This post will begin to analyze the health care industry as part of the overall economy.  The reader should be warned that this is a very complex issue and will require multiple posts in order to cover the topic in a reasonably-comprehensive manner.  But before we delve into data specifics, we should first explain what is meant by the term 'industry,' which has of late become the standard nomenclature for discussing health care.

An industry is a form of economic activity that creates and sells products and services usually through the actions of a business form known as a company.  The company can take many different legal forms; i.e., corporation, partnership, sole proprietorship, etc., but the form doesn't matter as much as the function, which involves bringing goods or services to the market where they are then consumed by consumers.

The term 'industry' is therefore a convenient way to group and/or categorize different types of economic activity by similar types of products or services and, hence, companies in a particular industry tend to operate within the same general market.

Unfortunately, while the current debate about health care tends to define the industry as based on the delivery services (i.e., health care,) the health care industry is much more diverse.  In fact, this industry is a mixed industry because it brings both products and services to the market, although the product sector is usually overlooked in discussions about health care costs.  

This is because it's very easy to quantify the cost of health care services, since all you need to do is add up the revenues received by everyone who delivers a health care service.  Which is easy to figure out since the overwhelming bulk of health care services are delivered either by hospitals or individual/group providers, most of whom receive the bulk of their revenue from either public or private insurers who can easily track their expenditures.  

But while health care is referred to as an industry, and industries, by definition, operate as economic organizations, current health care debate pays scant attention to economic analysis of health care delivery.  In fact, the overwhelming proportion of contributions to the debate are the work either of the deliverers (i.e., physicians) or policymakers.  And since the deliverers are looking at what they do from a delivery perspective (i.e., making people healthier,) and policymakers are looking at what is delivered from a policy (i.e., government) perspective, the economic perspective easily disappears.

As a result, the discussion of how well the health care industry operates is framed by the issue of cost, as opposed to revenue or profit, the measurements traditionally used to judge the performance of most industries. But wait, you say, the health care industry is delivering a service, and the point of the service is to make the consumer healthy.  Why should its effectiveness be judged by revenue?  I got news for you, Holiday Inn, a mainstay of the leisure industry, isn't judged by how comfortable are the beds in all jts motels. It's judged on revenue and profits.  But wait, you say again, the medical industry has to be judged on the basis of cost because so much of its revenue is derived from public funds. Well I got more news for you. The defense industry gets all its revenue from public funds, not 50% like the medical industry, and nobody talks about the value of General Dynamics or United technologies by only looking at costs.

Last year the people who deliver health care services took home paychecks that totalled half a trillion dollars.  And that's only the total for the people who delivered the actual health services, from physicians and surgeons, through dentists, optometrists, nurses, therapists, radiologists, and so on and so forth.  I haven't even figured out how to calculate the total salary for all the support staff, never mind the administrators, the business managers, the hospital vice presidents, etc., etc. and etc.  

And that's only the service side of the ledger.  We haven't even begun to look at the heath industry from the perspective of products.  Last year roughly 145 million Americans had jobs.  The number one job category?  That's right - the health care industry, followed by professionals, retail, leisure and manufacturing, in that order.  Sixteen million people took home more than half a billion dollars which they spent on housing, clothing, food, vacations, automobiles, and God knows what else.  And the only thing that matters in this industry is cost?

Hold that thought for a few days until I post my next diary on the economics of the health industry.  

Your Email has been sent.