How much waste is there in this nation’s health care system? Try $765 billion. That’s the estimate from the Institute of Medicine, covering everything from unneeded tests to excessive administrative costs. The estimate is for 2009, when health spending totaled $2.5 trillion. “Waste” was 31 percent, or almost one dollar in three.
Even if waste is only half this, there’s ample room to cut costs without weakening quality of care. By all logic, we should be debating how to achieve these savings, because runaway health spending is the crux of our budget impasse. From 1980 to 2011, health care went from 11 percent to 27 percent of federal spending — and it’s headed higher.
Naturally, we aren’t having this debate.
The campaign’s discussion of health care is purely political. Democrats say Republican proposals to turn Medicare — federal insurance for the elderly — into a voucher program would “end Medicare as we know it.” Well, that’s true; it’s also true that Medicare “as we know it” is busting the budget. Vouchers might control costs. For their part, Republicans denounce the Affordable Care Act (Obamacare) without fully explaining why their alternative is better.
The stakes transcend Medicare and Medicaid (federal-state insurance for the poor), because the federal government is the largest purchaser of health services. Its policies shape, for better or worse, the rest of the system. If Medicare promotes lower-cost, higher-quality care, everyone would benefit. Hospitals and doctors would transfer improvements to other patients.
Workers would also gain, because high insurance premiums squeeze take-home pay. Just recently, we learned that annual premiums for employer-sponsored family coverage increased 4 percent in 2012 to $15,745, according to the Kaiser Family Foundation and the Health Research & Educational Trust. Although the increase was relatively small, it still exceeded wage gains (1.7 percent) and inflation (2.3 percent). Since 2002, gaps are greater; insurance premiums rose 97 percent, roughly triple wages (33 percent) and inflation (28 percent).
The “waste” estimate from the Institute of Medicine (IOM) — an arm of the National Academy of Sciences — came in a report (”Best Care at Lower Cost”) that broke down the $765 billion figure as follows:
● Unneeded services (tests, procedures): $210 billion.
● Excess administrative costs: $190 billion.
● Mistakes and delivery inefficiencies (preventable complications, fragmented care): $130 billion.
● Artificially high prices: $105 billion.
● Fraud: $75 billion.
● Missed prevention opportunities: $55 billion.
The IOM says its estimate agrees with two other studies — one comparing health spending across countries and the other making comparisons across different U.S. regions. Higher spending doesn’t automatically improve outcomes.
Fee-for-service medicine is one culprit. Hospitals and doctors do more because they get paid for doing more. But the IOM also blames the increased specialization and complexity of medicine. “With specialization,” the report says, “clinicians must coordinate with multiple other providers.” The typical Medicare patient has seven doctors split among four practices. Meanwhile, the explosion of medical information hinders doctors and hospitals from keeping up with best practices. Since 1970, the number of annual medical journal articles has grown from 200,000 to 750,000.
The goal is to eliminate waste without harming care. Dr. Mark Smith, head of the IOM’s task force, says he’s optimistic, because many hospitals have found ways that can be adopted by others. For example: use of barcodes to ensure that correct medicines are given to patients. The system reduces errors and liability claims.
But the IOM report lacks any strategy to promote widespread change. Its proposed remedies rely mostly on good will and exhortations to hospitals and other providers to do better. Unfortunately, decades of exhortation and piecemeal policies haven’t controlled costs or ensured better care.
There are stronger approaches. One involves Medicare vouchers. The theory: If providers receive a fixed amount for covering patients’ health needs, they will be forced to identify best and worst practices. But ditching fee-for-service might trigger a backlash from hospitals, doctors and patients. A second approach is a less visible shifting away from fee-for-service through “payment reforms.” Reimbursement is tied to better medical outcomes and not just to procedures performed (tests, surgeries, rehabilitation). But these “reforms” might be too few, too complex and too weak to have a big effect on cost and quality.
Dithering is understandable; but the more we dither, the harder the choices become.