Guest Post–Some Clip-n-Save Health care Stats

January 13th, 2010 by Al Lewis (alewis)

Dear OOBonomics nation,

 

There is a lot of debate about the implications of health care policy.  It’s a pleasure to join you today and hopefully to provide you with a brief overview of certain aspects of healthcare spending – this is not intended to be an in-depth analysis but it should  cover some of the major topics.

 

This is an economic analysis of some of the issues – it is presented because it could provide useful information that will help you develop your ideas regarding Healthcare and give you a better understanding of how health care funds are being used..

 

What is money being spent on in Healthcare?  And what might that mean?

 

Healthcare

 

Healthcare expenditures have significantly increased over the past decade and  these increases are expected to continue.  Expenditures on health care have increased from $699.5 billion in 1990 to $1,035.1 billion in 1996 and are projected to reach $5,329 billion by 2015.  Concurrent with the increasing expenditures on medical care is the continuing growth in biomedical research.  Total expenditures on research and development (“R&D”) in real dollars, has increased from $164.9 billion in 1991 to $192.6 billion in 1998.  Research in biomedical areas has increased its share of these funds.  The number of biotechnical firms has increased from approximately 200 in 1975 to almost 1,200 in 1997.[1]

 

Spending has grown at a much faster rate than population.

 

It’s is almost like a Malthusian growth pattern - expenditures are growing geometrically while the population is growing arithmetically.  The average annual growth rate for healthcare expenditures has been between 7.0% and 11.8% while the average annual growth rate of the population has been between .9% and 1.0%.  On a per capita basis, the annual growth rate averaged between 5.9% and 10.7%.

 

The costs cover a very broad area..

 

Expenditures on physician services increased from $5.1 billion in 1960 to $148.3 billion in 1990 and reached approximately  $483.6 billion in 2005.   Expenditures continue to grow at an average annual rate of 10.6%.  Concurrent with the increased spending on physicians’ services  expenditures on prescription drugs increased from $63.8 billion in 1995 to $81.2 billion in 1997 while the number of dispensed prescriptions increased from 2.l billion to 2.3 billion. 

 

This means that the cost of prescriptions increased by about 7.8% during each of those years!  This rapid rate of growth in spending has created an attractive area for major pharmaceutical companies.. 

 

Private pharmaceutical corporations have increased spending on R&D from $74.8 billion in 1984 to $144.7 billion in 1996.  Expenditures on R&D for drugs and medicine increased from 4% of this total in 1984 to 7% in 1996.[2]    The large pharmaceutical companies have increased their role in R&D related to the development of drugs.  Domestic expenditures on R&D by drug companies has increased from $6.8 billion in 1990 to an estimated $20.1 billion in 1999.  As a percent of total domestic sales plus exports this represents an increase from 16.2% in 1990 to an estimated 20.8% in 1999.  Thus as sales increased, expenditures on R&D increased by a faster rate. 

 

There are many areas of potential research, profit, and better public health.  A key issue is to remember that companies conduct research with an eye for future profit yet take on a significant current risk.

 

R&D in general is filled with uncertainties; projects can take years before anything is discovered.  The typical research project will go through many steps before clinical trials start.  Frequently the process is analogous to following a tree diagram with numerous branches.  Many of the branches are dead ends and the researcher must go back and pursue a different branch.

 

Concurrent with increasing expenditures on healthcare, the level of expenditures for R&D in biomedical and related areas have also been increasing in real terms and this growth is expected to continue.

 

That was a lot.  To wrap things see the following  chart that tells you where spending is going:

 




 



Table 8

 

Healthcare Expenditures

 

 

 

1970

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

 

 

 

 

 

 

 

 

 

 

 

 

 

Total healthcare Expenditures ($Bil)

 

247

428

700

991

1,482

2,174

3,800

5,329

7,800

10,940

16,000

Average Annual Rate of Growth

 

 

11.6%

10.3%

7.2%

8.4%

8.0%

11.8%

7.0%

7.9%

7.0%

7.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Population (millions)

 

228

239

250

263

276

288

303

318

335

352

370

Average Annual Rate of Growth

 

 

0.9%

0.9%

1.0%

1.0%

1.0%

1.0%

1.0%

1.0%

1.0%

1.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare Expenditures per Capita ($)

 

1,086

1,795

2,799

3,770

5,365

7,541

12,541

16,758

23,284

31,080

43,243

Average Annual Rate of Growth

 

 

10.6%

9.3%

6.1%

7.3%

7.0%

10.7%

6.0%

6.8%

5.9%

6.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Expenditures for Physicians ($bill)

13.6

45.2

 

148.3

201.6

309.8

483.6

 

 

 

 

 

 


 

 

Dr. Jerrold Katz, a highly respected economist, was a founding professor of Simmons Business School and has published many papers.  His firm, *JP Katz | Economic Expert Witness* [link: www.jpkatz.com, provides a variety of economic and financial services, especially those related to valuations, like *divorce business valuations* [link: http://www.jpkatz.com/services/divorce-business-valuation.php].


[1] U.S. Companies Data Base, (Research Triangle, NC: Institute for Biotechnology Information, 1997)

[2] Payson, Steve, National Patterns of R&D Resources, 1998 (Arlington, VA: National Science Foundation, Division of Science Resource Studies, NSF99-335, 1999), Table B-16.

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