IT Costs Are Out of Control, with No Benefit to Healthcare

Does healthcare IT really improve medical care?

This series of articles was inspired by a recent hospitalization of this author in Spain, after which the bill showed that medical care costs there are less than 10 percent of those in the United States. All of the services rendered in Spain were performed about the same way as here, except one – in Spain there is considerably less reliance on information technology.

This led to my hypothesis that information technology (IT) may be a driver of high costs of medical care. Today we present the third edition in a series of articles that is exploring how IT is one of the most key enablers of the high cost of medical care in the United States. We will see that in spite of runaway costs, IT actually degrades productivity.

The U.S. Spends Twice as Much

Since 1970, the total health expenditures as a percentage of GDP for the United States went from around 6 percent to around 18 percent today. For the rest of the world, it rose from 5 percent to around 10 percent. So while it doubled across the world, it tripled in the U.S.

On a per-capita basis, the U.S. spends twice as much as other developed countries: $10,348 per person here, $5,169 elsewhere.

There is a rough correlation between GDP per capita and health expenditures per capita, except in the U.S., which is an outlier – it has a little less than $60,000 GDP per capita, but spends more than $10,000 per capita on healthcare.

The average annual growth rate in total health spending per capita in the U.S. was almost 10 percent per year in the 1980s, but has settled down to around 6 percent since then, still a rapid rate of growth – faster than GDP growth.

U.S. healthcare is almost evenly divided between public and private spending, but for comparable countries, public spending is around 80 percent, leaving only around one-fifth of the spending to be done by the private sector. Both private and public U.S. healthcare spending have grown at a faster rate than in comparable countries.

Americans spend an average of $1,443 on drugs annually, compared to $749 per person in comparable countries.

Twice as much.

Costs for common procedures such as knee replacement, Cesarean birth, or unclogging blood flow is also higher in the U.S.

But This Achieves Worse Results

U.S. citizens go to the doctor or stay in a hospital about the same amount as in comparable countries, but also suffer from the lowest life expectancy and highest infant mortality. Life expectancy in the U.S. is 78.8 years, but in comparable countries it is 80.7 to 83.9 years.

Something isn’t working.

It’s the Bureaucracy, Stupid!

Administrative costs in the U.S. account for 8 percent of GDP, but only 3 percent in comparable countries. Single-payer systems have a lower cost than multi-payer plans, and public systems have a lower cost than private plans.

Billing and insurance-related costs (BIR) are also very high for private health insurers. There is no standard billing system. This leaves healthcare providers the task of adjusting their information systems to interface with multiple and differing billing and claims systems. This staggering complexity is impossible to overcome. And there is no way to catch up.

IT spending in hospitals is continuing to accelerate.

Applications such as electronic forms management and pharmacy workflow systems will require sustained investment.

In addition, new applications such as nurse communication systems and voice recognition add an impression that IT is transforming healthcare. There is a continued rush to investment.

Every month, a new IT technology is introduced. There is an illusion that a technology solution can be found for each problem. Each promises to increase efficiency and outcomes, but none truly do. IT appears to add complexity without providing any clear benefit. Cyber is simply another layer of complexity foisted onto an already over-complex system.

There are a number of studies that show how IT decreases productivity.

The bottom line is this: Although we can expect that IT spending in healthcare will continue to grow, nevertheless, for patients there is a negative correlation between more IT and healthcare outcomes.

Coming Articles

In the next installment of this series, we will examine efforts to simplify the bureaucracy of healthcare and the corrosive role of IT.

Program Note:

Listen to Edward Roche on Monitor Monday this coming Monday, Nov. 12, 10-10:30 a.m. ET.

Comment on this article