When British Secretary of State for Health Aneurin Bevan unveiled the National Health Service (NHS) in 1948 he stated, “We now have the moral leadership of the world." It quickly became apparent that this lofty standing had straightening financial implications for the government, and since then, medical expenditure across the globe has been the subject of many a call for reform. Since the 1970s, most developed nations have seen their healthcare costs skyrocket and most are looking towards easing this financial burden.

In a way, we are victims of our own success. As medical science has advanced, more people are living longer, a demographic trend that is leading to a greater proportion of GDP being spent on healthcare, particularly for the elderly.

Across the industrialised world, as baby boomers hit retirement age, the onus is on the state to keep these citizens healthy. “This is leading to spiraling medical costs and governments are now looking at ways of curbing this spending,” says Paul Villa, Senior Vice President, Payer and Market Access Research, Synovate Healthcare.  

“Couple the ageing population with the advances in technology, and not only do you get an ageing population, but you get a population in which technology has enabled them to live longer,” Villa says. “This is a double whammy. The United States and Japan are examples of two countries currently facing the baby boomer bubble.”

The effect of this on a country’s economy is a depletory one as this ageing population is no longer contributing to growth, yet requires expensive care. “Virtually every industrialised country has experienced a high rate of long-term growth in healthcare spending,” Villa says. “Left unabated, the rising costs will account for more of a country’s GDP, which, in turn, can jeopardise long-term economic growth.”

For most countries, there are a number of factors driving the increase in healthcare spending. Improved standards of living, awareness of healthy lifestyles and decreased smoking rates have lengthened life expectancy and more people require access to treatment for longer. Advances in medical technology have enabled more conditions to be treated than ever before, increasing the competition for hospital beds. Moreover, rising personal income and a burgeoning middle class has supported frequent access to healthcare. Topping these factors off, price increases in the healthcare sector itself have driven up the costs of medical care.

While Villa says there is no magic number for a percent of GDP spend (the figure is highly dependent on a country’s social policy goals), many countries have seen their healthcare expenses as a percent of GDP increase dramatically over short periods of time. From 1970 to 2008, most developed countries have more than doubled their spending on healthcare as a percentage of their GDP. Countries like Canada, France, Germany and Switzerland have seen their total expenditure on healthcare top 10% of their GDP. Perhaps the most dramatic is the United States, which has seen its percentage skyrocket from 7.1% to 16% in the intervening four decades.

This has resulted in governments across the globe looking for ways to reduce this healthcare deficit, and these actions vary in scope from country to country, administration to administration.

“On the most basic level (and again there are country level nuances/variations), reforms are being designed to link pricing and reimbursement decisions to systematic evidence based benefits,” Villa says. “Often this is taken in the form of comparative effectiveness evaluations to understand the cost effectiveness of a given treatment paradigm.”

Sometimes it goes farther than that. On March 23, 2010, US President Barack Obama signed a comprehensive health reform, the Patient Protection and Affordable Care Act, into law. The Act focuses on provisions to expand coverage, control health care costs and improve health care delivery system.

In the UK, the NHS has been implementing reform since 2000. Reforms have included expanded use of private sector provision, introduction of more autonomous management of NHS hospitals through Foundation trusts, introduction of patient choice of hospital for elective care and new general practitioner, consultant and dental services contracts, among others. Upon election in 2010, the incoming British Conservative government looked towards sweeping reform even beyond the above as part of widespread ‘austerity measures’ to reduce the county’s deficit.

Reducing spending, especially on systems that are not only cherished but deemed necessary, is never going to be easy. It is incumbent upon our leaders to put in place a system that, while reducing costs, does not reduce their own moral leadership.

For more information, please contact Paul Villa, Senior Vice President for Payer and Market Access Research at paul.villa@synovate.com.