Healthcare cost encompasses expenditures on the totality of scarce resources (implicit and explicit) given up (or allocated) to produce healthcare goods (e.g., drugs and medical devices) and services (e.g., hospital care and physician office services are major components). Healthcare cost accounting components (sources and uses of funds) tend to differ but can be similar enough across most of the world countries. The healthcare cost concept usually differs for consumers, politicians and health policy decision-makers, health insurers, employers, and the government. All else given, inefficient healthcare production implies higher economic cost and lower productivity of the resources deployed in the process. Healthcare productivity varies across health systems of the world countries, the production technologies used, regulatory instruments, and institutional settings. Healthcare production often involves some specific (e.g., drugs and medical devices, information and communication technologies) or general technology for diagnosing, treating, or curing diseases in order to improve or restore human health conditions. In the last half century, the different healthcare systems of the world countries have undergone fundamental transformations in the structural designs, institutional regulations, and socio-economic and demographic dimensions. The nations have allocated a rising share of total economic resources or incomes (i.e., Gross National Product, or GDP) to the healthcare sector and are consequently enjoying substantial increases in population health status and life expectancies. There are complex and interacting linkages among escalating healthcare costs, longer life expectancies, technological progress (or “the march of science”), and sectoral productivities in the health services sectors of the advanced economies. Healthcare policy debates often concentrate on cost-containment strategies and search for improved efficient resource allocation and equitable distribution of the sector’s outputs. Consequently, this contribution is a broad review of the body of literature on technological progress, productivity, and cost: three important dimensions of the evolving modern healthcare systems. It provides a logical integration of three strands of work linking healthcare cost to technology and research evidence on sectoral productivity measurements. Finally, some important aspects of the existing study limitations are noted to motivate new research directions for future investigations to explore in the growing health sector economies.
Albert A. Okunade and Ahmad Reshad Osmani
Thomas E. Getzen
During the 18th and 19th centuries, medical spending in the United States rose slowly, on average about .25% faster than gross domestic product (GDP), and varied widely between rural and urban regions. Accumulating scientific advances caused spending to accelerate by 1910. From 1930 to 1955, rapid per-capita income growth accommodated major medical expansion while keeping the health share of GDP almost constant. During the 1950s and 1960s, prosperity and investment in research, the workforce, and hospitals caused a rapid surge in spending and consolidated a truly national health system. Excess growth rates (above GDP growth) were above +5% per year from 1966 to 1970, which would have doubled the health-sector share in fifteen years had it not moderated, falling under +3% in the 1980s, +2% in 1990s, and +1.5% since 2005. The question of when national health expenditure growth can be brought into line with GDP and made sustainable for the long run is still open. A review of historical data over three centuries forces confrontation with issues regarding what to include and how long events continue to effect national health accounting and policy. Empirical analysis at a national scale over multiple decades fails to support a position that many of the commonly discussed variables (obesity, aging, mortality rates, coinsurance) do cause significant shifts in expenditure trends. What does become clear is that there are long and variable lags before macroeconomic and technological events affect spending: three to six years for business cycles and multiple decades for major recessions, scientific discoveries, and organizational change. Health-financing mechanisms, such as employer-based health insurance, Medicare, and the Affordable Care Act (Obamacare) are seen to be both cause and effect, taking years to develop and affecting spending for decades to come.