Avoiding A Health Care Bubble

Posted on | July 1, 2012 | 1 Comment

Ralph Snyderman

The recent report from the Department of Labor showing that the United States economy added just 69,000 jobs in May was met with surprise and disappointment and has had an immediate effect on the presidential campaign as well as the stock market.

What was lost in this news, however, is that almost half of the job growth came in the health care sector. Thus, health care provides a large underpinning for our economic growth, but is this a good thing? Currently, health care expenditures are quickly increasing beyond what individuals, employers, or the government can afford. Ironically, what is gained by these increases in employment may be offset by the burden of rising health care costs on the overall economy. This raises an important question. Is the expansion within the health care industry a good thing for our economy and nation, or is it an emerging bubble that will inevitably burst?

Over the past decade, national health care costs grew from an already large $1.6 trillion per year and 14 percent of the GDP in 2002 to $2.6 trillion per year and 18 percent of the GDP currently. This growth has been fueled by increased costs of treating chronic diseases with expensive specialty and hospital care. Such expenses are driven in part by investments in technologies and new facilities that often rival the opulence of five-star hotels. According to the Health Care Cost Institute, price increases and costs of hospital admissions grew nearly three times faster than inflation. Despite the drag on the economy from the rising cost of health care, preventable chronic diseases have continued to grow. Consequently, the increased expenditures have not led to an improvement in the health of the nation.

What is frightening is the parallel between the growth in the health care industry and the recent experience in the real estate market. In real estate, the American dream to own a home was seen as laudable. Unfortunately, the financial market could not sustain the growth of the housing market, and it ultimately collapsed. In health care, access for all Americans is at least as important a goal and should be achieved, but it must be done in a way that is effective and affordable. The current approach, in my view, is neither effective nor sustainable. Fortunately, there is a solution to this dilemma. Health care expenditures must be focused toward health promotion, prevention, patient engagement, and coordinated care rather than the current emphasis on high-cost, sporadic treatment of disease events that are largely preventable. We know how to make the approach to care far more effective and less costly.

Personalized, predictive, and preventive approaches, with intense patient engagement, are already provingto be far more effective than the current reactive treatment of disease events. At the center of effective care should be the individual (who at times is the patient) who is engaged, informed, and involved in their own health. Coupling the engaged individual with a health care system designed to meet personalized medical needs overtime is the model that we should move toward.

Health care sector growth within a system that actually improves health and minimizes preventable diseases will be cost effective, sustainable, and a true boost to our economy. Absent this, growth in the health care industry is a mixed blessing.

Comments

One Response to “Avoiding A Health Care Bubble”

Mike Magee
July 1st, 2012 @ 5:25 pm

Ralph-

Thanks for this thoughtful analysis. The comparison to the real estate bubble is spot on – especially if our priority continues to be in investing in high powered and reactive brick and mortar. On the other hand, if we are able to shift our emphasis and dollars into the creation of healthy homes where customized, strategic, and lifelong health planning can thrive, I believe the bubble we are experiencing will naturally deflate rather than burst.

Mike