Metrics and Measurement

Health Care Spending I: Where Does It Go?

5 Mar 2012  

Everyone knows health care is expensive, and is a significant part of our individual and collective budgets.  How expensive, exactly?  And how is that money spent?

In 2010 we in the US spent $2.6 trillion on health care. That’s 2.6 with twelve zeros behind it, or 2.6 million millions if (like me) you get lost in the zeros.  That comes to about $8,500 for each US resident, and more than $11,000 for each adult over age 18.

World GDP b

GDP Data (IMF as reported by Wikipedia)

This is nearly 18% of our $14.5 trillion Gross Domestic Product as a country.  For perspective, it’s larger than the entire US durable goods manufacturing sector ($2.3 trillion), which includes, among others, the computer industry ($377 billion) and the auto/truck industry ($360 billion).  If US health care were its own country, it would stand at number five in the world, behind Germany and just ahead of France.

Where does it go?  The following chart summarizes our outlays of funds (in millions):

Total Health NS

Five of every six health care dollars are spent on Personal Health Care (PHC) — the professional direct care we actually ‘consume’ when we visit the doctor or take our medicine.  The other categories, together about one-sixth of health spending, represent much of the ‘overhead’ of health care.  Administration ($176 billion) includes state and local government program admistration expenditures, as well as the portion of private health insurance that does not directly pay for care.  Public Health activities like vaccinations and disease prevention make up another $82 billion.

Structures & Equipment ($100 billion) includes new building construction and capital equipment.  Research ($49 billion) represents non-profit and government activities like grants for medical research.

Let’s break down those direct Personal Health Care expenditures further.  PHC contains ten major spending categories, as shown below:

Personal Health NS

Hospitals are the single ‘spendiest’ category, at $814 billion including all services provided in hospitals to patients.  Together with Doctors at $515 billion, they represent over 60% of all PHC spending.  Note that these spending data are collected at the establishment level, which means they include all revenues collected by, for example, doctors’ offices.

There are four other $100-billion-plus spending categories:  Prescription Drugs ($259 billion); Nursing Care (in nursing homes and facilities — $143 billion); Other Care ($129 billion — a catch-all category that includes school and worksite health, as well as residential care for mental health and substance abuse); and Dentists ($105 billion).

Finally there are Home Health Care ($70 billion for medical care provided in the patient’s home, which is growing faster than the other categories); Other Professionals ($68 billion, which includes nurses and physical therapists); Other Non-Durables ($45 billion, which includes non-presciption drugs); and Durable Medical Equipment ($37 billion, which includes eyeglasses and contact lenses, surgical products, and medical equipment rental.)

That’s how health care money is spent in the US, according to data published by the US government.  Where does that money come from?  Tune in next time…

SOURCE:  Analysis by The Knowledge Agency® of data published by the US Centers for Medicare & Medicaid Services, the US Bureau of Economic Analysis, and the International Monetary Fund.

4 Responses

  1. Lots of good numbers… nice breakdown…. thanks, Tim.

    In most industry sectors, and in most specific industries, the higher the industry revenue – the better it is viewed.

    Is health care different (because it’s significantly run or paid for by government – and therefore viewed as an expense)?

  2. Tim Powell says:

    Investors like revenues, yes — but even more they like profits and growth.

    Profits, even in the largest sectors, may or may not track with revenues at the establishment level. For example, hospitals vary widely in profitability — some make money, some are marginally profitable, and many lose money — sometimes, a lot of money.

    There’s a lot of consolidation going on in the hospital sector, and these weaker outfits become takeover targets for the larger, better-funded ones. It’s all very Darwinian.

    Your last comment ‘presages’ my next two posts — one about where the money comes from, and one exploring the implications.

    Thanks for your insightful comment, Alan.

  3. Peter Kelley says:

    This is a nice article. Thanks for posting it.

    I would be interested in seeing where the profits go. What organizations (hospitals, doctors, insurance companies, drug companies, medical equipment companies, etc.) are making profits and how much do they make?

  4. Tim Powell says:

    @Peter, I agree that profitability would be very interesting indeed. The federal agency that provides these numbers (CMS) does not track that as far as I know. Many of these ‘companies’ are not publicly held, so it would be difficult to get actual data.

    I have seen reports of hospital profitability in one state (Pennsylvania), and what stuck me is the wide variability in their profitability. Some are bleeding red, some are just scraping by, and some seem to be doing pretty nicely for themselves.

    If I do find anything substantial on sector profitability, I’ll report back here.

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