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Health Care: An Alternate Economic Universe



August 23rd, 2012

In July, 2012, the US economy produced roughly the same volume of goods and services as it did five years earlier with five million fewer workers.  Yet, during the first four years of the recession (May 2007 to May 2011), the US health system, despite slowing or declining utilization, added 1.149 million workers.  Key sectors, specifically hospitals and physician offices, grew their workforces despite declining admissions and office visit volume. (Employment data in this post comes from the Bureau of Labor Statistics’ (BLS) National 4-digit NAICS Industry-Specific Estimates from May 2007 and May 2011.)

Compared to the rest of the economy, health care seems to exist in an alternate economic universe.  This would be good news, rather than a problem, if we were not borrowing roughly half of every dollar of general revenue the federal government is spending on health care and if employers were not robbing their workers of wage increases to fund their health benefits.

Hospitals and physician offices saw declines in their core activity in the past few years.  Hospital admissions have been flat the past five years, and have shrunk the past two.  Even hospital outpatient volume growth has subsided into the low single digits, only partially offsetting the lost admissions.  Yet hospital employment rose by over 220,000 workers, or 4.4 percent from mid-2007 to mid-2011.

The fastest growing hospital job occupations:  “management” (roughly 14 percent); business and financial operations (roughly 12 percent); and “computer and mathematical” (roughly 18 percent).  Clerical employment actually declined, suggesting a shift to automated business operations (and a more complex, higher salaried workforce).  If there has been productivity leverage from hospitals’ markedly higher investment in clinical information technology, it is difficult to discern.  Laying off clerks and coders, and replacing them with software engineers and managers is not a big economic win.

The largest numerical increase in the hospital workforce, however, was in the category of “healthcare practitioners and technical occupations,” at 193,000 new workers (roughly a 7 percent increase).  Hospitals employed 18,000 more physicians, as well as more nurses (117,000), technicians and technologists (almost 35,000) and therapists (12,000) — all on declining core volume.  Whether this increasingly intense clinical staffing is paying off in improved patient safety or better coordinated remains to be determined.

An Imbalance Between Supply And Demand In The Physician Sector

The physician sector is where the greatest disjunction between demand (falling) and employment (rising) exists.  Physician office visit volume in the US leveled off in 2005, and has declined by roughly 10 percent since mid 2009, according to IMS Health. Despite these declines in activity, physician offices added 165,000 workers, of which half were professionals.  Again, the most rapidly growing job category was “management”, but physician offices added 47,000 nursing and clinical support workers (technologists, therapists, etc.).

One suspects that a large number of these folks were helping physicians meet the documentation requirements to qualify for “meaningful use” payments for installing electronic health records, responding to the Physician Quality Reporting Initiative mandated by the Affordable Care Act, and responding to ever more requirements for prior authorization from private health plans.  Whether measureable benefits accrue to the society commensurate with these added personnel costs also remains to be determined.   A “zero-based” budget type review of the costs vs. benefits of physician documentation requirements imposed both by federal mandates and private payers is long overdue.

Not coincidentally, an epic flight from private medical practice into hospital employment is underway in earnest.  If deficit reduction takes hold in the next two years, physician shelter in the hospital will be temporary, as employed physicians are costing hospitals more than $200,000 a year, according to a recent analysis by the Medical Group Management Association.

Surprising Data From Less Closely Tracked Areas Of Health Care

However, the biggest surprise in the BLS employment data was that two thirds of health care’s employment growth from 2007-2011 was in the less closely tracked worlds of subacute, chronic and home based health care.  Home health care employment, the fastest growing sector, grew by almost 220,000 workers, an astonishing 24 percent increase in just four years.

Outpatient care centers (freestanding imaging, surgical, physical therapy, dialysis, etc.) added 106,000 workers, a 21 percent increase.  “Community care facilities for the elderly” — such as assisted living facilities — added almost 108,000 workers, a near 17 percent increase.   And “Offices of Other Health Practitioners” — physical therapists, chiropractors, podiatrists, etc. — added almost 100,000 new workers, more than a 16 percent increase.

These growth areas have several common elements:  fee-based payments, a substantial direct pay/patient pay component, and less utilization management attention than the big ticket/big iron parts of the care system.  That this growth took place during the worst recession in the US in the post-World War II period, and a major contraction in household income and consumer debt crisis, makes it all the more remarkable.

More Evidence Of The Need For Bundled Payments And Global Fees

Whatever else you can say about US health care’s employment surge, this is a very successful economic activity, larger by itself than the gross domestic product (GDP) of France.  But the robust employment growth begs multiple questions, such as, can you contain health spending meaningfully by focusing narrowly on the traditional categories of hospital and physician services?

This employment trend data would suggest the answer is “no”, giving fresh urgency to payment models that bundle all services provided to patients incident to solving a clinical problem into a single payment, or which provide comprehensive services to a population for a global fee (dare we say, “capitation”).

This growth in employment and service intensity, comes at a time when, as I have discussed earlier, overall health spending in the US is growing at the slowest pace in fifty years.  One strongly suspects that the five-year long cost moderation is a demand side phenomenon, e.g. that cost growth has moderated because fewer people can afford the health system’s product.

Health care in the US is changing, and becoming more disciplined, team-based and protocol driven.  However, the culture of the US health system has changed yet very little.  The primordial impulse is to add more (and more expensive) workers whenever new problems need to be solved or new technologies appear, heedless of the expense.

Hospital executives continue speaking wistfully and inaccurately of “reimbursement” as the source of their revenues.  This retro word conveys the distinct subtext that they have no responsibility for the cost of their product, that money has been spent, and someone owes them “reimbursement” for it.   The proper term is “payment”, and the operative societal question is “are we receiving value for money?”  in that payment.

However, most of the new payment models under intense scrutiny — from accountable care, to bundled payment, to “ambulatory intensive care” for dual eligibles, etc. — only pay off if they markedly reduce, particularly, hospital use.  Despite a (slowly) aging population and (hopefully) better access through health reform, the trend line for use of our most expensive health resources will likely turn downward as we reduce avoidable use of our system’s most expensive resources.

An Unsustainable Status Quo

But the cost of health care that remains is still far too high to be affordable long term.  Those costs will only be reduced by better coordinated care, and by marked improvements in clinical and organizational productivity,  a revolution these data suggest has yet to begin.  The supply side of the US health care system remains impressively insulated from cost pressure, and focused on the myriad challenges of growth and revenue enhancement.

At some point on the path to deficit reduction, gravitational forces will assert themselves. Policymakers can assist in that process by re-examining the economic logic of the transactional density and documentation burden they are imposing on caregivers.   We will know that economic pressure on the health system has reached a decisive juncture when health sector employment stabilizes or reverses course,  and health care providers join the rest of the economy in seeking improved productivity and product quality as necessary strategies to survive.

Note: Trevor Goldsmith assisted in the research for this post.

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3 Trackbacks for “Health Care: An Alternate Economic Universe”

  1. Limits and Lags in Healthcare Productivity « Chilmark Research
    September 24th, 2012 at 11:46 am
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    August 27th, 2012 at 11:45 am
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