Thursday, December 10, 2015

Analysis of U.S. National Healthcare Expenditures as a function of GDP

There has been quite some talk and I expect a bit more talk on the topic of the magnitude of National Healthcare Expenditures and what that means for all of us.

In this article, I am presenting a summary of some highly quantitative analysis that was done to understand how the National Healthcare Expenditure moves in tandem with the U.S Economy.

Accountable Care Organization and Population Health Management

The term "Accountable Care Organization" was first used by Elliott Fisher – Director of The Dartmouth Institute for Health Policy and Clinical Practice – in 2006 during a discussion at a public meeting of the Medicare Payment Advisory Commission. The term quickly became widespread, reaching its pinnacle in 2009, when it was included in the federal Patient Protection and Affordable Care Act.

Although the term ACO was not coined until 2006, it bears resemblance to the definition of the Health Maintenance Organization (HMO), which rose to prominence in the 1970s. Like the HMO, the ACO is "an entity that will be 'held accountable' for providing comprehensive health services to a population. 

There was a very valuable paper written on the topic of how to reduce cost of healthcare by Harold Miller entitled How to create Accountable Care Organizations. I highly recommend reading this paper if you have not already. This paper lays the foundation for what it takes to create and establish a profitable Population Health Management enterprise. 

The Analysis

Taking into account archived U.S. national data including healthcare expenditures data, it was observed that: (all data is in CAGR in Table 1)

Table 1: High Level Analysis of CAGRs (2004-2014) and (2015-2030)

NHE (2004 to 2014) NHE (2015 to 2030)
4.36% 5.19%
GDP (2004 to 2014) GDP (2015 to 2030)
3.19% 4.06%
NHE as percent of GDP (2004 to 2014) NHE as percent of GDP (2015 to 2030)
1.17% 1.10%

What is seen as most interesting is that in the financial meltdown of 2008-2009, the NHE as percent of GDP saw the most increase as seen in Figure 1, and that if the US economy continues to grow at a stable growth rate of 4%, then by 2024, NHE will be 20% of US GDP and excess of 21% in 2030. 

Figure 1: Trend View of NHE against GDP performance

Click here to view the chart in full

There was additional analysis done using the data sets to confirm that the model that was built has produced estimates for 2016 to 2030 with 95% confidence. 

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