Matthew Holt

The bleak state of the (health care) economy

Health care spending increased at 3.9%, its slowest rate for decades in 2010 following a slowdown in 2009. Merill Goozner has the play by play but it’s clear that the numbers are starting to reflect what Jeff Goldsmith said in his keynote at Health 2.0 last year.–even the health care industry can not grow geometrically forever.

But there’s something hiding in these data. Recently I gave an update for a talk that I’d given 15 years before at the Oregon Medical Association. I reviewed the 2010 year forecast I did for IFTF in 1997 and I was struck by how in our scenarios we had overestimated the per capita spend on health care, but underestimated its share of GDP. That meant while overall health spending didn’t grow as fast over the decade as we’d forecast, the economy grew much slower. And of course the big jumps in health care as share of GDP that we saw in 1991-4 and 2007-9 came when the economy tanked

As we enter the 7th year of our lost decade with the stock market starting to predict a double dip recession, and real unemployment in the high teens, we face the prospect of getting to 20% of the GDP going to health care via not a boom in spending brought on by the ACA or a rich economy making rational choices, but by default. Of course these days the loonies in the Tea Party are reminding us of  the other meaning of the word default!

But the health care economy is sick within itself. Recently I sat next to a Stanford Hospital executive proudly touting their $2bn rebuilding. Down the street from me in San Francisco UCSF is building not one but three new inpatient facilities (Cancer, Childrens, Women). And across town Sutter wants to build a new hospital on Cathederal Hill. You might think that California is unusual because of the state’s seismic regulations but it’s not. Despite a tad of a slowdown in the last two years, Hospitals are building all over the nation, taking on huge debt not just for buildings but also for software–much to Judy Faulkner’s pleasure. They’re also buying physician practices at a huge clip.

So if there are some limits on increasing funds going into health care, and the TajMaHospital movement will need to up its share to pay its debts, who can we expect to be squeezed out? Well it’s not an expectation, it’s already happened. Medicaid has been steadily cut by states to the point where it doesn’t guarantee access to primary care. And while all those rich hospital systems in California are beefing up their hi-tech service lines, but for the persistence of one wonderful doctor, Nadine Burke, there would be zero pediatricians in the Bayview–San Francisco’s poorest neighborhood and the one with the most kids per capita.

Want more evidence that we’re putting limited health care resources in the wrong place? One of those roving free clinics that were getting publicity around the time of the reform debate was held in Augusta, GA, last week and was forced to turn people away even as some lined up days in advance. Meanwhile in post-Katrina New Orleans it seems that the only place large swathes of the population can find care is free clinics,

On a national level we can only hope that the combination of the financial incentives in the ACA, the ACO movement and hopefully better use of information technology helps spread primary care to where its needed. I didn’t ask that Stanford guy how many clinics they were building in East Palo Alto or whether they were sending primary care docs out to those poor communities, but perhaps we should be starting that kind of public shaming.

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Nate OgdenMargalit Gur-ArieRonald Lavine, D.C.Lynn in SC Recent comment authors
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Nate Ogden
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Nate Ogden

Amazing how 60 Representatives can wield so much power. With the White house, house and super majority in Senate the democrats couldn’t accomplish what these 60 freshman supposedly can. Rhetoric 1 Meaningful Discussion 0 Curious, not why but how, you hold out hope that ACOs will help? You yourself just mentioned that the ACOs are taking on huge debts. In Cleveland the Clinic, one of 3-4 ACOs is also building like crazy while they close their east side urban hospitals. How do you envision an ACO with no presence to assist the underserved poor? The obvious outcome of this is… Read more »

Margalit Gur-Arie
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I wish there was a way to insert applause in a comment to a post. Health care is just one image of the growing inequities plaguing this country, and unfortunately for the last few decades overall growth did not help anybody but the wealthy class, which according to a recent NYT article is doing rather well, with luxury stores and car dealers having the best time in many years. It seems that the same phenomenon is experienced by the luxury providers, while the masses are stagnating with the rest of us. To Lyn’s point, it’s not just that supply increases… Read more »

Ronald Lavine, D.C.
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Two things: First thing: I’m reminded of a talk I heard from Uwe Reinhardt debunking the general fear of out of control medical spending. Paraphrasing only one of his points – if a man earns $50,000 and spends 10% on healthcare, he’s left with $45,000. What if the percentage spent on health care doubles – to 20% – but now he’s earning $100,000? He’s got $80,000 left over. Not too bad. This echoes the point you’re making that healthcare spending is only a problem relative to the overall growth (or lack thereof) of the general economy. Second point – it… Read more »

Lynn in SC
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Lynn in SC

When the dollars flow to “acute sick care” you get more of it. Remember Says Law (from principles of economics), supply creates its own demand.