Counterpoint

At first glance, I noted these data points on the NHE Fact Sheet:  

• Hospital expenditures grew 10.4% to $1,519.7 billion in 2023, faster than the 3.2% growth in 2022. 
• Physician and clinical services expenditures grew 7.4% to $978.0 billion in 2023, faster growth than the 4.6% in 2022. 
• Prescription drug spending increased 11.4% to $449.7 billion in 2023, faster than the 7.8% growth in 2022.² 

Then, I saw this statement, which I immediately doubted: 

“Faster growth in 2023 was driven by non-price factors (which include the use and intensity of services), with an increased number of hospital discharges and increased Medicare outpatient hospital utilization.”³ 

Why?  

Because according to CMS’s Inpatient Prospective Payment System (IPPS), a 100% sample of Traditional Medicare inpatient volume, hospital discharges for Traditional Medicare beneficiaries declined from 7.56M to 7.45M from 2022 to 2023, which is confirmed by the Medicare Trustees Report (the “Trustees Report”).⁴  

Like Alice in Alice’s Adventures in Wonderland, I became curiouser and curiouser, so I decided to go down the Rabbit Hole to understand how NHE could grow 7.5% while the three largest categories of healthcare spending – hospitals, physician services and prescription drug spending – increased at a rate equal to or significantly higher than the aggregate average increase.  

When Alice’s Adventures in Wonderland was published in 1865, The Times of London described it as an “excellent piece of nonsense.”⁵ After reviewing the National Health Expenditure Accounts: Methodology Paper, 2023 (the “NHE Methodology”), I think The Times might apply the same description to the NHE.  

Where to start… 

First, the NHE might be viewed most charitably as an (educated?) guess, as evidenced by the fact that the NHE Methodology uses the word “estimate,” “estimates” or “estimated” 252 times.

Second, much of the “data” in the NHE is survey data. Brittanica Dictionary defines “survey” this way:  

“an activity in which many people are asked a question or a series of questions in order to gather information about what most people do or think about something.”⁶ 

Importantly, most of the survey data is not specific to healthcare. Instead, the NHE is primarily derived from Census Bureau “estimates” from the Economic Census (EC) (available for years ending in 2 and 7), the Service Annual Survey (SAS) and the Census of Retail Trade (CRT).⁷ While the NHE Methodology references the Trustees Report, the references are limited to estimates of Medicare spending.⁸ Moreover, the Trustees Report is itself a projection of Medicare costs, which the Trustees Report notes “are highly uncertain.”⁹ 

Third, the survey sample sizes are quite limited. For example, the SAS is:  

“a survey of approximately 78,000 selected service businesses with paid employees; supplemented by administrative records data or imputed values to account for non-employer and certain other businesses.”¹⁰  

In comparison, the Census Bureau’s Statistics of U.S. Businesses reports that there were 6.3M businesses in operation in 2021.¹¹  

Fourth, the survey data is often benchmarked against high latency data and then extrapolated, such as this: 

“Total non-federal community hospitals spending levels are benchmarked to the 2012 and 2017 Economic Census (U.S. Census Bureau) and extrapolated using the growth derived from the aggregate revenue trends in the Service Annual Survey (SAS), the American Hospital Association’s Annual Survey of Hospitals (AHA) (through 2021) and the Quarterly Services Survey (QSS). Estimates of hospital spending from 1960 – 2007 are benchmarked to the American Hospitals [sic] Association’s Annual Survey.”¹² 

And this, to calculate professional services expenditures: 

“Data from the SAS and EC, compiled by the U.S. Census Bureau, are now used to estimate the year-to-year change in the revenue of these professional services. The EC, a once-every-five-year census, collects receipt/revenue information from all private service establishments with paid employees, and serves as a benchmark for the SAS, which is a sample survey of service establishments.”¹³

And this, to calculate home health care expenditures: 

“For employer-based establishments, estimates of freestanding home health spending in 1987, 1992, 1997, 2002, 2007, 2012, and 2017 are based on business receipts of private taxable and tax-exempt firms collected in the U.S. Census Bureau’s quinquennial EC of Service Industries. Information from the U.S. Census Bureau’s SAS is used to interpolate between the EC benchmark years and to extrapolate to later periods through 2022.”¹⁴ 

What is notably missing from the NHE Methodology?  

Data from CMS’s Healthcare Cost Report Information System (HCRIS), i.e., cost reports, which are filed under penalty of perjury, as opposed to, say, a survey. Any high school student with basic proficiency in Microsoft Excel could calculate aggregate national hospital spending from cost reports in a matter of minutes.

In fairness, the Trustees Report notes this: 

“Due to the time required to obtain cost reports from providers, to verify these reports, and to perform audits (where appropriate), final settlements have lagged behind the original costs by as much as several years for some providers.”¹⁵ 

Even so, estimating total U.S. hospital spending based on a 100% sample of filed, if not yet settled, cost reports would be more logical – and more quantifiable - than estimating based on the combination of an annual survey of 78,000 businesses and a quinquennial survey of employers.  

What is the inescapable conclusion of the fact that the NHE is an estimate of estimates, primarily of non-healthcare data? The Federal government is simply making up its estimate of the size of the largest sector of the largest economy in the history of the planet, which seems fantastical. 

And that brings us back to a children’s story, and Alice’s conversation with the March Hare, the Mad Hatter and the Dormouse:  

“I’m glad they’ve begun asking riddles.—I believe I can guess that,” she added aloud. 

“Do you mean that you think you can find out the answer to it?” said the March Hare. 

“Exactly so,” said Alice. 

“Then you should say what you mean,” the March Hare went on. 

“I do,” Alice hastily replied; “at least—at least I mean what I say—that’s the same thing, you know.” 

“Not the same thing a bit!” said the Hatter. “You might just as well say that ‘I see what I eat’ is the same thing as ‘I eat what I see’!”¹⁶ 

Health economy stakeholders are possibly unsurpassed in failing to say what we mean and mean what we say.  

What would we say if we meant what we said? 

First, healthcare is a business in America, as evidenced by the fact that Americans consume more than 45% of the global healthcare domestic product.^17,18 Perhaps our reluctance to admit that, and act like, healthcare is a business is one reason there are so many struggling businesses in the health economy.  

Second, the Federal government’s healthcare initiatives over the past 25 years have borne little fruit: 

• The National Plan & Provider Enumeration System is accurate less than 30% of the time. 
• More than 74% of hospitals subject to the Hospital Readmissions Reduction Program (HRRP) were penalized for FY 2023, and more than 1,200 hospitals have been penalized at least 10 years in a row. 
• After Congress passed the Affordable Care Act, the industry learned, as the Speaker of the House noted, that its main impact was to codify cost-plus insurance through mandating minimum loss ratios and thereby capping profit margins, perversely incentivizing insurers to raise premiums continuously. 
• Fewer than half of U.S. hospitals report the CMS required measures of mortality: 

Few of CMS’s “value-based care” programs have advanced past the pilot stage, and none have transformed the industry: 


Third, the Triple Aim is a joke. To quote John McEnroe, “you cannot be serious” if you think otherwise, if for no other reason than this:

In his concurrence in Jacobellis vs. Ohio, Justice Potter Stewart famously said of pornography that “I know it when I see it.”¹⁹ In contrast, health economy stakeholders have talked about “quality” for 25 years but struggle to define it; when they stumble upon it, they won’t pay for it. 

Fourth, the most commonly cited axiom in the healthcare industry – “30% of U.S. healthcare spending is waste” – is based on a grossly irrelevant benchmark comparing the administrative costs of the single-payer Canadian health system in 1987 to those of the multi-payer American health system. Even so, for avoidance of doubt, the U.S. health economy is swamped by administrative costs: 

What allows the waste to perpetuate is the opiate to which every health economy stakeholder is addicted: an unslakable thirst for increasing rate.

Consultants are the codependent enablers of this addiction, recalling the Queen in Through the Looking Glass and What Alice Found There: 

“I can’t believe that!” said Alice. 

“Can’t you?” the Queen said in a pitying tone. “Try again: draw a long breath, and shut your eyes.” 

Alice laughed. “There’s no use trying,” she said: “one can’t believe impossible things.” 

“I daresay you haven’t had much practice,” said the Queen. “When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast."²⁰ 

The number of health economy stakeholders with global consulting firms on annual retainers both proves the paucity of true experts in the health economy and explains why stakeholders believe so many impossible things. To date, pretty PowerPoint presentations filled with bromides have failed to transform anything except the net worth of consulting firm partners. If McKinsey is perennially on retainer to your organization, then you might consider whether, in the words of Jim Collins, you have the right people on the bus.  

Fifth, “value-based care” is the most vacuous phrase in the health economy, used to describe everything except what it is: the allocation of a risk pool. 

Sixth, health economy stakeholders are quite proficient in cleverly exploiting rules and regulations – like 340B – forgetting the words of the Apostle Paul:  

"23'All things are lawful,' but not all things are helpful. 'All things are lawful,' but not all things build up. 24Let no one seek his own good, but the good of his neighbor."²¹ 

So what? 

The first set of questions for every health economy stakeholder is this: Are you operating your business with information as flawed as the NHE? Approximately 25% of a hospital’s “value-based reimbursement” from CMS is based on a 29-question survey that includes questions like this: 

"During this hospital stay, how often was the area around your room quiet at night?"²² 

What percentage of your decisions are based on: 

• Survey data or estimates or national averages? 
• Simple and misleading heuristics, like “% of Medicare”? 
• Incomplete data, like EMR data? 
• Data that is both incomplete and high latency, like data from trade associations or “all payer” data submitted to state agencies?  

The second question is this: How did we get here?  

Because health economy stakeholders, especially policymakers, are all too often like Alice in her conversation with the Cheshire Cat: 

“Would you tell me, please, which way I ought to go from here?” 

“That depends a good deal on where you want to get to,” said the Cat. 

“I don’t much care where—” said Alice. 

“Then it doesn’t matter which way you go,” said the Cat. 

“—so long as I get somewhere,” Alice added as an explanation."²³ 

Like Isaiah and John the Baptist, I seem to be a messenger crying in the wilderness, which doesn’t leave me with many friends. That doesn’t bother me much, because I am certain of my message, which is embedded in Trilliant Health’s “noble purpose”: 

“Trilliant Health’s 'noble purpose' recognizes that every American is impacted by the health economy, and we are committed to making it exponentially better.” 

Not a little better; exponentially better, the opportunities for which are abundant.

In 2011, Marc Andreesen wrote that "software is eating the world." At its current trajectory, the U.S. healthcare system will devour America, unless health economy stakeholders make radical changes. As General Eric Shinseki stated, “if you don’t like change, you’ll like irrelevance even less.”  

Changing the health economy’s current trajectory requires an accurate understanding of the value delivered by its component parts. As Peter Drucker observed: 

“What we measure and how we measure determine what will be considered relevant, and determine, thereby, not just what we see, but what we – and all others – do.”²⁴ 

Metanoia is a Greek word commonly translated as “repent” but whose original meaning is “to change, to turn, to think differently.”²⁵ Implicit in the concept of repentance is the desire to avoid punishment for mistakes.  

Like Colonel Jessup, most stakeholders know “deep down in places you don’t talk about at parties” that the health economy is broken.²⁶ If we don’t think differently – and quickly – about our part in the brokenness, we should not be surprised to find ourselves being held accountable by our fellow Americans, some of whom may have the mindset of the Queen: “Off with their heads!”  

Every health economy stakeholder should also be sure that the Federal government will not heal what ails the U.S. health economy because it cannot. However, the Federal government can “fix” it, and the Congressional Budget Office has already outlined the plan:

I submit to you that, in the words of the Allman Brothers, there “ain’t but one way out,” which is this: delivering value for money. To transform your enterprise into a business that delivers value for money requires you to think differently about almost everything. 

Peter Drucker observed that “innovation means the creation of new value and new satisfaction for the customer.”²⁷ There are few, if any, data points to demonstrate that the health economy is delivering “new value and new satisfaction for the customer.”

Health economy stakeholders can deliver value for money to the customer in one of three ways: 

1. Better than average quality at a price at or near the median market rate. 
2. Average quality at a price that is below the median market rate. 
3. Better than average quality at a price that is below the median market rate. 

There is no value for money proposition in offering worse than average quality at any rate, especially one that is higher than the median market rate. 

This is my favorite quote from Dr. Martin Luther King, Jr.: 

“We are now faced with the fact that tomorrow is today. We are confronted with the fierce urgency of now. In this unfolding conundrum of life and history there is such a thing as being too late. Procrastination is still the thief of time. Life often leaves us standing bare, naked and dejected with a lost opportunity. The 'tide in the affairs of men' does not remain at the flood; it ebbs. We may cry out desperately for time to pause in her passage, but time is deaf to every plea and rushes on. Over the bleached bones and jumbled residue of numerous civilizations are written the pathetic words: 'Too late.'” 

You demand value for money in every consumer decision you make. When you finally realize that delivering value for money is the only way to win healthcare’s negative-sum game, will it be too late?