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American Healthcare in Transition: Exploring the Evolution of National Health Expenditures from 1960 to the Present. Jack Homer with Gary Hirsch and Bobby Milstein System Dynamics Winter Camp Austin, TX January 5-6, 2007. Background. Facts:

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American Healthcare in Transition: Exploring the Evolution of National Health Expenditures from 1960 to the Present

Jack Homer

with Gary Hirsch and Bobby Milstein

System Dynamics Winter Camp

Austin, TX

January 5-6, 2007

  • Facts:
    • U.S. has world’s highest healthcare costs, but our health is only so-so
    • Most spending is for treating existing disease (“downstream”) rather than for prevention (“upstream”)
    • Most spending is for chronic illness, not acute infections or injuries
    • 15% of Americans have no health insurance coverage
  • Are these facts connected? Some preliminary thinking
    • Upstream/downstream loops – CDC 2003, AJPH 2006*
    • Healthcare system loops – HPSIG/ISDC 2005
  • Now, we want to refine our thinking in light of historical data and via model-based theory-testing
    • Key data source: National Health Expenditures (NHE) 1960-2004 from Centers for Medicare and Medicaid Services (CMS)

* Homer JB, Hirsch GB. System dynamics modeling for public health: Background and opportunities.

American J Public Health 2006; 96: 452-458.


Healthcare stakeholder map

(presented at ISDC 2005)


(Public, Private)

- Reimbursement criteria &

rates for risk & disease

mgmt and urgent care

- Number of competitors

  • Health Care Costs
  • - Risk & disease mgmt
  • - Urgent care
  • Administrative
  • Capital investments


(MDs, RNs, Hospitals)

- Risk & disease mgmt

extent and efficacy

- Urgent care extent and


- Specialty fragmentation

- Lobbying of insurers

& regulators


- Health coverage

Drug/Device Makers

- Developing high-tech products

for urgent care and risk &

disease mgmt

- Lobbying of insurers

& regulators

General Public

- Improvement of living


Funds available

Citizen involvement

Regulators & Monitors

(Public, Private)

- Usage guidelines & controls


- Health and risk status


Stock-flow view of disease and spending

Urgent care and disease management both prolong the lives of people with disease. Urgent care unequivocally raises healthcare spending, whereas disease mgmt. can be a net cost saver, because it prevents expensive urgent care.


Closing the loops: Initial dynamic hypothesis

We expected to see naturally greater reinvestment in urgent care than in disease/risk mgmt., and also selective “squeezing out” of D/R mgmt. as healthcare coverage declines.


Personal healthcare spending per capita 1960-2004,

by National Health Expenditures components

(in year 2000 dollars; personal healthcare does not include

admin., public health, research, capital investments)

Personal healthcare consistently accounts for 83-85% of all health spending.

The fastest growth was in hospital care 1960-82, non-hospital services 1983-94,

and prescription drugs 1995-2004.


Estimated urgent care vs. disease/risk management portions of personal healthcare spending

(in year 2000 dollars)

Urgent care includes all hospital services plus some fraction of non-hospital services.

For 2002-04, we roughly estimate that fraction as 30%. This makes urgent care about 50% of spending, the other 50% being for disease/risk management. We posit D/R mgmt. as proportional to Rx drug spending, which accounted for 12% of spending in 2002-04. Thus, the estimated ratio of D/R mgmt to Rx drugs = (50%/12%) = 4.2.


Self-reported health status, 1993-2004

(National Health Interview Survey for G/F/P since 1997,

Behavioral Risk Factor Surveillance System for other)

The fraction of adults with health less than “very good” has increased steadily since 1993.


Prevalence of cardiovascular risk factors, 1991-1999

(National Health Interview Survey)

The fraction of adults with 1 or more risk factors has grown from 58% to 62%, and the fraction with 2 or more risk factors from 24% to 28%. All risk factors grew except smoking (which declined only 1 percentage point in the 90’s), with obesity being the largest contributor to the overall growth in risk factor prevalence.


Health insurance coverage, 1987-2004

(US Census)

During the 1987-2003 period, private coverage fell 7 percentage points, while total coverage fell only 3 percentage points. Thus, more than half of those who have lost private insurance have had government coverage, generally Medicaid, to fall back on.


Revised dynamic hypothesis

Increasingly high costs led to two reactions by insurers: first, overall reimbursement restrictions, and then, a shifting of priorities toward D/R mgmt & away from urgent care.

what if tests for understanding causal contributions
What-if tests for understanding causal contributions
  • Base
  • No invest cut (No cut in investment rate)

Fixed 35% investment rate (Base: declines to 15% by 2005)

  • No DRM shift (No shift toward disease/risk management)

Fixed 79% of investments to Urgent Care (Base: declines to 39% by 1995 before rebounding to 69% by 2005)

  • No covg down (No decline in private coverage after 1975)

Private coverage remains at 85% (Base: declines to 73% by 2005)

  • No obese up (No exogenous increases in risk and disease onset)

Onset multipliers remain at 1 (Base: risk onset multiplier increases to 1.5 during 1980-2005, disease onset multiplier increases to 1.33 during 1990-2005)


What-if test results: Healthcare spending, coverage, disease prevalence, and deaths

No covg down

No invest cut


No obese up

No DRM shift

No DRM shift

No covg down

No invest cut

No obese up


No DRM shift


Shift to D/R mgmt improved health with little increase in cost

No DRM shift

No covg down

No covg down

Coverage cutback restrained costs a bit but also slowed health gains somewhat

No invest cut

No obese up


No obese up

No invest cut

Obesity epidemic has been a major driver of disease and cost

Investment cutback restrained costs but also slowed health gains


Feedback policies for spurring non-medical

upstream efforts at health protection


Anti-hypertensive & anti-cholesterol drug spending

as a fraction of all Rx drug spending, 1980-2004

(numerators based on pharmaceutical industry reports,

denominator from NHE)

The combined fraction serves as our estimate of “risk management” as a fraction of D/R management. Why were the anti-hypertensives so fast to emerge relative to the rest of D/R management? Perhaps because of their broad applicability, in both symptomatic and asymptomatic cases of hypertension and heart failure.


Simulated history (1): Healthcare spending,

Assets, and Coverage

Total assets

Urgent care

Total spending-sim


D/R mgmt



D/R mgmt-sim

D/R mgmt-data

Total coverage-sim




Govt only-data

Govt only-sim


Simulated history (2): Disease & risk prevalence,

Death rate, and Effects of medical care/mgmt.

Death rate per total popn-sim

Death rate-data

Per hospitalization-data

Disease or at risk prevalence-sim

Per urgent episode-sim

Any cardiovascular



Less than very good


Eff of risk mgmt on disease onset

Eff of urgent care on fatality

Eff of dis mgmt on urgent episodes

rapid growth in health spending
Rapid growth in health spending

The health sector now employs more people than any other sector of the US economy and tripled its share of GDP from 1960 to 2000.

Heirich M. Rethinking health care: innovation and change in America. Boulder CO: Westview Press, 1999.

Pear R. Health spending rises to record 15% of economy. The New York Times 2004 January 9.

and the trend is projected to continue
And the trend is projected to continue….

Centers for Medicaid and Medicare Services. Health accounts. Centers for Medicaid and Medicare Services, 2004.

downstream efforts have led to major achievements
Downstream efforts have led to major achievements

Population Death Rate from Coronary Heart Disease, 1950–1998





Age-adjusted Death Rate

per 100,000 Population
















Marks JS. The burden of chronic disease and the future of public health. CDC Information Sharing Meeting. Atlanta, GA: National Center for Chronic Disease Prevention and Health Promotion; 2003.

but health related quality of life has worsened
But health-related quality of life has worsened

14% increase

Source: Centers for Disease Control and Prevention. Health-related quality of life: prevalence data. National Center for Chronic Disease Prevention and Health Promotion, 2003. Accessed March 21 at <>.


Upstream work is a very small fraction of health spending

Upstream Prevention and Protection


Total  3%

Downstream Care and Management


Total  97%

Brown R, Elixhauser A, Corea J, Luce B, Sheingod S. National expenditures for health promotion and disease prevention activities in the United States. Washington, DC: Battelle; Medical Technology Assessment and Policy Research Center; 1991. Report No.: BHARC-013/91-019.

why so little upstream work
Why so little upstream work?
  • Health professionals focus on disease management and care, where their expertise, the weight of scientific evidence, and the urgency lie.
  • Upstream work requires public concern and citizen organizing. But public concern is diffuse and not necessarily focused on health issues.

As a result, the health system naturally tends toward managing affliction rather than preventing incidence and protecting against vulnerability.

the u s health system is resistant to change
The U.S. health system is resistant to change

“At least six times since the Depression, the United States has tried and failed to enact a national health insurance program.”

-- Lee & Paxman

Lee P, Paxman D. Reinventing public health. Annual Reviews of Public Health 1997;18:1-35.

types of healthcare reform initiatives isdc 2005
Types of healthcare reform initiatives (ISDC 2005)
  • Expanding access
    • Improving coverage to employees, the poor, children
    • Providing health care resources to inner cities and rural areas
  • Containing cost
    • Government limits on capacity, service provision, or reimbursement
    • Employer shift to managed care plans
  • Improving quality of care
    • State regulation of facilities, professional licensure, Medicaid quality monitoring
    • JCAHO setting of standards, NCQA evaluation of managed care orgs
  • Protecting health
    • Risk management, promotion of healthy lifestyles, family planning
    • Safer workplaces, better housing, safer neighborhoods