There’s Not Enough Waste and Inefficiency in Healthcare<\/a>, by a guy who writes under the name “DrRich”.<\/p>\n His model, as he describes it, is based on four assumptions. I’ll tell you about them,
\nand then I’ll try to explain both why the look right, and why they’re actually completely wrong.
\nI’m not going to quote him precisely – I’m going to rephrase in a way that makes the
\nproblem more obvious – but I recommend that you look at his original article to verify
\nthat I’m not<\/em> misrepresenting his argument.<\/p>\n\n- The proportion of healthcare spending that is wasteful is currently 25%.<\/li>\n
- The annual rate of growth of healthcare spending is constant<\/em>, and is
\napproximately 10%.<\/li>\n- The annual growth rate of non-wasted healthcare spending is the same as the current
\ninflation rate.<\/li>\n - The difference between the 10% growth rate and the non-wasted spending is
\nwasteful spending.<\/li>\n<\/ol>\n He admits that the first point is a total wild-ass guess. And that’s fine. No one is really
\nsure of what the correct number is, and for the sake of argument, a nice round number
\nlike 25% is a reasonable starting point.<\/p>\n
The second point is where things start to go awry. Health-care spending
\ngrowth isn’t constant – and that should be completely obvious. The growth
\nin health-care spending has been absolutely ridiculous in recent times –
\nbut it varies enormously, depending on economic conditions. Exactly how to
\npredict it is very uncertain – no one is really sure exactly which variables
\ninfluence it. But we know that there are lots of factors, which push and pull
\nthe rate in different directions. For example, in bad times, people delay
\ntreatments – which can decrease some costs. Bad economic conditions also
\nincrease the incidence of many stress related disorders, which can increase
\nsome costs. Health care spending is also affected by weather, by natural disasters,
\nby medical innovations, by the average age of the population, and by the size of the
\npopulation. Given all that uncertainty, there’s one thing that’s very clear: the
\nrate of increase of health-care spending is not<\/em> constant, and its
\nrelationship to the economic environment that surrounds
\nit is non-linear. <\/p>\n The third point is also not correct. It sounds<\/em>
\nreasonable. In fact, if you measure health care spending
\nper capita<\/em>, then in the long term, the increase in healthcare
\nspending per year must eventually level out at the rate of inflation. But
\nthat’s not<\/em> what DrRich is saying. He’s saying that the total
\nrate of increase of healthcare spending should match inflation. And
\nthat’s just wrong. In fact, it’s totally ridiculous. Once again,
\nDrRich is trying to model things using a single-variable linear model
\nfor something that is manifestly not a single-variable linear phenomenon. And
\nany attempt to validate that model, by comparing it to real observations
\nwill make it abundantly clear that the model is total rubbish.<\/p>\n Ignore for the moment that healthcare spending per year is highly
\nvariable and, likely, chaotic. After all, in the long term, the chaotic
\nfactors should damp out. (You can see it as being very similar to weather:
\nshort-term, it’s chaotic. Long term, it can’t be.) In the long-term, what
\nwe should expect is that on average<\/em>, the rate of increase of
\nnon-wasteful medical care would, roughly, match the rate of
\neconomic growth<\/em> in the economy, not the rate of inflation. That,
\nright there, is a major flaw. The population is, at the moment, constantly
\nincreasing. That means that if health care prices stayed exactly the
\nsame, total healthcare spending would increase<\/em> every year, because
\nthe number of people be treated increases. But by that same argument, the
\neconomy should also grow because the number of productive workers increases
\nwith the population. If you take a conservative model of health-care spending
\nincreasing at a rate based on just<\/em> inflation plus population growth,
\nbut you claim that the rate of non-wasteful healthcare spending grows with
\ninflation, then you’ll wind up with a picture where the percentage of
\nhealthcare spending that is going to waste\/inefficiency is increasing,
\nwithout bound, every year. In fact, you’ll find that in fairly short order,
\nit’s pretty much 100% of cost-growth.<\/p>\n And – surprise! That’s exactly what DrRich’s model shows. From
\nthat, he concludes that the rate of growth in healthcare spending
\ncannot<\/em> be blamed on waste.<\/p>\n The evolution function that he chose for measuring the portion of
\nincrease in healthcare spending that’s wasteful is totally bogus. And so,
\neven if the numbers that he puts into his model are absolutely, 100%
\ncorrect, his conclusions can’t be.<\/p>\n
How much of health-care growth is really due to waste? I don’t
\nknow. I haven’t sat down and tried to model it. But the experience
\nof numerous other countries, using a variety of public, private, or
\nhybrid universal insurance systems without experiencing the kind of
\ncost-growth that we see in the US is a pretty good indicator that
\nit’s not<\/em> unmanageable. But again – I don’t know. Someone
\nwho knows more about health care spending than I do could put together
\na model that tries to show how much is wasted, and what the rate of
\ngrowth of wasteful spending really is. But it’s not an easy job. And
\nDrRich’s silly linear model based on the rate of inflation is clearly
\nnot<\/em> the right model.<\/p>\n","protected":false},"excerpt":{"rendered":"This morning, my good friend Orac sent me a link to an interesting piece of bad math. Orac is the guy who really motivated me to start blogging; I jokingly call him my blogfather. He’s also a really smart guy, not to mention a genuinely nice one (at least for a transparent box of blinking […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[71],"tags":[],"class_list":["post-790","post","type-post","status-publish","format-standard","hentry","category-bad-economics"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p4lzZS-cK","jetpack_sharing_enabled":true,"jetpack_likes_enabled":true,"_links":{"self":[{"href":"http:\/\/www.goodmath.org\/blog\/wp-json\/wp\/v2\/posts\/790","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.goodmath.org\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.goodmath.org\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.goodmath.org\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.goodmath.org\/blog\/wp-json\/wp\/v2\/comments?post=790"}],"version-history":[{"count":0,"href":"http:\/\/www.goodmath.org\/blog\/wp-json\/wp\/v2\/posts\/790\/revisions"}],"wp:attachment":[{"href":"http:\/\/www.goodmath.org\/blog\/wp-json\/wp\/v2\/media?parent=790"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.goodmath.org\/blog\/wp-json\/wp\/v2\/categories?post=790"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.goodmath.org\/blog\/wp-json\/wp\/v2\/tags?post=790"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}