Archive for November 2nd, 2012

November 2, 2012

‘Eds and Meds’ – Are soaring costs tied to third-party payments?

by Grace

Higher education and healthcare (Eds and Meds) are two areas of our economy that share a recent history of soaring costs outpacing inflation.  Another common feature of these two sectors is a high reliance on other people’s money.

Both sectors have consistently been creating new jobs.
As reported by Derek Thompson in The Atlantic, healthcare and education are the only major job sectors that have experienced net positive growth during the last five years, a period that started two years before the “Great Recession Trough”.


These soaring costs cannot be sustained.

If the health care cost crisis has long been known, the public is just waking up to the crisis in higher education costs.  Skyrocketing tuition has driven the cost of many colleges through the roof.  This traditionally didn’t bother students, who were assured that a college education the key to a good job that would easily allow loans to be repaid.  In a global age where even knowledge economy jobs are subject to offshore competition, and a recession that’s kept many young people — including many now deeply in debt — unemployed or underemployed.  There is now about $1 trillion of it outstanding, much of it non-dischargeable in bankruptcy….

Regardless of how it plays out, when you look at spending in aggregate in America, it’s clear increases in health care and higher education spending cannot keep increasing at current rates.  This means that it just isn’t possible for all the cities out there dreaming of eds and meds glory to realize their dream. America simply can’t afford it.

William Henderson, Indiana University law professor writing in The Legal Whiteboard, sees an opportunity for productivity gains.

There is an opportunity here.  I would be extremely bullish on innovations that produce productivity gains in the Eds and Meds sectors.  I recently listened to this HBR Ideocast discussion with Robert Kaplan, the Harvard Business School professor best know for developing the Balanced Scorecard.  Kaplan is now turning his considerable intellect toward the problem of cost-containment in healthcare.

What the key insight?  Measuring how much patient treatment actually costs–to date, there has been almost no sophisticated cost accounting in healthcare.  Most of the brainpower has gone to dealing with (and maximizing) third party reimbursements.  Under Kaplan’s system, fortunately, we can actually identify the points in the system that cost way too much and thus begin the reengineering process.

The same thing may soon be happening in higher ed.  Another Harvard Business School professor, Clayton Christiansen, who authored the renowned business book, The Innovator’s Dilemma, recently co-authored a letter that called for colleges and universities to quit chasing prestige and start focusing on innovations that improve educational quality without increasing price.  Remarkably, the letter was included in a mass mailing by the American Council of Trustees and Alumni — going to 13,000 trustees!  See Inside Higher Ed, Distruption’s Strange Bedfellow, July 12, 2102.  Another Insider Higher Ed story suggests that this may be the true faultline driving the University of Virginia controversy.  See Disruptive Innovation: Rhetoric or Reality?, June 26, 2012.

The world appears to be changing, even in Eds and Meds sector.

Related:  Does increasing federal aid cause college costs to rise? (Cost of College)

Follow

Get every new post delivered to your Inbox.

Join 168 other followers

%d bloggers like this: