I wrote a Part 5 several weeks ago and then lost it somewgere on my hard drive. But it's an important diary so I am re-creating it from memory here. Can't say that it's exactly what I wrote last time but with everal weeks of reflection and feedback perhaps it is even better.
Before explaining why our health caqre is so expensive, it's worth repeating s brief secton that I published earlier in order to set the proper context for the detail that follows. As I indicated in one of the inital diaries, liberals and conservatives have reached a consensus on the definition of the health care crisis; namely, that U.S. health care costs too much both in terms of patient outcomes, as well as the impact both on public and family budgets. The argument arises over the remedy that shouuld be applied, but the basic problem (too high cost) is the sine qua non touchstone of the problem.
Even if, as I believe, that an analysis of health care beginning with the issue of cost is a blind alley, it's still necessary to analyze health care costs themselves. What are the real components that go into creating the cost of health care? What follows is some interesting data that gives some insights into that problem.
The accepted answer for why U.S. health care is so expensive usually centers on the costs of all those unnecessary tests that fee-for-service physicians orders, along with the profit requirements of for-profit health care companies that is built into the overhead which is then translated into excessive charges to individuals and government payers.
But in a service-based industry such as health care, a glance at any balance-sheet, from the smallest group practice up to a mega-hospital chain will show you that the major cost is always the cost of people; i.e., salaries and benefits. At a later point in time I will publish the data on exactly what proportion of health care costs are derived from health care salaries. In the meantime, a brief comparison is instructive.
Let's look at the United States versus Italy. I choose Italy because despite all the nonsense about their lousy economy, the collapsing Euro, their enormous debt and so forth, in fact Itay has one of the best-managed and most comprehensive health systems in the world. It ranks 2nd on the WHO scale of national health outcomes, the U.S. ranks 37th. Italy has 35 MDs per 10,000 population, placing it 25th in this category, whereas the U.S. has 24 MDs per 10K, placing it 53rd. Finally, Italy has 36 hospital beds per 10K population, ranking it 37th, the U.S. has 30 beds, ranking it 43rd. These metrics, incidentally, come from Kaiser.
Here's the all-important comparison: We spend approximately $8,000 per capita on health care, Italy spends roughly $3,200. By the way, all the numbers in this diary are expressed in PPP, which means the purchasing power of the dollar, so the comparison is quite exact. And it is these numbers that are always thrown up to demonstrate how "costly" our system is relative to the return. (Incidentally, the per capita health cost comparison between the U.S. and other countries was initially published by a Congressional committee in 2006 and is reproduced in virtually every discussion about the high cost of U.S. health care, as if it's the only way to understand the problem.)
But here's na comparison that you don't see quite that often, and again it is given in PPP terms. The average monthly salary of primary-care physicians is $11,000 in the U.S. versus $6,800 in Italy. Monthly salaries for physiotherapists are $3,500 versus $1,400; for nurses it's $5,200 versus $3,000; for dentists $9,000 versus $5,000.
Let's get to the bottom line: The key component driving health care costs in the U.S. is not excessive testing, or profits, or fees. It's the attractive salaries paid to people who deliver health care services at every level. There's a reason why the Bureau of Labor Statistics believes that the average salary for health care providers will increase by 20% over the next five years, and it's not because the government's going to be dishing out all that extra money.
And if you think that the providers earn a nice buck, you ought to look at the support staffs, for which I'll give you the most extreme example. Last year the CEO of Montefiore Hospital in New York was paid $1.4 million plus a bonus of $360,000. The CEO at New York's Hospital for Special Surgery took home more than $2.5 million in salary and bonus. Now everything is larger thsn life in New York, but I would suspect (more data coming later) that most of the CEOs of the 5,000 community-based hospitals in the U.S. are paid a good six-figure income.
But don't get me wrong. I'm not astonished by these figures, nor do I believe that this represents some sort of violation of the social compact or the Hipocratic oath. The data on U.S. health care salaries simply underscores again the fact that we are looking at an industry, not some kind of hybrid social service that just happens to have a bunch of well-paid people connected to it.
And here's the problem. If we are really serious about reforming health care by cutting costs, then the first cost that will have to be cut are all those salaries. Not tests, not overhead, not administrative costs. Salaries. What are you going to do? Tell a primary care physician that he has to see more patients and, by the way, accept a ten percent cut in pay? Want to run a hospital without a nurse? See what happens when you tell their union that they have to get by on less money than they earned the year before.
Once again I go back to what I said at the outset of this project: U.S. health care is an industry and it has to be understood on economic terms. What is listed as a cost on one side of the balance sheet is revenue on the other. Which side of the ledger should be read first?
This doesn't mean that major changes can't be made. But if we continue to frame the discussion in terms of costs, then we are not only putting the cart before the horse, we are putting the cart so far ahead of the horse that the horse simply disappears. Which is exactly what has happened in the debate about health care, which is exactly why the debate needs to be restarted from a different point of view.