Business & Technology Nexus

Dave Stephens on technology and business trends

On Healthcare

with 4 comments

In the US, healthcare insurance is an important benefit of employment. The security of knowing you and your family are covered for preventative care and in the event of a catastrophic event is a very nice thing. And yet many US employers have been forced to cut coverage levels for years due to the unrelenting escalation in costs. Or have they? This post is an initial foray into healthcare from a Procurement perspective. I hope you find it enjoyable.
First, take a look at the following chart from p15 of a 2005 RAND research piece on US Health Care:

It shows an inexorable increase in health care spending as a % of GDP, starting around 5.1% in 1960 to 14.9% in 2003. This is an astonishing increase, and is quite a "tax" for US enterprises to overcome when competing in world markets.

The US system is certainly a lot different than in Canada or the EU. The US spends an abnormally high amount per capita compared with other like nations even though the increased spending has not translated into greater life expectancy or lower incidences of chronic diseases.

However, while other like countries do not face the same huge population of uninsured citizens as the US, I think it's a fair assertion that no country seems to have a corner on the "right" way to dispense healthcare. After all, even in places like Canada or the UK where there is guaranteed coverage for all, many people of means go outside the system to garner a better quality of care.

And let me make clear my interest here is the intersection of Procurement and the US healthcare system – and it's mostly from an employer's perspective. I think we can all agree healthcare is one place where it's an absolute must to "source for best value." Quality of care is very, very important.

But before I close these initial comments, I do want to introduce the concept of healthcare pricing.

In the US system, "list price" (for the healthcare services we consume), is a baffling concept. "Price shifting" is common. Hospitals and clinics mark up services and then "relent" with contract pricing for insurance firms with large subscriber bases. So cash paying customers, ready to buy their own healthcare, face steep & often wholly unreasonable prices for many types of services. This lack of transparency is one of many barriers to improving care.

I highly recommend Dr. Stanley Feld's blog for those interested in a deep dive on this important area.

Stay tuned for more! 


Written by Dave Stephens

06/21/06 10:00 PM at 10:00 pm

Posted in Opinion

4 Responses

Subscribe to comments with RSS.

  1. The Singapore medical system, as described by Tim Harford in the Undercover Economist, has an interesting approach. In Singapore, major medical events are covered by universal health care but minor, non life-threatening medical treatments are paid from each user’s publicly-funded medical account thus giving each user the ability to choose their own treatment and an incentive to seek out the most cost-effective option. If I remember correctly, a user can bequeath unused health care credits to their children. According to Tim, everyone receives health care and the costs remain low (Call me cynical, but I’m sure there are wrinkles).


    06/22/06 4:10 AM at 4:10 am

  2. A main assertion in Dr. Feld’s blog is that lack of proper preventative care results in 80 cents out of every US dollar being spent on complications from chronic illness. If I were to be critical of the Singapore system (even though perhaps it is a better model) I would examine whether the self-pay model for preventative care results in lower rates of usage & consequently higher catastrophic care costs over time.

    Dave Stephens

    06/22/06 6:54 AM at 6:54 am

  3. Thanks for the RAND reference. Lots of interesting statistics.


    06/22/06 9:40 PM at 9:40 pm

  4. Dave, regarding your question on “whether the self-pay model for preventative care results in lower rates of usage & consequently higher catastrophic care costs over time.” Isn’t this what makes procurement fascinating? Against lower usage rates, you need to weigh the inefficiency of centrally allocating medical funds. The Canadian model and, to a certain extent, the US model require bureaucrats to decide which treatments to fund and which to not fund. These decisions significantly impact the availability of one preventative treatment vs. another. What is the impact of this on the incidence of chronic illness? Is it greater or lesser than the lower rates of usage from a self-pay model? Fascinating questions…


    06/23/06 5:35 AM at 5:35 am

  5. […] In my last healthcare post I introduced a commonly known fact – that healthcare costs in the US have escalated at an alarming rate as a percent of GDP. An interesting and somewhat surprising related trend is how the percentage of total costs individuals pay for their healthcare has changed over time. Take a look at the following chart from p25 of the RAND study I cited last time: […]

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: