The Health Care Construction Spending Slowdown

It’s by no means definitive, but the chart above showing private spending on construction related to the health care sector is my favorite datapoint to indicate that the health spending slowdown of the past few years is likely to persist into the future.

The reason isn’t that construction spending is such a high portion of where health care dollars go. It’s that in just about any industry, expansion and the acquisition of real estate go hand in hand. Almost everything else you spend money on—staff, equipment, etc.—needs a place to go. If investors were anticipating an accelerating pace of health care spending, they’d be increasing their level of spending on building the facilities to service those clients. Instead things are basically flat, even though the single biggest no-brainer prediction one can make is that in 10 years time there’ll be more old people around.

And if you try to think like an investor rather than a pundit for a minute, expecting the cost curve to bend makes sense. Perhaps it will bend by magic. Or perhaps it will bend thanks to the non-scorable aspects of the Affordable Care Act that its authors are bullish about. Or perhaps that won’t happen, and the IPAB scalpel will be wielded to devastating effect. Or perhaps Republicans are right and the whole thing will be a hideous failure that sweeps Jeb Bush into office at which point he and Paul Ryan start wacking away at federal health care funding.

When DC people think about this, they tend to become very impressed with CBO charts that are based on forecasting that current trends will continue. The CBO draws those charts because the CBO is (rightly) not in the business of making guesstimates about future political dynamics or technological changes. But the scenario in their baseline forecast where the curve doesn’t bend and the political system doesn’t react to the curve’s failure to bend, and so we just pile on more and more and more debt forever isn’t actually a prediction about what’s going to happen. It’s a baseline forecast. I’d love to see an actual prediction. A deep and liquid InTrade account where people bet on what share of GDP they think health care will be in 2025 would be fascinating. But we don’t have anything like that. This health care construction spending number is an interesting proxy.