January 1, 1970 (Vol. , No. )

John F. Wong Ph.D.

The luncheon speaker at J.P. Morgan’s annual healthcare conference on Tuesday, January 13 was Uwe E. Reinhardt, Ph.D., James Madison professor of economics at Princeton University. He discussed the economic trends in the U.S. healthcare system. Dr. Reinhardt gave a short, humorous macroenconomic overview of what led to the current economic crisis.

Briefly, Dr. Reinhardt said that majority of households had zero savings with tremendous debt in 2008. Along with the banking sector leveraging and securitizing mortgage debt, the economy went into the toilet (he used more colorful language). He views the current recession extending beyond 2009.

Dr. Reinhardt then focused the rest of his talk on the economic trends related to the healthcare industry in the U.S. versus the rest of the world. He noted that in the U.S. we spend over 2% of the GDP per capita, where as the rest of world is at 1%. This spending rate has been occurring over the last 40 years. He predicts that at the current rate, 40% of GDP will be attributed to healthcare spending in 2058.

Similar to J.P. Morgan CEO, Jamie Dimon’s view on the 45 million uninsured in the U.S., Dr. Reinhardt reiterated the need to address the problem of rising healthcare costs (an average household spent $15,600 on healthcare in 2007). Dr. Reinhardt suggested we either create a tax-transfer program to finance the uninsured or we ration healthcare goods and services with the reference class (lower-income group) through a form of socialized healthcare system via reference pricing; i.e., create a price-sensitive market for devices and drugs similar to what is currently in place in Taiwan.

An example of reference pricing is where the disparity in cost between a stent and a drug-eluting stent is posted on the Internet, and the patient pays the difference if that person opts for the more expensive stent. It would drive the more expensive product down to the price of the cheaper version of the product.

Dr. Reinhardt then went on to discuss the business of healthcare: Today’s healthcare spending is equal to healthcare income. The current system is fraught with abuse and fraud that drives up cost. Disparity between hospital charges for the same procedure needs to be addressed. For example, in California one hospital charges a patient $1,200 for an appendectomy, while another charges $18,000, with many hospitals charging somewhere in between the two extremes. He believes that Obama’s commitment to investing in IT for healthcare should ablate much of the pricing disparity. He noted that investment in healthcare IT is an investment in infrastructure, which should create many new jobs.

In closing, Dr. Reinhardt raised the issue related to the fact that we spend exorbitant amounts of money for a particular patient to increase their life-span for small amount of time.

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