Healthcare costs

Wendell Murray Associates Inc. - Healthcare costs

Please note that this section is still being developed. Much more shortly.


Healthcare costs in the USA

The links below are to summary reports that present relevant facts and figures about the costs and funding of healthcare in the USA. Most of this information comes from data collected by various departments within the executive branch of the US federal government, such the National Institutes of Health, the Census Bureau and the Centers for Medicare and Medicaid Services.

The report by the McKinsey Institute is an excellent and fairly thorough analysis of the cost structure of healthcare services in the USA. A key point that this report makes is that the USA incurs costs of about $500 billion/year more than what McKinsey calls the ESAW (Estimated Spending According to Wealth) which is a function of per capita GDP. McKinsey calculates this measure on the basis of healthcare costs in 13 OECD countries. The report tries to identify and discuss the components of this excess cost figure by category.

Another interesting article is the discussion of the Massachusetts health plan that was recently enacted. The author is Jonathan Gruber, a well-known academic economist at MIT who writes often about healthcare.

Another excellent article on the political economy of healthcare cost control is by Joseph White. His article addresses the cost of healthcare provision and how it can be controlled. As mentioned above this cost represents the services and products that are provided by physicians and facilities and that are paid for by the consumer either directly or through insurance premiums or taxes. He correctly states that no so-called market-based system works the depends upon prices to allocated consumer demand. Nor does direct regulation of the provider's activities. What is needed is the technique for controlling spending by "bureaus", i.e. "bureacratic" budgeting combined with individual professional judgment by the providers to determine the expenditure of resources, i.e. the budget. This is essentially what is practiced in most other advanced industrialized countries in combination with a centralized government-based financing of the spending, otherwise known as a single-payer insurance system.

When the current health insurance system is compared to a hypothetical one under a single payer/insurer system what savings in administrative costs would accrue is a key issue. Most analysts try to isolate billing and collection costs that would disappear under a single payer plan. In addition profit, executive compensation among other costs would disappear. One analysis done in fact for a lobbying group that represents smaller, specialized health insurers shows a fairly substantial variation between administrative cost incurred by those insurers (16.7%) and comparable costs incurred by Medicare (about 4% in 2007). The result is at variance to what the lobbying group desired, so it "re-interpreted" the numbers and analysis. However this analysis is consistent with analysis done by other researchers.

Cost of Administration: Medicare vs. Private insurance

Markets, budgets and cost control

McKinsey Institute report in USA healthcare costs

One page overview of healthcare spending in the USA

Healthcare costs in the USA

Massachusetts healthcare plan

An excellent recent essay by a surgeon, Atul Gawande, who also writes for the The New Yorker, is included below. The essay describes a visit that the surgeon made to McAllin, Texas which has the highest healthcare costs in the USA, despite being a low-income area of the USA.

His description of the facilities, the physicians in particular and facility administrators illustrates where high costs can be routinely incurred when physicians in a given area are interested primarily in making money from providing medical services. He contrasts that setting to those in Rochester, Minnesota, where the famous Mayo Clinic is located, and to Grand Junction, Colorado, where physicians decided to co-ordinate their activities in the interest of patient well-being rather than their own level of income.

Gawande essay

California Healthcare Foundation studies

The California Healthcare Foundation sponsors many outstanding studies on various parts of the healthcare system. Click on the links below for two recently published studies that address the application of long-used operational improvements techniques to the delivery of medical services. These techniques have largely been intentionally ignored by deliverers of medical services due to the lack of competitive pressure on those entities and the continuing unreasoned resistance on the part of physicians in particular to any suggestions for improving their activities from outside of their own ranks.

Management Engineering Practice and Cases

Operations Improvement Methods

My visit to the emergency room

Emergency room cost example