I’ve started reading a book by William Baumol called The Cost Disease, which raises an interesting question. Why in 2014 can I buy a laptop computer that is smaller, more powerful, and most of all, much cheaper than one I could have bought just ten years ago, but healthcare costs have risen from ten years ago? Why are some industries able to become more efficient, and produce more of their goods or services, faster and cheaper, while other industries are stuck in a spiral or are continually raising costs with stagnant efficiency?
I won’t give a full, in-depth review of the book, but in short, the analysis lays out the premise that in some industries, such as with computers or automobiles, manufacturers are able to continually improve on both their manufacturing processes and the quality of the goods they are manufacturing. This enables these manufacturers to produce better goods at lower costs. These lower costs then enable them to pass some of these savings on to their customers, as well as to pay their employees more money.
As the salaries of these employees rises, they are able to purchase more and raise their standard of living. As such, the general standard of living rises for their communities. Other workers then also need their salaries raised in order to keep pace with this rising standard of living. However, not all industries are able to achieve these same increases in efficiency to pass on higher wages to their employees. Take healthcare workers for example.
Healthcare workers cannot increase the number of patients that they treat without sacrificing quality at some point. You can add in mid-level providers and other assistants but at some point, the “output” of a healthcare system is capped, and to push more patients through will only decrease the quality of care provided, which is unacceptable. Healthcare provider salaries however, must keep pace with the general growth in salaries and the standard of living. Salaries and thus costs rise, while the overall efficiency of the system in general remains relatively the same. This leaves us with rising healthcare costs and an interesting healthcare efficiency challenge. How do we make the healthcare system more efficient, to improve the output while lowering the costs?
Not to put the blame for these cost issues solely on hardworking healthcare providers, as this same cost issue also affects teachers, police, firemen, and even artistic performers. The costs of these services all rise as the costs (i.e. salaries) of the people who provide these services must rise and meet the standard of living, even though their particular industries and professions does not easily allow for increasing their “output” without sacrificing quality.
It will be interesting to see how healthcare reform and technological advancement will continue to tackle the healthcare efficiency challenge in the years ahead.
Jeremy Zasowski is the Marketing Manager for 3M Health Information System’s Emerging Business Team.