Beware the Bursting of the Health Care Bubble

Beware the Bursting of the Health Care Bubble

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George Lundberg The good news is that if and when the American healthcare bubble bursts, some value will remain. The bad news is that the annual appropriate value could actually be only about 60% of the current expenditure.

The turn of the 21st Century has been marked by the creation, expansion, and im/explosion of at least 3 significant economic “bubbles”: the huge company Enron, plus the fields of dotcom and real estate/finance. A “bubble” comes to pass when a commodity of great promise and wide applicability entices many to participate and grows at a pace that reflects hope, excitement, sometimes greed, but does not have sufficient underlying  substance to support its continuing growth.

The demise of the fraudulently inflated Enron forecast much of this decade’s  financial  collapse.  A once successful oil and gas distribution company, Enron enjoyed accelerated growth in an essential field. But it came acropper by fakery, derivatives, and manipulation, out of synch with sound principles for sustaining value. When the trickery was exposed, little remained . Enron had become a “bubble” company with a top stock price of $90 in 2000 that shrunk to pennies.  This emperor had no clothes. It was a house built of Texas sand.

Many of us lived the dotcom boom and bust close up. Computer technologies do have lasting value. The internet added huge new potential with its promise to change the world in a fundamental way and did deliver. But on the way, its promise produced an inflated boom of economic value expectation far in excess of what was possible to sustain. In March 2000, the collapse began, producing a loss of “wealth” of 80 % as reflected in the NASDAQ and 40% in the Dow Jones over just a few months. NASDAQ has not recovered and the Dow Jones took several years to regain and (temporarily) exceed its level , after many companies collapsed.  Companies with the most real substance survived; the emperor had some clothes; the field endured and even prospered for the “winners”, once the bubble burst.

Then came the bubble of personal real estate; everyone wants his/her own home.  Politicians pushed home ownership.  Many buyers could not afford the homes  they were sold.  Subprime mortgages to unqualified buyers accelerated lenders’ profits. America’s Masters of the Universe created a pure shell game, “derivative financial products”, packages of unsound mortgages, thereby claiming vast short term gains. In the computer business, we call that “garbage in; garbage out”; now these products are labeled “toxic ”. This derivative and credit swap scheme was “take the money and run” on a grand international scale. When the derivatives bubble burst, the world economy came close to collapse and no one knows for sure when or even whether it will recover fully.

Which brings us to 2009 and the healthcare bubble. Health Care in the USA uses (consumes) some 17% of the Domestic National Product, something like $ 2 600 000 000 000 per year. Its growth has been at 2-5 X the rate of inflation almost every year for as long as I have watched it (some 30 years).  Many in health care, especially those with high expectations for continued large incomes from this growth, say, “So what”? “We earned it”. I agree that it is better to spend the national treasury for health care than for unneeded, new pork-barrel fighter jets and naval destroyers, or cocaine, booze, tobacco, fancy cars, gambling, second homes, sports, other entertainment, and porno.  The problem is that much of the $2.6 Trillion does not provide the medical value needed by our people. At least $400 000 000 000 annually is spent on unnecessary administration, competitive marketing and advertising, lobbying, large incomes (yes , including bonuses) for CEOs and executive staff who run for-profit organizations (and many not-for-profits ) plus profits for shareholders.  And, (conservatively) something like 20% of the total US health care expenditures (perhaps $ 500 000 000 000 annually) is expended for medical  practice activities that are not based on scientifically sound  evidence and do not improve patient outcomes. The habits of those over-spending and under-achieving American medical geographic regions and many medical/surgical specialists could/should be changed drastically to better conform to those right-spending or mini-spending and maxi-achieving  geographic regions and medical practice organization patterns. From this change, we can expect NO loss of quality, indeed likely improved outcomes.  And, some $150 000 000 000 is expended annually for clinically superfluous actions to defend against potential future medical liability allegations.

These expenditures, of no value to patient care or the public health, add up to roughly $1 050 000 000 000 per year. Comprehensive health care reform that puts the interests of patients first, followed closely by the public health and the long term economic health of the United States, will wipe out those expenditures. Pop goes the health care bubble.

Extrapolation bias teaches us that the scenario I advocate here will not happen. We will not control costs. Neither The Final Report of The Committee on the Costs of Medical Care in 1932, nor Harry Truman’s proposed National Health Insurance in 1948, nor Wennberg’s compelling work on geographic variations of medical practices beginning in 1967 nor Schwartz and Aaron’s “The Painful Prescription: Rationing Hospital Care” in 1984, led to basic health care for all Americans or control of health care cost inflation. Why should 2009 be any different?   Our system has repeatedly not responded well to data or rationality. But, then again, no prior large group (an organized public, the industry, the market, the profession, or the government) has ever been truly serious about the needed reforms.

Some loud and whispered voices in medicine will say…. “we are not like those finance guys. We deserve our money; after all, we do good”.  American medical advances unquestionably do save lives. But I argue that medicine is still a learned profession, indeed still a service profession, and should perform as such.  Asking the government to throw a lot more money medicine’s way in order to cover the uninsured is thinking like those in the failed financial sector. Comparative international experience shows that there is enough money already in our system to care for the basic medical needs of all of our people, if we spent it right. Government has a responsibility NOT to make the health care bubble even bigger. I believe that our long overdue Health System Reform must care for the basic healthcare needs of all of our people as a moral imperative derived from our national culture of common compassion.  And, now is the time for those of us in the American medical profession to do our patriotic duty to rein in our many egregious and habit-addicted members and lead the rest of the bloated medical-industrial complex to cut back on its vast waste. We can help to get the US back on track economically to benefit us and our children’s children.  But let’s beware of the inevitable collateral damage that will result from the bursting of this bubble, and re-valuation of the healthcare industry at 60% current expenditures, and let’s prepare for it.  Or, will we learn that the American Disease-Medical-Industrial Complex has really been largely a sophisticated “jobs program” all along, and cannot change now since the already high US unemployment rate would rapidly reach double digits?

George D. Lundberg MD, is former Editor in Chief of Medscape, eMedicine, and the Journal of the American Medical Association. Currently Distinguished Consultant, Physicians Advocates, Berkeley, CA and Consulting Professor, Stanford University School of Medicine.

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45 Comments on "Beware the Bursting of the Health Care Bubble"


Guest
May 11, 2009

Great article, of course, but….. “commodity”? Is healthcare really to be viewed as a commodity?

Guest
May 11, 2009

Something else that would greatly improve patient outcomes would be if they took some of those huge salaries and bonuses paid to CEO’s and used it to hire more nursing staff to decrease the nurse:patient ratios. When one looks at some of the staffing ratios of hospital, but especially those in nursing homes (extended care facilities), it’s amazing that there are not more deaths or injuries related to medical errors. It’s sad for the patients that they can’t get the one-on-one care they deserve. I’ll be watching this healthcare bubble, I work in it everyday.

Guest
May 12, 2009

Fascinating.

Guest
May 12, 2009

Dr. Lundberg,
So glad you said it. I have been shouting for months that we do not need additional money, we already have too much in the system. And also that the healthcare sector need to realze that if they do not fix, it will become bigger problem than the finanical sector crisis. Remember financial sector is big not only because it is but also because they have direct link to Washington. It is problem of rich people too. Healthcare will have little impact on those who are rich and can afford.
I wrote several articles around these and also proposed few possible solutions for debate on my site – granted I do not edit my writings..but ideas is worth talking.
Thanks
ravi
blogs.biproinc.com/healthcare
http://www.biproinc.com

Guest
bev M.D.
May 12, 2009

Well said. It is important to remember that physicians in many other countries do not have the prestige and status of those here; they are just another type of worker. For too long we have sought and accepted the mantle of demigod.
I also think your observations about healthcare being the next bubble are very insightful, given our profit-driven American system of doing things.

Guest
Dave
May 12, 2009

Physicians and nurses will lead the necessary reforms. The insurance companies and hospital aggregators can’t separate their self interest from the public good.

Guest
May 12, 2009

This was a great article, I really enjoyed it. You have a great site, very informative. I am interested in health and weight loss, here is my site
http://www.healthy-eating.us

Guest
george lundberg
May 12, 2009

Thanks for the positive feedback. For anyone who wishes to contact me directly, my new best edress is gdlundberg@gmail.com

Guest
May 12, 2009

Excellent post from a major,highly respected, mainstream US medical figure who should become our next US Surgeon General.
Lundberg is correct in stating that much of what we do in medicine at best has little to no value -at worst harms!
As far as “disease care workers” losing jobs?- Let them become “preventionists” or true health care workers.
Here are my two mantras for both health care planners and the public. But I do not know if these folks are willing to hear either Dr. Lundberg’s words or mine?
– “More is not always better in medicine-Sometimes(often?)it is worse”-ral
– ” Every American citizen deserves a dignified pain free death with as little sufferring as possible”-ral
Are Americans ready to grow up?
Dr. Rick Lippin
Southampton, Pa
http://medicalcrises.blogspot.com

Guest
May 12, 2009

All over the country, innovative ideas are being implemented in the workplace to improve the health of workers and reduce the rising rate of health care spending. Skyrocketing health care costs are crushing families and companies, impeding businesses’ ability to expand and compete, and stunting the country’s economic growth. Some employers and unions – spanning industries, firm size, and workforce demographics – are using creative approaches to reverse that trend in their workplaces. Here is what the Obama administration just released. http://pfx.me/Bt

Guest
May 12, 2009

We need healthcare for all

Guest
rbar
May 12, 2009

Excellent article … although the problem with the use of the term “bubble” is that the benefit of health care is so hard to estimate for the individual patient. In other words, the “substance” (i.e. benefit) is hard to grasp for an individual who thinks that his/her well being is at stake. This affects the worried well as much as any patient.
My frequent experience by worried patients is: even if diagnostic or therapeutic benefit of X is marginal, I want it, and my 3rd party payor has to foot the bill. How can a doctor be so uncaring that he/she does not want to order the MRI for my aching back (my pounding headaches etc.)? And that extends to patients with actual medical problems: expect the fanciest scans and the most thorough lab work up, and the newest treatment (even if the benefit is marginal, or in some cases, nonexistent of negative compared to generics).
The bubble will remain a well inflated bubble over many more years …. as long as there are enough people with money/coverage who are complicit with their treating physicians in the ongoing diagnostic and therapeutic overkill.
I sometimes wonder how a provider network/insurance product would do limiting themsleves only to the reasonable stuff … but one would need tort reform for that, because otherwise, the participating doctors have every right to be afraid of “failure to diagnose” litigation.

Guest
tcoyote
May 12, 2009

Sorry, colleagues, but I don’t think this happens. As our friend Uwe Reinhardt told us years ago, 80% or better of health costs are someone’s incomes. He compared the health system to a gigantic feeding trough. 16 million people feed at this trough, many of them among the smartest people in our society- physicians, scientists, software architects, engineers, tort lawyers, you name it. It isn’t like Obama is going to unleash market forces to bring down those incomes, and we have a corrupt Congress and political system to keep most of the important actors’ incomes from falling by anything more than a marginal amount. The labor unions, who are foaming at the mouth to organize the workers in the health system, certainly aren’t going to bring down peoples’ incomes.
No disputing the amount of waste, inappropriate care, and all the rest. But the melodramatic imagery of a bubble bursting just doesn’t work here.

Guest
bev M.D.
May 12, 2009

tcoyote;
I see at least part of Dr. Lundberg’s post differently than you. That is, I see investors looking for a place to put their cash (and there are plenty still out there with $$), putting it into companies that they believe will be able to feed at the healthcare trough provided by coming government largesse. Witness the salivation already being exhibited by all the various IT vendors and middlemen at the 20 billion suddenly dangling in front of them. These proposals are also a welfare program for legions of lobbyists for vested interests as the players fight for pieces of the pie. Remember – everyone thinks they will get more business when the 40 million uninsured get insurance.
It is this bubble that has a real chance of developing and then bursting, whether or not true healthcare reform ensues. I don’t think that’s all that Dr. Lundberg was addressing, but perhaps a realistic assessment of part of the picture.

Guest
MD as HELL
May 12, 2009

This is great fiction. Healthcare does not consume 17% of GDP…it is 17% of GDP.
No one has defined the term “basic healthcare”. What is it that you wish everyone had?
Healthcare spending is driven by patient demand. Providers respond as we have been trained and conditioned. We order the MRI because it has become standard of care as determined by a jury of our peers. To do less would be malpractice. Until it is not malpractice to not order the MRI, doctors will not change their practice patterns.
Patients demand healthcare services because they do not have to pay for it directly. When they do have to pay for it, they get a different outlook on what it is worth to them. If families had to pay for nursing home care for their loved one. there would be no PEG tubes.
Every dollar spent on healthcare, or on anything else, is then taxed at some level. The remaining amount is then spent and taxed again. The faster that dollar moves, the faster it is taxed to zero. That dollar pays the nurse who buys a meal sold by a vendor who buys food from a distributor who buys from the company who buys from a farmer who buys from a seed company, a chemical company, an impliment company, a truck company, a realtor, a builder, an insurance agent, and who employs workers. Stop the flow of that dollar and you have a recession or depression.
Make the provider do more work for the same dollar and you have a shift in the work force towards people who have less skill, training and experience than the present provider, who will not be around anymore because he/she will not go to medical school just to be the indentured servant of the idiot who thought everyone would just suck it up and do more for less. There goes your productivity.
Rationing leads to corruption. Politicizing medical care and the so-called evidence of comparitive effectiveness leads to bad medicine and wrong answers.
The political pain of dealing with a bankrupt Medicare is more than Speaker Pelosi wants to imagine. President Obama will do anything and everything to redirect all the healthcare dollars so he can spread the suffering without dealing with having to say “no” to the Medicare bunch alone.
Healthcare is a commodity. Make it hard to get and watch the price for the good stuff go up. Watch the black market flourish.
It is not rocket science.