When it comes to current day financial woes, it is common to hear people focus on three things specifically: housing, higher education and health care costs. This will often be accompanied by something like Mark Perry’s “chart of the century” that shows the increase in prices vs wage increase since the year 2000:

Of the 5 categories of spending that outpaced average wage growth, 2 are in healthcare. But those healthcare categories are much trickier than the remaining 3 categories. If I bring up childcare spending, college textbooks or even college tuition and fees, you pretty much know what that covers. Even if you haven’t personally used it in a while, you probably know what a daycare or bachelors degree entails, and I think we all have the same memories of college textbooks. But how do you compare the cost of healthcare in the year 2000 to today? What are we even comparing when we say “hospital services”? How do we add in the fact that there is simply more healthcare available now than there was 25 years ago?

As it turns out, this is an incredibly tricky problem no one has quite solved. The data above comes from the BLS medical CPI data, which tracks out of pocket spending for medical services. It states that in general “The CPI measures inflation by tracking retail prices of a good or service of a constant quality and quantity over time.” But as someone who has worked in various health care facilities since just about the year 2000, I am telling you no one actually wants to revert back to the care they got then. Additionally, CPI tracks the price of something, but not how often you need it or why you needed it.

Here’s an example: when I started in oncology, all bone marrow transplants were done inpatient. Then, people started experimenting with some lower risk patients actually getting their transplants outpatient. People really love this! They sleep in hotel rooms with more comfortable beds, and walk in to clinic every day to get checked up on. However, this means that your average inpatient transplant is now more complex, the “easy” patients who were likely to have a straightforward course of care. I don’t often look at what we charge, but I wouldn’t be surprised to see that the cost for an admission for bone marrow transplant has continued to trend upward. But this doesn’t mean the cost has actually gone up for most patients. In this case, comparing the exact same hospital stay for the exact same diagnosis as 25 years ago is not comparing the same thing. Innovation didn’t change that some patients need a hospital stay, it meant that fewer patients needed one.

While this is one example, I suspect rather heavily that’s a big reason why hospital services cost has gone up so much. The big push in the last 2 decades has been all about keeping people out of the hospital unless they really need to be there, which will have the effect of making hospital stays more expensive while keeping more people out of the hospital.

This run off can also increase the cost for outpatient medical services, the other category we see above. This past year for example, I got my gallbladder removed. In the year 2024, 85% of people who got a gallbladder removed went home the same day, as did I. In the year 2000 however, that was hovering at around 30%. So again, we see that the hospitals are now caring for just the sickest people, but one also assumes that outpatient follow up visits might be more complex than they were 25% years ago. Having 50% of patients change treatment strategies is a huge shift in the way care is delivered, even if it shows up as “the exact same visit type for the exact same diagnosis”. From the standpoint of CPI, a ‘gallbladder removal’ looks like the same service. From the standpoint of reality, it has become a fundamentally different care pathway.

Now this is just one graph, and it’s true there are other graphs that get passed around that show an explosion in overall healthcare spending. This is also true, but fails to reflect that the amount of healthcare available since <pick your year> has also exploded. Here’s a list of commonly used medical interventions that didn’t exist in the year 2000:

1. Most popular and expensive migraine drugs (CGRP inhibitors)
2. GLP 1s for diabetes/weight loss (huge uptick in the past 5 years)
3. Cancer care (CAR-T cell therapy and immune checkpoint inhibitors)
4. Surgical improvements (cardiac, joint replacement, etc)
5. Cystic fibrosis treatment (life expectancy has gone from 26 to 66 since 2008)
6. HIV treatment (life expectancy was 50-60 in 2000, now is the same as the rest of the population)
7. ADHD medication (this one is more an expansion in diagnosis, was $758 million in 2000, now estimated at $10 to $12 billion. I bring this up as a tangential rant because for some reason I’ve seen 2 people recently mention that insurance annoyed them because they didn’t use it because they were healthy, but they or their children were on ADHD medication. If you are going to complain about healthcare costs, it’s good to make sure you are accurately assessing your own first.)

Childcare or higher education have made no similar changes in the same time period.

My point here is not that healthcare has no inflation, it almost certainly does. Rising wages, increased IT needs, increased regulatory burden and increased cost of supplies would all hit healthcare as well. But when you compare healthcare in the year 2000 and the year 2025, you are comparing two different products. Go further back with your comparison and the differences will be even more stark. We are never going to control healthcare costs as long as we are constantly adding new, cool and really desirable things to the basket. There is not a world in which we can both functionally cure cystic fibrosis AND do it for the same price as not curing cystic fibrosis. Not all cost increases are the same.