Health Care Suffers from Declining Labor Productivity

Today’s Managing Health Care Costs Indicator is -0.6%

Click image to enlarge.  Source 

Many of us wonder, rhetorically, why the smartphone I wear on my belt costs a fraction of my first (1986) Macintosh computer, yet has so much greater capacity, while improvements in health care seem to always come with very high price increases. 

Yesterday’s New England Journal  answers the question. Labor productivity in most industries has increased dramatically over the last 20 years. The glaring exception is health care, where labor represents over half of all costs, but we produce less health care “product” with this increasingly expensive labor.  While labor productivity in manufacturing went up by 4.7% annually, labor productivity in health care declined by 0.6%.  While incomes were in general stagnant during the Great Recession, health care incomes continued to climb.

The authors say:

Improving the labor structure in health care can be achieved in three ways: reducing the number of workers, lowering wages, or increasing productivity. The first option is a crude approach generally reserved for recessions, though employment in the health care sector continued to increase during the most recent recession. Wages can be lowered by either reducing current wages or replacing current workers with lower-cost (less skilled or more narrowly skilled) workers who can produce the same output. The field of law has gone through such a transition, with the number of jobs for paralegals and legal assistants growing 2.5 times as quickly as that for attorneys in the 2000s

They also point out that we need payment reform to encourage more effective use of resources (another vote against fee for service), and we need regulatory reform to eliminate rules that currently force us to use higher skilled professionals to perform functions that could be “downshifted” to those with less training who have lower incomes. Both reforms could substantially increase the attractiveness of disruptive innovation in health care.  

Increased jobs in health care look good to policymakers struggling with our current unemployment rate.   They look exceptionally good to local officials, who gain the benefit of good jobs funded largely from outside the community.  However, increased employment in health care without substantial increases in the social value of health care output lead to the situation we’re in now, with unsustainable health care inflation coupled with outcomes that are far from the best in the world. 

Our current approach to health care labor shows we are willing to pay an iPhone price for a clamshell phone that barely sends text messages.

Reprise of an image from a summer post:

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Health Care and Jobs

Today’s Managing Health Care Costs Indicator is 430,000

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That’s how  many jobs were created in the health care industry during the recent recession, while 7.5 million jobs were lost in the overall economy.    This was reported on the front page of the business section of last Thursday’s New York Times. 

I’ve written about this phenomenon before. Earlier this month , I pointed to the increase in health care jobs in July.  In June, I talked about the pain of hospital closings. A year ago I noted the pain of hospital cuts.  .  In late 2009, I talked about the disconnect between growth in health care jobs and controlling health care costs. Health care jobs are good for local economies, although if we have robust growth in health care jobs, we aren’t going to “bend the cost curve.”

This week, the Center for Study of Health System Change released an excellent monograph detailing the reasons for our ambivalence about creating more jobs in health care.   They point out that the costs of some expansions of health care are borne by the local economy (individual and small business  health insurance), while other expansions of health care (like Medicaid and much of Medicare) are funded from outside of the local economy.  The sum of the costs of health care expansions funded from outside of the local economy is between 57-75%.  Hence, even as Washington wants to cut Medicare expenditures, local governments and hospitals push to expand health care, knowing that the bill is being funded by others.  

The Commonhealth blog  has an excellent meditation on capital expenditures at Partners Health Care here in Boston, with a thoughtful interview with CFOPeter Markell .   Bottom line – we all want more capital investments so that we can get the latest and best medical care, which we truly value.  Further, more capital investments in health care, unlike many other industries, have usually been associated with higher employment.  The ugly underbelly of capital investment, though, is that new investments mean higher operating costs and higher debt service that will require higher medical bills in the future.

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Health Care Adds Jobs

Today’s Managing Health Care Costs Indicator is 26.8%

The Bureau of Labor Statistics reported that health care added 31,300 jobs in July – over a quarter of the new jobs added in the US.

The underlying problem is likely that we aren’t adding enough jobs in the rest of the economy.  There are good reasons why we might be adding more jobs in health care than elsewhere – as our population ages. 

Still, this is a great illustration of our mixed emotions about the cost of health care.  As long as health care is adding 26.8%  the new jobs in our economy , the cost of health care will continue to grow at a faster rate than the overall economy.

We can’t celebrate health care job growth at the same time we complain of increasing health care costs.  Earlier post on this topic. 

A brief personal note.  The Pan Mass Challenge was a great ride this past weekend – about 190 miles cycling from Sturbridge to Provincetown, and about $30 million raised for cancer research.   I had three flat tires, and the sky sprinkled us a bit –but the rain held out until after we reached the end of the ride.  A few hundred of the ~5000 riders were cancer survivors, and cancer has touched all of our lives.  I spend a lot of my time most weeks thinking about how to make health care cost a bit less.  From my saddle, I spent this past weekend thinking about how we have to invest more in research so that more people who are afflicted with cancer can live long, normal, healthy lives.  

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