CEO's Blog

Good morning!

In my Feb. 24, 2009 blog post Economic Crisis Will Lead To More Efficient Healthcare , I made the prediction that our current, inefficient model of healthcare would be forced to change as a result of deteriorating economic conditions.

Recently, a scholarly paper by Christopher Truffer and colleagues, Health Spending Projections Through 2019: The Recession’s Impact Continues , presents compelling data to support my prediction from a year ago.

In the paper, the authors write “National health spending [in the U.S.] is estimated to have grown 5.7 percent and reached $2.5 trillion in 2009, despite a projected 1.1 percent decline in gross domestic product… This projected rate of escalation would represent the largest one-year increase in the health share of GDP since the National Health Expenditure Accounts (NHEA) began tracking health spending in 1960, and it reflects the severity of the recession that began in 2007.”

Interestingly, the authors see healthcare expenses rising from 17.3% to 19.3% of GDP by 2019. To arrive at this estimate, they modeled GDP as rising from $14.3 to $23.3 trillion by 2019, in other words a 5% growth rate of the economy, each and every year. By contrast, real economic growth in the U.S. has averaged just 2.9% a year over the past decade. Assuming a continuation of the past decade’s economic performance leads to a more realistic estimate of $19 trillion for the GDP in 2019. Thus, if healthcare continues to grow at the current pace, then healthcare expenses could actually be 23.5% of GDP by 2019.

Or worse. Suppose the U.S. experiences prolonged economic stagnation, perhaps similar to what Japan experienced from 1991 to 2003 when its economy grew at a mere 1.1% annually. Under that scenario, healthcare costs could rise to 28% of GDP, representing a staggering 62% increase in the share of GDP attributable to healthcare.

Few bets are safer than this one: one way or another, healthcare is going to get reformed. And the only way that reform can deliver the needed cost savings is to shift the focus of healthcare delivery from a critical care model to a pro-active, preventative model.

Good news, if you’re in the early disease detection business.

Yours truly,
John