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An Economic Dilemma – Healthcare Jobs vs. Costs

There’s a growing paradox in our healthcare world: Since the Great Recession hit in 2007, 35 percent of the nation’s job growth has come from the healthcare sector. In the year 2000, healthcare employed 1-in-12 Americans, but now employs 1-in-9, thanks partly to the 2010 Affordable Care Act (ACA). Jobs are critical for any thriving economy, but it appears the U.S. economy has become increasingly dependent on one sector that has proven to be both highly inefficient and dysfunctional.

The dilemma? Maintaining affordable healthcare is not compatible with the health service sector’s job growth strategy.

A recent article in Health Affairs, “What’s Behind 2.5 Million New Health Jobs?” reported that from 2007 through 2016, there was about a 19 percent growth in new healthcare jobs. From this, hospital jobs grew by 11 percent, nursing and residential care by 12 percent, and ambulatory care by 30 percent.

More than half of the $3.4 trillion we spend on healthcare in this country is spent on labor, much of it on those who provide care. However, a growing segment of healthcare jobs come from our increasingly complex ‘system’ that can be described as an administrative nightmare. Data-entry clerks, revenue-cycle analysts and medical billing coders provide busy backroom work to a multitude of payers concerning the procedures that were performed on behalf of patients. Put another way, for every U.S. physician, there are 16 other healthcare workers. Half of those 16 are in administrative and other nonclinical positions. This is becoming a monster of a problem.

According to a report by Organization for Economic Cooperation and Development, administrative costs in the U.S. healthcare ‘system’ are the highest in the industrialized world. While the average global administration cost average is 3 percent, it is almost three times this amount in the U.S. (8 percent).

In Iowa, the Iowa Hospital Association (IHA) serves the advocacy role for 118 hospitals. From this, IHA conducts a frequent report to validate the economic impact hospitals have within their communities, which is presumably performed to counter public concerns or scrutiny about hospital behaviors and outcomes. We are often reminded that “hospitals are the economic engines that employ thousands of Iowans” and “create an enormous economic impact across the state.” In short, hospitals are a vital ‘jobs program’ that provide an economic “multiplier” effect to our communities.

On the surface, the presence of hospital jobs is extremely beneficial to having healthy and productive communities. After all, it does provide a boost to the local economies. But portraying hospital jobs as the “economic engine” in communities may be somewhat disingenuous – if not grossly misguided.

Salaries and benefits for healthcare jobs are essentially funded by those who pay taxes, higher-health premiums and higher out-of-pocket medical costs – all of which consequently result in stunting the growth of take-home pay from other parts of the economy. Having additional healthcare jobs creates a financial void. It reduces monies Americans have available to pay for groceries, mortgages, college tuition and other discretionary items that benefit families – including philanthropic causes. Equally important, local, state and federal governments are hard pressed to find additional money to pay for other critical functions that profoundly affect our communities and the future of our country – namely, our infrastructure and STEM (Science, Technology, Engineering and Math).

The problem with linking healthcare jobs with economic growth is perplexing. If having more healthcare jobs is the end goal because it creates more wealth within our communities, then maybe we should spend more on healthcare and allow the jobs component to flourish. Unfortunately, it’s not that easy. There is an opportunity cost, or trade-off, that will rob other (more efficient) alternative resources within our economy.

Instead of measuring the economic value of healthcare by counting the number of jobs it creates, how about accurately measuring the commensurate value in the outcomes we receive from the jobs we have financed? If we don’t receive greater ‘value’ from the care provided, then why create more jobs – or keep the existing jobs? The arguments made by the healthcare sector, therefore, should not be about job creation and growth, but rather, whether we are using our limited financial resources wisely. If not, we should put those resources to better use. I’m not an economist, but this should spark a basic economic discussion.

Rising employment in healthcare does not correlate with the goal of improving our health and economic well-being. In healthcare, unlike many other sectors of our economy, there are tradeoffs with the amount we can afford. It’s no surprise that the healthcare sector’s lobbying efforts are formidable. According to the Center for Responsive Politics, a nonpartisan research organization, healthcare companies spend millions annually on lobbying efforts to influence government officials and legislators, with the American Hospital Association (AHA) ranking second highest among all healthcare lobbyists (behind the American Medical Association) and fifth highest among all lobbyists since 1998 – a total of $332 million spent by the AHA. In 2016 alone, the AHA spent over $22 million to ‘educate’ public officials. Other health-related organizations, such as Blue Cross and Blue Shield Association, the pharmaceutical industry and the AMA appeared very high on this Top Spenders List.

Despite the U.S. healthcare system being the most expensive in the world, the Commonwealth Fund reports the “U.S. underperforms relative to other countries on most dimensions of performance.” In America, we pay world-class prices for care that cannot be substantiated due largely to lax reporting requirements.

The healthcare sector’s primary purpose is not to be a jobs program, but rather, to safely deliver high-quality care to patients in our communities – and, do so responsibly, efficiently and transparently.

What are your thoughts?

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The Healthcare Price-Quality Conundrum

Price and Quality

As Americans, one thing is certain – we continue to pay a larger share of our medical bills through higher deductibles and out-of-pocket maximums. Proponents of ‘having more skin in the game’ suggest that we will eventually become better ‘consumers’ to drive down healthcare costs. The debate about whether this will happen continues.

When shopping for colonoscopies, mammograms or childbirth procedures, people are more likely to conduct cost information searches before seeking care. But will higher-priced doctors and hospitals result in higher quality of care?

Two recent reports approached this question differently. The first report, “The Price-Quality Paradox in Health Care,” generated by the Health Care Cost Institute (HCCI), looked at actual claims data to determine whether higher prices are indicative of receiving higher ‘quality of care.’ For this report, quality measures were based on whether ‘recommended’ services were provided.

As we know, quality can be evaluated many different ways. For example, even if treatment delivered is recommended care, was this care delivered appropriately, safely and to the patient’s satisfaction? There are a host of other qualitative measures that help define the quality of care we hope to consistently receive. The HCCI report did not use other methods because such information is difficult (or impossible) to cull from mere claims data.

HCCI’s conclusion is that “price alone may not be sufficient for identifying quality.” In some cases, higher prices are associated with lower quality, meaning that high-prices are not indicative of high-quality of care. HCCI concludes with an obvious statement:

If policy makers and health care industry leaders expect transparency efforts to have real impacts on the health care system, making quality information more accessible and useable by stakeholders is also necessary.

The second report comes from an April article in Health Affairs, “Most Americans Do Not Believe That There Is An Association Between Health Care Prices and Quality Of Care,” that analyzes how Americans perceive the healthcare price-quality conundrum based on behavioral economics. The findings indicate that a majority of consumers (58-71 percent) don’t believe that price and quality are associated with one another, meaning that paying higher prices does not guarantee higher quality of care. A hefty minority of respondents (21-24 percent) indicated there was an association between price and quality, while an additional 8-16 percent did not know if there was a correlation between price and quality.

Respondents who said they had compared prices before receiving care were more likely to think that higher prices are related to higher quality of care, compared to people who did not price shop before seeking care (37 percent vs 12 percent). Avoiding low-price care because it is perceived to be low-quality, is a detriment to having an efficient delivery system that beckons consumer decision making.

Due to the intricacies of behavioral economics, it appears that how price-quality information is communicated to the patient/consumer may very well determine whether healthcare prices are indicative of care quality.

The findings in this second report relating to our purchasing behaviors, are a good complement to HCCI’s findings. This emerging subject will generate a great deal of interest from many stakeholders in the future.

For now, the price and quality metrics are still being hotly debated to determine whether we can become informed consumers who make rational healthcare decisions.

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$3 Trillion Trip to the Moon!

Tower of MoneyTry to imagine one trillion dollars.

The significance of this number is…well, mind-boggling! Just add 12 zeroes after the number one and you quickly get the point. It would be laughable to try to stash this amount in your billfold, purse or any other safe location.

Here’s another perspective. If you stacked one trillion $1 bills on top of each other, it would extend 68,000 miles into the sky – one third of the way to the moon! Or let’s say you won the lottery and received $1 million a day for the next 2,000 years – you would have ‘only’ collected three-quarters of $1 trillion.* What a great incentive to live healthier!

Enjoying the MoonIt was just a matter of time before our nation would reach the $3 trillion milestone in healthcare spending – $3.03 trillion to be exact. Using my quick math, we would now be able to reach the moon.

This milepost was met in 2014, but due to calculation lag, we recently learned this news in December from Health Affairs, authored by the Office of the Actuary, an independent arm of the Centers for Medicare and Medicaid Services (CMS). Three trillion translates into about $9,525 per person spent for healthcare in our country.

In 2014, healthcare represented 17.5 percent of our nation’s gross domestic product (GDP), up from 17.3 percent in 2013. Healthcare spending most likely will reach one-fifth of our GDP during the next decade.

So what’s next – Mars? After all, when the earth and Mars are on the same side of the Sun, we are within spitting distance of 34 million miles – or just a mere $500 trillion!

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* According to a noted Temple University math professor, John Allen Paulos.