Rising Healthcare Costs Aren’t a Good Thing

by Dave Schuler on May 1, 2014

There was one aspect of the report of flat GDP I posted on earlier that I’d intended to mention but somehow neglected to so I’ll mention it now. If healthcare costs hadn’t risen in the first quarter of 2014, GDP would have decreased.

That is a very, very bad thing. Spending more for the same quantity of goods or services is in no way indicative of economic strength. Mirabile dictu I’ve actually read things from people who claimed it was.

{ 18 comments… read them below or add one }

michael reynolds May 1, 2014 at 11:08 am

Isn’t this the temporary bump that was clearly anticipated once a bunch of new people acquired access to health care? How is it paying more for the same goods and services if new patients are seeing doctors?

steve May 1, 2014 at 11:45 am

It all depends upon the return for the spending.


Dave Schuler May 1, 2014 at 11:45 am

How is it paying more for the same goods and services if new patients are seeing doctors?

Rather than go into a long explanation of why I think what I do, here’s how you can persuade me that my conclusions are wrong. Convince me that hospitals and doctors had a lot of unused capacity prior to the “bump”. For consumers this is 1965. For producers it’s 1975.

michael reynolds May 1, 2014 at 12:23 pm


Did a bunch more people go to the doctor? If they did, then there was self-evidently unused capacity in the system, else no additional patients would be seen.

If a bunch more people did not go to the doctor then hallelujah, we’re saved, because apparently we can extend health coverage without an increase in usage.

Personally I don’t think unused capacity is really the right term here. Is the MRI machine unused for any portion of the day? Obviously. Then there’s unused capacity. Are doctors only working 10 hours a day instead of 12? Then there’s unused capacity. Capacity is awfully fluid when it comes to services, we’re not talking a car factory that can only produce X number of cars.

Dave Schuler May 1, 2014 at 12:30 pm

Did a bunch more people go to the doctor? If they did, then there was self-evidently unused capacity in the system

That doesn’t convince me because there are other explanations and so far the evidence that has been produced is of greater spending not more people going to see the doctor.

If a 5¢ candy bar weighs 2 oz. on Thursday and 1 oz. on Friday does it make no difference to consumers? It’s certainly better for candy bar producers.

Let’s go for the testamentary evidence. Did Steve put notably more hours in working last month than he did last October?

steve May 1, 2014 at 1:13 pm

Actually, yes, if you choose October as a baseline. For some reason, that was a very slow month in our area for all of the local hospitals. Also, the network asked us to take on some new work, which increased our volume, and increased work for me on the admin side as well as clinical. (Whenever we open a new site I go work there in person a bit to make sure I know ho wit works and find problems early, I hope.) We are starting a new acute pain service next month. Our network just broke grounds on another new hospital and will start on a new surgicenter soon.

Perhaps more importantly, we are working on the productivity part of the equation. We are taking over ICU care from other specialties as it looks like we can do it while increasing total services to the hospital. We are focusing more on what mid-levels can do so that we dont need to pay a doc for the same work. (Just back from Baltimore checking out a model there we might like. They use their mid-levels incredibly efficiently. OTOH, their docs do almost nothing, by my standards. I would go stir-crazy working as little as they do.)

We know we have to cut some costs as Medicare cuts are coming. I am probably way too optimistic, but I think we are going to cut costs and end up with care that is as good or better. There are weak spots in our plans. It remains to be seen if the mid-levels can do everything we think they can, though it has worked out well in our trials over the last three years. Also, some other docs may end up as losers in the process, especially those who did not plan ahead. This will result in some heavy politics. Never know how that will end up.


Dave Schuler May 1, 2014 at 1:26 pm

Thanks, Steve. That’s an important caveat.

It’s pretty difficult to find data on procedures at a fine enough granularity to make useful comparisons. Consequently, estimates tend to be based on inputs rather than outputs.

Your observations on the “productivity part” would seem to throw dire predictions about reducing the rate of Medicare reimbursement into a cocked hat. If providers can achieve greater efficiencies when they have the incentive to do so, wouldn’t reducing reimbursement rates make sense?

Cstanley May 1, 2014 at 2:25 pm

Can anyone succinctly state, or point to a source which states, what is included in “healthcare costs”? Are they measuring end services, or does it include spending on infrastructure, health insurance, etc?

In our area (Atlanta metro)I’m seeing a boom in construction of healthcare facilities in the suburbs. Now maybe some of the lower income, newly insured people are going to be served by these facilities but I doubt that they’re the main demographic.

jan May 1, 2014 at 2:34 pm

Reading Steve’s comments is a “glass is half full” kind of analysis. In his explanations, he’s a physician who supported the PPACA at the get go, warts and all, as it represented (to him) a diversion from doing nothing to at least initiating some kind of enforceable health care reform. Consequently, he is working diligently and expediently to adjust his practice in order to meet the criteria of the law, with sincere expectations that costs will go down, and care, at the minimum, not deteriorate but remain on the same level or better.

However, Steve is but one cog in the wheel of medical practitioner opinions out there. A large contingency of physicians, along with various medical facilities, comprise a counter movement to Steve, seeing the PPACA as an inappropriate, inept way to address the flaws in HC deliverance, and are opting out as a way of expressing their disdain for it. And, no matter how some physicians adapt their practices in an attempt to be in compliance, showcasing how the PPACA can work, IMO, there are simply too many negative aspects to contend with, regarding how this law was constructed, implemented and then selectively delayed and applied. Basically, the Obama Administration has, to date, manipulated and obscured so much of the PPACA mandates, stipulations, and regulations, in order to finesse the roll-out and public acceptance of it, that it’s become difficult, if not impossible, to fairly gauge how it will function when allowed to be in a ‘full Monty” exposure.

Dave Schuler May 1, 2014 at 2:44 pm

Generally what is meant is spending, i.e. amounts paid for healthcare by individuals plus amounts paid by insurance companies plus amounts paid by governments. I don’t know any single place and maybe no combination of places where you could get the operating costs and total capital spending of providers.

Cstanley May 1, 2014 at 3:03 pm

Thanks, Dave. So is there any way to differentiate between say, number of transactions and or number of patients, vs same number of transactions but at higher cost per transaction?

Dave Schuler May 1, 2014 at 3:25 pm

So is there any way to differentiate between say, number of transactions and or number of patients, vs same number of transactions but at higher cost per transaction?

It’s hard. Recently, HHS released a database consisting everything that was submitted to Medicare for reimbursement in 2012. It’s the first time in a decade they’ve done that. I would think that the hope is that they would continue to do that which would make analyses of the sort you’re talking about possible.

I’ve been trying to drum up some interest in a crowd-sourced systematic analysis of the data but so far I haven’t received any nibbles.

Cstanley May 1, 2014 at 3:49 pm

Thanks, Dave, I figured as much.

Since some are touting the increase as a positive in terms of increased usage by people who were formerly excluded from the system, does that even make sense in this time frame, and with the numbers of people involved? Even if the enrollment numbers prove accurate, didn’t a large majority of them sign up at the last minute, so not even during the first quarter of 2014? It seems like QUITE a stretch to claim that a couple of million new healthcare users resulted in a 10% increase in overall spending.

... May 1, 2014 at 4:37 pm

I’ve been trying to drum up some interest in a crowd-sourced systematic analysis of the data but so far I haven’t received any nibbles.

As someone that used to do that as part of my job, I must say that sounds like an absolutely miserable use of free time. At the very least you should fold it into some sort of corporate entity (let the people doing the work get a share depending on how much work they do) and look to sell the results to various think tanks and whatnot. I can’t imagine digging into anything like that for fun anymore.

... May 1, 2014 at 4:38 pm

I mean, a slight thought of return for the work might make it more palatable.

Dave Schuler May 1, 2014 at 5:44 pm

If we had a journalism worthy of the name, we would already be deluged with stories based on the database. To tell the truth I’m not sure how I would package the results in such a way as to make them saleable.

jan May 1, 2014 at 11:38 pm

A NYT opinion piece says that nurses are not doctors, when sorting through remedies to cut HC costs. It also goes on to say why there is increasing interest, though, to give nurse practitioners more primary care responsibilities, waiving regulations requiring a physician to oversee such care.

A big reason for this scarcity is money. Primary care pays the least of all the medical specialties, and interest in it is at a record low among medical students and residents. At the same time, as baby boomers are starting to retire and the Affordable Care Act adds millions to the rolls of the newly insured, the need for primary-care physicians is growing.

Nurse practitioners have been promoted as a cost-effective way to meet this need. Medicare currently reimburses nurse practitioners only 85 percent of the amount that it reimburses primary-care physicians. Paying less for the same work would appear to be a way to save health care dollars.

But are nurse practitioners actually more cost-effective? There is a dearth of good recent empirical research on this question, but some studies have suggested that the answer is no. Nurse practitioners, though generally praised for being sensitive to patients’ psychological and social concerns, appear to order more diagnostic tests than do their physician counterparts. In one study, published in 1999 in the journal Effective Clinical Practice, primary-care patients assigned to nurse practitioners underwent more ultrasounds, CT scans and M.R.I. scans than did patients assigned to physicians. The nurse practitioners’ patients also had 25 percent more specialty visits and 41 percent more hospital admissions.

Dave Schuler May 2, 2014 at 8:06 am

I don’t object to any of that, Jan. I think the problem lies elsewhere: under current policy the requirements for entry into medical school get tougher every year. I don’t see any particular reason for this, especially one that could be measured in outcomes. I think that objective qualifications for entering medical school should be established and anyone who meets them should be admitted. If that were the case, the number of physicians we train would rise with the population unlike the status quo under which the number of physicians trained relative to population declines every year.

In other words, we wouldn’t be discussing more responsibilities for practitioners other than MDs if a) MDs weren’t paid as much and b) there were more of them.

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