Waste of $750 billion!
“Health costs must be kept under control…”
The release on 9/6 of a report on health care inefficiency is getting widespread coverage. The experts at the Institute of Medicine conducted a major study of all facets of our healthcare system. Their conclusions were frightening. There are significant inefficiencies in tests and services, delivery of care, inflated prices, admin costs, failure to prevent illness, and fraud. The biggest waste is over treatment accounting for $210 billion, followed by excess admin at $190 billion, inefficient care at $130 billion, inflated prices at $105 billion, fraud at $75 billion, and failure to prevent problems at $55 billion.
Each year we waste 30% of our health care spending. The cost crisis in health care clearly can be averted if only we could figure out how to reduce these inefficiencies. Both Democrats and Republicans will find ways to make the waste the other side’s fault. If only we had single payer, Democrats say, we could avoid all those problems of high prices and over treatment. Republicans will counter that true free markets will squeeze inefficiency through competition.
Frankly, either side could succeed in attacking these problems if they put their minds to it. A single payer system that no longer allows fee for service but pays a fixed amount to providers for full and complete care would eliminate over use. A free market that is totally transparent to consumers would force lower prices and reward good service and outcomes. The real problem is we seem to have neither full government control nor free market. We have a mess of a system where the consumer is a victim of incompatible record keeping, opaque pricing, multi providers not communicating, and the perverse incentive to treat excessively.
The other problem is that many people benefit from the waste. That societal waste is someone’s profit. Lobbyists represent many of the beneficiaries who will claim their service is not waste. While the report may say we vastly over treat, others will say the extra expensive test confirmed a diagnosis or allayed the fear of the patient. Drug companies clearly do not feel their prices are inflated for branded drugs because they save lives. Hospitals will say having all those expensive diagnostic tools reduces waiting time for treatment. All providers will say there is a good reason for their pricing policies.
We are, however, at a tipping point. Health costs must be kept under control and brought down to a more sustainable level for America to have anything left to invest in other areas. We spend a far larger portion of our GDP(16%) on health versus Western Europe and Canada where spending runs around 10%. We probably need to get our total bill down by about 25-30% which will put us at around 12%. My guess is somewhere between $600-700 billion ought to do it. The Department of Health and Human Services says we will get to almost 20% of GDP by 2017 if we do nothing.
If this report serves as a wake-up call maybe we can actually achieve a high level of efficiency. We have the technology to greatly increase administrative efficiencies. We certainly can invest in more health police to root out fraud. We can adopt best practices to reduce over treatment. There are things in the Affordable Care Act to begin to address these wasteful practices albeit as small experiments.
Given the dysfunctional Congress I am not optimistic these steps towards efficiency will be done quickly. What we need is some certainty on the master plan for health care. This election will help solidify Obamacare or will put us on a path to replace it with something else. Both sides know the current system is on a path to financial ruin. What we need is a decision on how much we will spend as a percent of GDP and stick to it. That target should be about 10-12% of GDP versus the 16% we spend now. We can do it but must set clear strategic goals on how we can achieve it. Once the rancor of the 2012 election ends maybe leaders on both sides will act like adults for a year or two and work in the peoples’ interest. We can only hope.
Bob Ehrlich, Chairman
DTC Perspectives, Inc.