcare innovations than anywhere else. So maybe that means we’re just subsidizing the world’s cures to . . . everything. This aspect of our system is what I always think about when I wonder how we could reduce spending, because if we reduce spending at the expense of the strong incentive to innovate, is that a net positive or negative?

The little-known upside: infrastructure. Yes, investors follow the money, and why do you think the United States has the nicest hospital facilities and technologies in the world? There’s money in healthcare! This health infrastructure might be the best thing that ever happened to healthcare in the U.S., because it will keep on giving after we’ve found a way to spend less. Think of the internet bubble. Remember how this country spent tons and tons of money on the internet in the ’90s, and then there was that huge stock-market crash? Well, most people probably don’t know that, even after that huge crash, we now have tons and tons of fiber-optic cable all over our country. That infrastructure is said to be one of the leading factors that allowed the internet to grow as fast as it did in the U.S., probably helping us maintain a world-power economy in the midst of huge changes in the structure of business. So a long-term upside to crazy health spending is the infrastructure that it gives us.

I guess what I’m saying is, yes, we’re spending a ton of money on healthcare, but we are also reaping some benefits too, namely innovation and infrastructure. So here’s the final question: Do we think it’s better to have healthcare innovation and infrastructure or a fiscally solid federal government?

Kinds of Healthcare Costs

I learned that there are two kinds of medical costs, broadly categorized: care costs and managerial costs. They’re kind of self explanatory, don’t you think?

The interesting thing about the U.S. healthcare system is that I’ve never seen an aggregate percentage estimate of just how much of our total healthcare spending (you know, that 18-ish percent of GDP) goes to managerial costs. Maybe some health economist has come up with that number somewhere, but I haven’t seen it. Think about it–you would have to estimate and add the total managerial costs of Medicare, Medicaid, the private insurance sector, CHIP, the VA system, the system for congress and for those with kidney failure and for native Americans. . . . Sounds fun. Other countries have anywhere between 2 to 5 percent estimates for their total managerial costs.

What I have heard, though, are estimates for the total managerial costs of Medicare (2 percent) and the private insurance industry (20 percent). You’d think the 2 percent is awesome and the 20 percent is horrible. Well, the 20 percent is horrible, but not bad considering they’ve got to spend so much money on screening applicants and trying to find ways to deny claims and developing thousands of new compensation plans and payment schedules and paying awesome executives. (It is the private sector, after all.)

And as for the 2 percent, I think it might be a little too low. Maybe a little more spending on managerial stuff could go towards ways to prevent fraud, cause apparently that’s a pretty big thing with Medicare. So maybe every extra dollar of fraud prevention would save a few dollars of fake claims, up to a point. That would maybe leave the Medicare number up around 3 percent, which is still not too bad. Unless you don’t trust government’s estimates of their own efficiency. They want to look good, right? Number-fudging isn’t that hard to do, especially with something so complex as healthcare.

Qualifications?

I read this book once–it’s called Complications by Atul Gawande. Two things happened: (1) I decided Dr. Gawande is awesome, and (2) I realized that the delivery of healthcare is imperfect. I don’t know how I missed it before. Maybe it has something to do with the fact that I grew up in Canada. (The secret’s out!)

From reading that book until now, I’ve read nearly everything I’ve been able to get my hands on about health policy. So, in the midst of taking the MCAT (twice) and my wife giving birth (twice), I’ve been reading about this. And I have some goals to go along with this reading. I’m convinced I can improve the delivery of healthcare in this land of freedom. I can make it more efficient and effective. How? Well, I’m studying business strategy. I’m studying health policy. I’m studying the delivery of healthcare from the front lines–as a physician (in training). I figure being a student of these aspects of the health system is a good start. Another good start is this blog. This is my place for synthesis of information. It’s where I turn disparate facts about the health system into useful knowledge and understanding. So, thanks for joining me. If you learn from this blog something–anything–about how healthcare works in the United States, then maybe you will be more likely to know a good policy when you see one. So let’s figure out how this system works, the causes of its problems, and how to solve them.

Who understands health policy?

A better question is, Who can explain health policy if they understand it? Well, I figure a student is often more likely to be able to explain simply what little he knows than some high-level expert who is thinking at a completely different level than 95 percent of Americans. Let the fun begin.