It's one thing to talk about the massive amount of money, trillions of dollars, that get spent every year in the US health care system. In 1997, that number was $1.5 trillion; in 2012, it had risen to $2.8 trillion, and health care spending as a share of GDP had increased by an absolute 4%. Last year, about one in every six dollars contributed to GDP was spent on health care.

But merely reciting the numbers makes it sound like it's easy to cut. As I've said many times on our blog, though, one person's waste is another person's income. One in seven American workers is employed in the health care sector.

Where does all that money go, though? Last month, Sherry Glied, Stephanie Ma, and Claudia Solis-Roman published a paper in Health Affairs that gets at exactly that question. They used data from the Bureau of Labor Statistics and the Economic Census, from 1997, 2002, 2007, and 2012, and combined that with data from the Economic Census’s annual industry accounts. This allowed them to get some pretty detailed answers on health care revenue, costs, and expenses.

In 2012, revenues exceeded expenses by 10.2%. Half of this revenue went to workers. Almost half of all labor compensation went to physicians and nurses (23%); other health care practitioners and support staff (12%); and management, administration, and information technology staff (14.9%). More than a third of the total revenue went toward purchasing intermediate goods and services.

Labor costs have declined over time, though. From 53.2% of revenue in 1997 to 49.8% in 2012. That decline was sharpest in hospitals (54.1% to 48.8%).

 

One thing that fascinated me was the change in the workforce. In 1997, one in every 17.8 people working in the three major subsectors was a doctor. But by 2012, that increased to one in every 16.6 people. The number of employed doctors grew by nearly a third, which was faster than the growth of the entire healthcare sector (24.5%). For all of the talk of the doctor shortage (which I will explore in detail at a later date), we seem to have been adding physicians to the system at an improved clip.

 

 

Additionally, for all the complaints of doctors about reimbursement, inflation-adjusted earnings for doctors outpaced both the health care sector overall and the economy at large, rising by more than 35% over the studied period. Nurses also increased in number (33.2% over the study period), which was three times as much as the 11.3% increase in total US employment over the same period. Their inflation-adjusted earnings increased by more than 30% as well. If you combine employment growth with the increase in earnings, the share of total revenue paid to doctors and nurses grew by more than 80% over the study period.

 

Still, an even more rapid increase in employment happened in health care support positions, like aides and assistants, which grew by more than 53%. Growth in physicians' offices more than doubled. IT positions also increased rapidly, by more than two thirds. But since IT comprised so little in overall numbers in 1997, the total numbers in 2012 are still relatively small.

There are much more data in the actual paper, and I encourage you to go read it in full. But the overall picture leads the authors to suggest that health care spending had been influenced by a number of factors, including changes in regulations and the market, trends in the economy, and the changing and expanding role of technology. While payments from insurers have decreased, providers have adjusted expenses to compensate, pretty well in fact. Labor as a share of revenue has declined, though, as goods and services, especially technology, have increased as a share of expenses. Their conclusion:

 

Changes in the health care sector—including the development of new delivery systems and the introduction of new technologies—are likely to alter where the money in the sector goes and who receives how much of it in the future. Monitoring these aggregates therefore serves as a useful corollary to studies of specific reforms and a necessary element in sensible policy design.

 

Aaron

Aaron Carroll
Author, Member

Aaron E. Carroll, MD, MS

Professor of Pediatrics and Associate Dean for Research Mentoring - Indiana University - School of Medicine

Dr. Aaron Carroll is a Professor of Pediatrics and Associate Dean for Research Mentoring at Indiana University... Read Bio

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