Health care is the industry that enables individuals to maintain health and recover from illness. It is not only one of the largest industries in the world, but it also plays a critical role in determining the overall social and economic well-being of a nation or region. It involves many different types of businesses, employs large numbers of people, and provides a wide variety of goods and services. However, health care differs from other goods and services in several important ways: The product (the treatment or service) is often intangible and cannot easily be measured; the outcome of a service is difficult to determine; and payments for health care are often made by third parties, such as government agencies, insurance companies, and private employers. This makes health care uniquely challenging to manage.
The costs of health care are rising dramatically, and the reasons for this are debated by many experts. Some argue that it is simply a result of increased consumption: as incomes rise, individuals tend to spend more on goods and services. Others point to the growing aging population, which results in higher rates of chronic diseases that require long hospital stays and expensive drugs.
Regardless of the causes, health care spending has grown rapidly in recent years and is now the fastest-growing sector of the economy. In 2023, health care expenditures accounted for 17.6% of the nation’s gross domestic product. Of these, the vast majority were spent on hospital services and physician and clinical services.
There are many factors that contribute to the high cost of health care in the United States, including the underlying costs of medical services and devices, the increasing number of people with complex or serious conditions, the growth of for-profit health care enterprise, and the increasing utilization of technology. In addition, the U.S. has fewer physicians per capita than comparable countries, which can make it more difficult to access health services.
Some analysts also believe that the health care industry is becoming more and more vertically integrated, with a greater emphasis on for-profit enterprise and the integration of financing and service delivery. These trends, they argue, may lead to market distortions that affect the quality of health care.
In a typical marketplace, competition among providers should improve quality through consumer demand and feedback. This premise is often applied to health care, but it has limitations. Health care consumers do not have the same information and incentive to make informed choices as other purchasers of goods and services, the quality of care is difficult to measure, and provider performance is often evaluated by internal metrics rather than by independent evaluators.
Another issue is that the definition of “quality” is often unclear. Various groups have developed and promoted different quality measures, and the use of these measurements varies across organizations and regions. Most recently, a RAND study examined the relationships between quality measures and outcomes of health care. The study found that there was little association between quality measures and cost or length of stay.