Measuring the Healthcare Sector: Who, What, Why?

In 2022, the Gross Domestic Product (GDP) within the United States reached a total of $25.4627 trillion (as measured in current US dollars). The U.S. economy remains the largest in the world, and one-fifth of this activity is generated entirely by healthcare.

The U.S. healthcare sector is the largest in the world. This holds whether measuring in total spending, or spending per capita. Despite this massive expenditure, population health outcomes remain poor, and there are few plans in any serious consideration to improve anything about this.

Exploring solutions demands a thorough understanding of the data measurements that roll up into the grand total measuring its size. One must consider the context, methodology, and scope of the various data gathered and by whom. Familiarity with the different types of institutions gathering data provides important context.

Comparing findings from different data sources necessitates careful consideration of all of the above to generate more meaningful and accurate insights from said data. This holds whether the goal is improving individual decision-making, or better informing debate and public policy development for the population.

Healthcare sector size is calculated by public and private entities. This diverse group uses different metrics and methodologies for these measurements and calculations. They assess a wide range of aspects describing healthcare activity, as this practice is surprisingly far from being standardized.

The World Health Organization (WHO) is a well-recognized entity that measures the sizes of healthcare sectors within economies worldwide. They boast a long history of capturing and disseminating global health statistics, and frequently use the oft-referenced metrics of health expenditure as a percentage of GDP, and per capita health expenditures, in their reporting.

WHO data is valuable for making assessments and comparisons among countries. For a deeper dive within our own nation’s healthcare sector, there is no shortage of public and private entities to measure, calculate, and disseminate healthcare sector data to the public.

Government agencies play a leading role in measuring health sector size. Within the Department of Commerce is the Department of Health and Human Services (HHS). Located within the HHS branch is the relatively more familiar Centers for Medicare and Medicaid (CMS).

CMS plays a central role in collecting and reporting expenditure data, under its National Health Expenditure Accounts (NHEA) program. Through NHEA, CMS provides truly comprehensive data on the sector compared to other measuring entities. This makes sense given that CMS, in its primary capacity, is the entity responsible for administering the major public healthcare programs. These include Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).

In total, these programs provide healthcare coverage and services for millions of Americans nationwide. NHEA reporting is built out of the data collected from the administration of these programs down to the individual medical encounter basis (as in per patient, per date, per diagnosis code, and so forth).

Alongside HHS and still within the Department of Commerce, one finds the Bureau of Economic Analysis (BEA). The BEA is responsible for producing economic statistics in general. They contribute to measuring healthcare spending as part of their calculation of GDP as a whole—the healthcare sector just happens to entail one-fifth of that total amount. They coordinate closely with NHEA and CMS on these calculations.

CMS and BEA are the two largest government entities measuring the healthcare sector, but they aren’t the only two. Some other notable groups include:

• The National Center for Health Statistics (NCHS) – NCHS is part of the Centers for Disease Control and Prevention (CDC). It is responsible for collecting and disseminating data on expenditures, insurance coverage, and utilization.
• The Agency for Healthcare Research and Quality (AHRQ) – AHRQ is another branch found within HHS, and it operates in close coordination with CMS, while focusing on metrics of quality, safety, and outcomes.
• The Department of Labor (DOL) – The DOL’s Bureau of Labor Statistics (BLS) collects data in more of a costs and benefits framework, and largely within the occupational perspective.

In addition to government entities, many academic institutions capture and disseminate data on or related to measuring the size of the healthcare sector. This group includes universities and medical schools that research healthcare economics and health policy.

There is no shortage of private research organizations that conduct their own independent studies on healthcare spending, policy impacts, and sector size. This research contributes additional perspectives and analyses to the overlapping and very important field of healthcare economics.

One of the most well-recognized of these is the Kaiser Family Foundation. This non-profit organization researches healthcare issues with data on both consumer spend and total sector spending. Not only do they gather much of their own data through various surveys and sampling methods, but they also perform comprehensive analyses of data shared by other entities to help the general public better understand and critically assess such findings. This is extraordinarily important to help dispel myths and improve understanding for individuals and policymakers alike.

The American Hospital Association (AHA), the American Medical Association (AMA), and the Pharmaceutical Research and Manufacturers of America (PhRMA) are some of the largest industry associations that measure sub-segments within the sector. These industry associations represent hospitals, physicians, pharmaceutical companies, and other healthcare stakeholders. Their measurements and calculations are generally focused on their area of expertise. Still, they are nonetheless very valuable for generating important insights and contributing to calculations of larger scale, among other applications.

Consumer spend and total spend are sometimes used interchangeably, but they represent vastly different calculations.

From a purely mathematical perspective, consumer spend is a subset of the total spend amount, which will always be larger. Setting aside the mathematics, it becomes a bit clearer how these two might be misapplied when considering how their differences can be understood in terms of scope, perspective, and policy implications—and how that can be used to influence opinions one way or the other.

Consumer spend refers to the total amount of money spent directly by individuals or households on healthcare and its related goods and services. It encompasses out-of-pocket expenses for medical services, prescription drugs, equipment, and more. These may be in the form of copayments, deductibles, premium payments, and other expenses not covered by insurance or government programs. The significance of this measurement comes from the insights that can be derived from it that shed light into the financial burden placed directly on individuals or households due to healthcare expenses. High levels of consumer spending can indicate challenges related to affordability and access to care for individuals without comprehensive insurance.

Total sector spend represents the sum of money spent on all healthcare-related activities within the entire system. It includes the aforementioned consumer spend, on top of the spending by health insurance companies, government programs, drug manufacturers, and nursing programs. It encompasses payments for healthcare services, administrative costs, pharmaceuticals, medical equipment, and other healthcare-related goods and services.

Compared to the more limited measurement of consumer spend, total spend offers a broader perspective on the overall financial scale of the healthcare sector. This measurement is crucial for understanding the macroeconomic impact of healthcare on the national economy and is also used in calculating the sector’s share of overall GDP.

While consumer spend reflects trade-off decisions from the perspective of the individual or household by highlighting the out-of-pocket costs, total spend provides a much broader economic perspective by considering the interactions between various stakeholders and the overall financial scale of the healthcare industry. Those bigger-picture metrics are of little relevance to the average individual participating in the sector in seeking or providing care.

Policy implications are the strongest link between the two measurements – for example, high levels of consumer spending may prompt policy discussions on improving affordability and reducing the financial burden on individuals. Total spending in the healthcare sector informs policy discussions on healthcare reform, resource allocation, and the sustainability of the healthcare system as a whole.

Differences in measurement methodologies and definitions can lead to variations in healthcare sector measurements across different entities. Healthcare expenditures as a percentage of GDP is probably the most frequently used metric to give a sense of the overall size of the healthcare sector.

The numerator is the total healthcare expenditure across the sector, and the denominator is the total GDP; both of these should align as far as the start/stop date of the period of measurement.

In the denominator, differences in the GDP calculation itself are more commonly found than not. Adding to this is the inevitable lag time in obtaining this data point, which may or may not have calculated inflation from that period, too, in many different ways. Frequently there are differences in rounding, and exchange rates fluctuate constantly. All of these contribute to differences in this calculation from one entity to the next.

In the numerator, one finds that entities do not make identical choices as to which healthcare expenditure components should be included in the sector totals, as this is not a universally standardized measurement by any means. There are also differences in accounting methods used to measure expenditures and activity. This naturally creates variability in how the double-counting of dollars is handled.

A helpful example is to consider the dollar flow of payments from consumers to their employers via payroll deductions; from businesses to insurance companies for plan premiums; from insurance companies to medical institutions; and from these institutions to their employed medical providers. Clearly, the oft-referenced “value-added” approach to mitigate double-counting is nowhere near as straightforward as one might assume.

The healthcare sector in the United States is notable for many reasons, not the least of which is its sheer size and growth trajectory.

We have no shortage of entities with significant experience in measuring the sector: institutions using methodologies in a manner that is transparent, reasonably robust, and fairly unbiased. The data is available, and we all need to be more familiar with it: who gathers it; how they calculate it; and what it means.

Political extremism has correlated with a steady decline in the perceived value of quantitative data for use within any form of debate. In our hellish era of “fake news” and “alternative facts,” there is at least one thing that is very certain: the current situation for U.S. healthcare is not a sustainable situation.