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Special Communication |

The Anatomy of Health Care in the United States

Hamilton Moses III, MD1,2; David H. M. Matheson, MBA, JD4; E. Ray Dorsey, MD, MBA2,5; Benjamin P. George, MPH3; David Sadoff, BA4; Satoshi Yoshimura, PhD4
[+] Author Affiliations
1Alerion Institute and Alerion Advisors LLC, North Garden, Virginia
2Johns Hopkins School of Medicine, Baltimore, Maryland
3University of Rochester School of Medicine, Rochester, New York
4Boston Consulting Group, Boston, Massachusetts
5Dorsey is now with the University of Rochester School of Medicine, Rochester, New York
JAMA. 2013;310(18):1947-1964. doi:10.1001/jama.2013.281425.
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Published online

Health care in the United States includes a vast array of complex interrelationships among those who receive, provide, and finance care. In this article, publicly available data were used to identify trends in health care, principally from 1980 to 2011, in the source and use of funds (“economic anatomy”), the people receiving and organizations providing care, and the resulting value created and health outcomes. In 2011, US health care employed 15.7% of the workforce, with expenditures of $2.7 trillion, doubling since 1980 as a percentage of US gross domestic product (GDP) to 17.9%. Yearly growth has decreased since 1970, especially since 2002, but, at 3% per year, exceeds any other industry and GDP overall. Government funding increased from 31.1% in 1980 to 42.3% in 2011. Despite the increases in resources devoted to health care, multiple health metrics, including life expectancy at birth and survival with many diseases, shows the United States trailing peer nations. The findings from this analysis contradict several common assumptions. Since 2000, (1) price (especially of hospital charges [+4.2%/y], professional services [3.6%/y], drugs and devices [+4.0%/y], and administrative costs [+5.6%/y]), not demand for services or aging of the population, produced 91% of cost increases; (2) personal out-of-pocket spending on insurance premiums and co-payments have declined from 23% to 11%; and (3) chronic illnesses account for 84% of costs overall among the entire population, not only of the elderly. Three factors have produced the most change: (1) consolidation, with fewer general hospitals and more single-specialty hospitals and physician groups, producing financial concentration in health systems, insurers, pharmacies, and benefit managers; (2) information technology, in which investment has occurred but value is elusive; and (3) the patient as consumer, whereby influence is sought outside traditional channels, using social media, informal networks, new public sources of information, and self-management software. These forces create tension among patient aims for choice, personal care, and attention; physician aims for professionalism and autonomy; and public and private payer aims for aggregate economic value across large populations. Measurements of cost and outcome (applied to groups) are supplanting individuals’ preferences. Clinicians increasingly are expected to substitute social and economic goals for the needs of a single patient. These contradictory forces are difficult to reconcile, creating risk of growing instability and political tensions. A national conversation, guided by the best data and information, aimed at explicit understanding of choices, tradeoffs, and expectations, using broader definitions of health and value, is needed.

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Figures

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Figure 1.
Anatomy of US Health Care: Overview, Topic Outline, and Key Questions
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Figure 2.
Historical National Health Expenditures by Category, 1980-2011

The national health care expenditures were calculated based on data obtained from the Centers for Medicare & Medicaid Services3 and then adjusted for inflation using gross domestic product (GDP) deflator obtained from the Federal Reserve Bank of St Louis.4aAdjusted to 2011 dollar value using GDP deflator.bCompound annual growth rate (CAGR) supposing that year A is x and year B is y, CAGR = (y/x){1/(B−A)}−1.cIncludes government activities such as epidemiological surveillance, inoculations, immunization/vaccination services, disease prevention programs, the operation of public health laboratories, and other such functions.dInvestment is the sum of medical sector purchases of structures and equipment and expenditures for noncommercial medical research by nonprofit or government entities.eIncludes all administrative expenditures, including the net cost of private health insurance.fEquipment includes durable and nondurable medical products.gIncludes physician, clinical, dental, home health care, and other professional services.hIncludes hospital care, nursing and continuing care retirement facilities, and other health/residential/personal care.

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Figure 3.
Number of US Employees in Health Care Sectors, 2000-2011

The numbers of US employees in health care sectors were obtained from the US Department of Labor5 and examined from 2000 to 2011.aThese data include employees in the government sectors.bCompound annual growth rate (CAGR) supposing that year A is x and year B is y, CAGR = (y/x){1/(B−A)}−1.cIncludes drugs and druggists’ sundries.dIncludes all other personnel categorized under occupation codes 29-000 (health care practitioners and technical occupations) and 31-000 (health care support occupations) defined by the US Department of Labor.eIncludes all employees under North American Industry Classification System code 62 (health care and social assistance) except medical or health practitioners.

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Figure 4.
Historical Growth Trajectory of National Health Expenditures, 1970-2011

The annual growth rate of national health expenditures (NHEs) was calculated based on data from the Centers for Medicare & Medicaid Services,3 then adjusted for inflation using gross domestic product (GDP) deflator obtained from the Federal Reserve Bank of St Louis.4 The NHE as a percentage of GDP was calculated based on data from the US Department of Commerce.6aInflation was adjusted using GDP deflator.

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Figure 5.
Growth Drivers of Spending on Personal Health Care, 2001-2011

Factors accounting for growth in personal health care spending were calculated as previously described.7 The annual growth rate of personal health care spending was calculated based on data from the Centers for Medicare & Medicaid Services.3 Medical price growth was estimated using the producer and consumer price indexes obtained from the US Department of Labor.8,9 The US population data from the US Census Bureau10 was used to calculate the population growth rate. As a residual, the category of use and intensity includes any errors in measuring prices or total spending.aMedical price growth includes economywide and excess medical-specific price growth. Based on the gross domestic product deflator, the annual economywide price growth during each of the 3 periods was as follows: 2000 to 2004, 2.2%; 2004 to 2008, 2.9%; and 2008 to 2011, 1.4%. The remainder is that of excess medical-specific price growth.bIncludes spending on hospital care, physician and clinical services, dental and other professional services, nursing and continuing care retirement facilities, other health/residential/personal care, home health care, nondurable medical products, durable medical equipment, and prescription drugs.cCompound annual growth rate (CAGR) supposing that year A is x and year B is y, CAGR = (y/x){1/(B−A)}−1.

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Figure 6.
Percent Distribution of National Health Expenditures by Source of Funds, 1980-2011

The percent distribution of national health expenditures by source of funds was calculated based on data obtained from the Centers for Medicare & Medicaid Services.3aOther third-party payers and programs include work-site health care, school health, other private revenues, Indian Health Services, workers’ compensation, general assistance, maternal/child health, vocational rehabilitation, and Substance Abuse and Mental Health Services Administration.bOther government health insurance programs include Child Health Insurance Program, Department of Defense, and Department of Veterans Affairs.cOut-of-pocket spending for health care consists of direct spending by consumers for health care goods and services. Included in this estimate is the amount paid out of pocket for services not covered by insurance and the amount of coinsurance or deductibles required by private health insurance and public programs such as Medicare and Medicaid (not paid by some other third party), as well as payments covered by health savings accounts.

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Figure 7.
Health Insurance Coverage Status of the US Population, 1990-2012

POS indicates point of service; HMO, health maintenance organization; HDHP/SO, high-deductible health plan/savings option; PPO, preferred provider organization. The health insurance coverage status of the US population was estimated based on data obtained from the US Census Bureau14 and from Jones & Bartlett Learning.15aCompound annual growth rate (CAGR) supposing that year A is x and year B is y, CAGR = (y/x){1/(B−A)}−1.

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Figure 8.
National Health Expenditures (NHEs) by Patient Group, 2011

The population of each patient group was estimated combining multiple data sources. The population of patients with chronic conditions was calculated based on data obtained from the Robert Wood Johnson Foundation.17 People who did not visit medical care providers in 2010 were defined as “well” and the data for this population were obtained from the US Census Bureau.18 The residual population was defined as having “acute self-limited conditions.” These population data were all adjusted to the 2011 gross US population, which was obtained from the U.S. Census Bureau.10 Health care spending on patients with chronic conditions was calculated based on the data obtained from the Robert Wood Johnson Foundation.17 Spending on people in the “well” category was estimated by assuming that their mean expenditure per person is in the lowest 50% bracket, and this spending data was obtained from the National Institute for Health Care Management Foundation.19 The residual was assumed to be spending on population with acute self-limited conditions.aDefined as those who made no visit to medical care providers in 2010.bCalculated as difference between the total and the sum of “well” and “chronic conditions.”

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Figure 9.
Personal Health Care Spending by Age, 2004

The data for population by age were obtained from the US Census Bureau.10 For personal health spending by age, we used National Health Expenditure data20 on total personal health care expenditures by age in 2004 and adjusted to 2011 dollars using the gross domestic product deflator from the Federal Reserve Bank of St Louis.4

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Figure 10.
Consolidation/Industrialization Status of Different Health Care Sectors

Payer/service provider–insurer: The numbers of total health plan enrollment for the top 10 insurers were obtained from Atlantic Information Services and examined for 2003 and 2011. Payer/service provider–pharmacy benefit manager: The sales share for pharmacy benefit managers was obtained from industry reports published by Liberum Capital23 and examined for 1999 and 2012. Providers–hospitals: The numbers of total staffed beds for each hospital system were obtained from the American Hospital Directory and examined for 2000 and 2010. Providers–office-based physicians: The data for physician practices by group size were obtained from the American Medical Association24 and the Physicians Foundation.25 Providers–pharmacy: The sales share for pharmacy industry was obtained from industry reports published by Citigroup26 and Liberum Capital23 and examined for 2000 and 2011. Manufacturer–pharmaceutical/biotechnology: The sales share for pharmaceutical and biotechnology companies was calculated based on data obtained from IMS Health. Manufacturer–medical technology: The sales share for medical technology companies was obtained from EvaluatePharma.27 Market data were not available for 2000 and were therefore estimated using both top-down and bottom-up approaches. The overall market size for 2000 was estimated using the compound annual growth rate (CAGR); supposing that data for year A is x and year b (A<B) is y, CAGR = (y/x){1/(B−A)}−1, and sales data in the medical technology segment for major medical technology companies were obtained from their annual reports to identify the top 10 players. The top 10 entities identified for 2000 were Johnson & Johnson, General Electric, Covidien, Medtronic, Abbott Laboratories, Siemens, Fresenius, Roche, Philips, and Boston Scientific.aBy number of staffed beds.

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Figure 11.
Difference in Life Expectancy by US County vs OECD Median Life Expectancy and US Median Life Expectancy, 2010a

Data on life expectancy at birth by US county in 2010 are from the Institute for Health Metrics and Evaluation.35 Data on life expectancy at birth in Organisation for Economic Cooperation and Development (OECD) high-income countries in 2010 are from the OECD Health Statistics Library.36 The difference in US county life expectancy from the US median county life expectancy and OECD median country life expectancy was calculated by sex for each county.aOECD median life expectancy is the median life expectancy of OECD high-income countries.36 US median life expectancy is the median value for all counties in the United States as reported by the Institute for Health Metrics and Evaluation.35

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Figure 12.
US Health Care IT Market Overview

The size of the US health care information technology (IT) market by different segments was obtained from Gartner48 and examined for 2011. The net operating expense of hospitals was obtained from the American Hospital Directory. The total IT budget was then calculated by multiplying percentage of net operating expense spent on health care IT, which was estimated based on data obtained from Gartner.48,49

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Figure 13.
Estimate of Billing- and Insurance-Related Costs in the Health Care Enterprise and Comparison With Other Industries

Annual health care spending data for 2011 were obtained from the Centers for Medicare & Medicaid Services.3 The percentages for billing- and insurance-related (BIR) costs were taken from prior estimates.50 We used these percentages to calculate annual BIR costs from total annual spending in 2011. Data on median of revenue cycle full-time equivalents in different industries in 2006 are from the Institute of Medicine.50aIncludes office-based physician and clinical services.bIncludes spending on dental services, home health care, nursing and continuing care retirement facilities, durable and nondurable medical equipment, and prescription drugs.cIncludes Medicare, Medicaid, Child Health Insurance Program, and other programs in the Department of Defense and Department of Veterans Affairs.

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Figure 14.
Medicine’s Triangle of Conflicting Expectations
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