Do Provider Waste & Duplicate Services Constitute The Main Driver Of Health Care Costs?
In the comment thread on khin's excellent post, Refuting Myths on Health Care and Medicare for All, Fred Moolten argues that:
Most of the excess [in health care costs] resides within healthcare itself, in the form of duplicate or unnecessary facilities, test, procedures, and specialty referrals driven by a fee for service paradigm that rewards excess.
and PseudoCyAnts asks a very good question:
any decent study citations to go along with this? it has the feel of conventional wisdom, which far too often is in error.
Since Pseudo's question isn't answered, I thought it might be worth starting a new thread.
We can agree there is some level of waste, duplication and even fraud, and that it should be contained as much as possible. The question is whether waste and duplication on the part of providers actually do account, as Fred avers, for "most of the exceess" in health care costs.
The Christian Science Monitor recently ran an op/ed by Dr. Arthur Gerson, former dean of the University of Virginia School of Medicine. Here's a quote:
Our current healthcare spending is approximately $2.1 trillion (that's up from $1.3 trillion noninflation adjusted in 2000). We waste an estimated one-third – or about $700 billion – on unnecessary procedures, unnecessary visits to the doctor, overpriced pharmaceuticals, bloated insurance companies, and the most inefficient paper billing systems imaginable.
Dr. Gerson doesn't quote his source, unfortunately, but if it's a good source our search for waste and duplication must extend well beyond health care providers, to include "overpriced pharmaceuticals, bloated insurance companies" and more.
Information published by The Commonwealth Fund, one of the go-to NGOs when it comes to health care research and quality advocacy, provides some support for looking beyond just the providers. You may find this Web page interesting. It contains a series of charts entitled, "Universal Health Insurance: Why It Is Essential to Achieving a High Performance Health System and Why Design Matters Charts."
One chart here, entitled "Health Expenditure Growth 2000–2005 for Selected Categories of Expenditures," shows growth in the following cost categories [if I knew how to do it, I'd reproduce the chart]:
- 12.0% – Program administration and net cost of private health insurance
- 10.7% – Prescription drugs
- 8.6% – Hospital care
- 7.9% – Physician & clinical services
- 6.1% – Nursing home & home health
- 8.6% – Total
Another Commonwealth page of interest here is entitled "Overuse and Duplication/Waste Charts." (click for Web reference).
Beyond waste and duplication, and perhaps even more costly, is our inefficiency in treating chronic diseases. The fragmentation of our health care system, with it's competing interest groups and agendas, causes a lot of this inefficiency.
The CDC makes a very plain statement about this (click for Web reference):
Chronic diseases – such as heart disease, stroke, cancer, and diabetes – are among the most prevalent, costly, and preventable of all health problems.
According to the CDC (click for Web reference):
- Chronic diseases account for 70% of all deaths in the United States.
- The medical care costs of people with chronic diseases account for more than 75% of the nation’s $2 trillion medical care costs.
- Chronic diseases account for one-third of the years of potential life lost before age 65.
If chronic diseases account for 75% of health care costs, and attendent suffering, we might want to look at what's driving those costs and whether there's a way to bring them under control. We might especially want to know if there could be a connection between providing better care and controlling costs.
Insurance companies, acting rationally as we expect for-profit corporations to do, control their own costs of chronic disease by refusing coverage, refusing treatment, and recision. The diseases don't go away, though, and the costs get dumped on non-profit hospitals and Medicaid. In other words, the excess cost of refusing intelligent treatment for chronic diseases is passed on to you and me. Meanwhile, there is more suffering than there needs to be.
One of the Commonwealth charts (see links, above) is entitled "Adults Without Insurance Are Less Likely To Be Able To Manage Chronic Conditions." The chart illustrates the following:
- Uninsured patients are three times more likely to skip their medications due to cost than are insured patients.
- Uninsured patients are 2.2 times more likely to be hospitalized or visit the ER than are insured patients.
Another chart, with a very long name, shows that putting caps on drug reimbursements increases the number of more adverse consequences suffered by patients, off-setting the savings in prescription costs.
The Robert Wood Johnson Foundation is another NGO that focuses a good bit of attention on chronic care (click for Web reference). Here's a quote from RWJ:
[Deficiencies in current management of chronic diseases] include:
- Rushed practitioners not following established practice guidelines
- Lack of care coordination
- Lack of active follow-up to ensure the best outcomes
- Patients inadequately trained to manage their illnesses
Overcoming these deficiencies will require nothing less than a transformation of health care, from a system that is essentially reactive - responding mainly when a person is sick - to one that is proactive and focused on keeping a person as healthy as possible.
Transforming complex systems, like health care, is not easy to do. Organizing the energies and agendas of doctors, hospitals, nurses, technicians, patients, consultants private insurors, Medicare, Medicaid, and innumerable other interest groups requires more than just research and advocacy. It requires leadership than can transcend the inevitable internecine squabbling. That's why I believe that single-payer universal coverage is the best way to achieve the transformation RWJ advocates.
But back to our discussion. There's no doubt that controlling waste and duplication will help save costs and, done correctly, improve outcomes. But we need to keep our eye on the prize. Affordable, high-quality health care for everyone.
Update:
I noted above that Pseudo's question wasn't answered, but going back to khin's original post I see now that Fred has recently provided links to two excellent articles by Maggie Mahar, derived from research done by Dartmouth.
October 15, 2009 1:01 PM | Reply | Permalink
The Dartmouth study was very population sub-group specific, and should not be used as an indictment of the entire US Health Care System.
The Care of Patients With Severe Chronic Illness; The Dartmouth Atlas of Health Care 2006.
The study group was persons enrolled in Medicare, suffering from chronic illness in the last two years of their lives.
October 15, 2009 3:16 PM | Reply | Permalink
nice analysis
October 15, 2009 3:17 PM | Reply | Permalink
My dad, an MD, told me as far back as the '80s that he spent more than half of the money that he spent in his general practioner's office on paperwork. He said that he spent about half of that greater-than-half amount getting denied claims turned around and that he got the vast majority of those turned around. So, that would lead me to believe that much of the money on the insurance company-side is spent trying to deny claims, and since he got it turned around, then they were arguably denying these wrongly. It's just an anecdotal story with no real numbers attached to it, but it sure makes you understand why the majority of doctors would be for health care reform, wouldn't it?
October 15, 2009 4:18 PM | Reply | Permalink
And I also think, from things that he said (he said 2 of the four people that worked in his office wouldn't have jobs, except for this denial run-around) that the paperwork and the BS denials made for a lot of the cost.
October 15, 2009 4:20 PM | Reply | Permalink
The $700B figure you quote and ask for a source on is right in line with this report done by McKinsey Global Institute on the subject. They are a business oriented, conservative think tank, and division of Mckinsey & Co. so I suspect their numbers are not far off. The report is available as a free PDF download, after registering. It's worth the read. Rec.
http://www.mckinsey.com/mgi/rp/healthcare/accounting_cost_healthcare.asp
October 15, 2009 4:31 PM | Reply | Permalink
I'll read the report Miguel, but I'm a little put off by this statement on the introductory page:
When we're sick, or our loved ones are sick, we are patients in a very large and complex system, not consumers. Fred makes an excellent point below that "even intelligent patients rarely have the knowledge adequate to [the task of choosing] cost-effective medical care."
There is a failure of payors, employers and government, but the failure goes way beyond not providing sufficient incentives to patients to be valu-conscious.
October 16, 2009 12:10 AM | Reply | Permalink
This is a very informative post and discussion, with useful links. Here, I'll repost the link to Maggie Mahar's long article on the Dartmouth findings:
http://dartmed.dartmouth.edu/spring07/html/atlas.php
I believe it complements the other materials very well, in that it shows that we can achieve good health outcomes in some regions at much lower cost than in others as a result of proper planning and resource utilization. Based on the Medicare analysis, it states:
"With its decades of data, Dartmouth has exposed the incredible waste in the U.S. health-care system. Sizing up the evidence, Wennberg estimates that up to one-third of the over $2 trillion that we now spend annually on health care is squandered on unnecessary hospitalizations; unneeded and often redundant tests; unproven treatments; over-priced, cutting-edge drugs; devices no better than the lessexpensive products they replaced; and end-of-life care that brings neither comfort nor cure.
As Dartmouth's 2006 paper, "The Care of Patients with Severe Chronic Illnesses," points out, if this waste were eliminated, "the Medicare system could reduce spending by at least 30% while improving the medical care of the most severely ill Americans".
As PseudoCyAnts mentioned above, the data for the referenced study involved Medicare patients with chronic illnesses, but these account for a substantial fraction of healthcare costs. Medicare costs have been rising slightly slower than costs in the private sector, and the types of excess described by the Dartmouth group apply to non-Medicare patients as well. It seems likely that similar savings could be realized in the system as a whole if the duplications, unnecessary interventions, and other inefficiencies could be eliminated. I believe others have also made comparisons between expensive and inexpensive regions and reached the same conclusions.
The Mckinsey data that miguelito cited are also valuable in identifying excess costs. One slight quibble with their conclusions is their willingness to put considerable onus on consumers (patients) to choose cost-effective medical care. Unfortunately, even intelligent patients rarely have the knowledge adequate to that task, and it will require us as a society to push for reforms that eliminate the excesses.
October 15, 2009 5:52 PM | Reply | Permalink
October 15, 2009 6:20 PM | Reply | Permalink
I agree that "cost effective" is a loaded term, which I used as a shortcut rather than attempt a complex explanation. If I were to rephrase it, I would say the even intelligent patients typically lack the knowledge to decide whether a costly medical intervention would make a meaningful difference in their lives, a negligible difference, no difference at all, or perhaps even harm. Much of the point in some of the referenced cites relates to data showing that one can spend much less money without sacrificing healthcare quality. There are also tough cases involving interventions that make a modest difference at huge cost. Given the fact that we live in a world of finite resources, this poses ethical dilemmas, but I was trying to make a simpler point about needless excess.
October 15, 2009 7:34 PM | Reply | Permalink
We're talking about humans in their last 6 months of life. No one, group or institution is truly qualified to make these sort of decisions. They belong in the realm of gods. I am certainly not comfortable leaving them in the hands of agents for collective entities, be they government or corporate.
The data is interesting, and does indicate that some geographical areas provide aggressive end of life health care for chronic sickness, which is costly and ineffective. The "Supply-Sensitive Care" findings of the study are distortions. The Pacific Northwest states, and to a lesser degree, Northern New England states tend to be the outliers in this study using the "Supply-Sensitive Care" paradigm. These states have an ample supply of quality ICU hospital beds, and their share of medical professionals, yet they tend towards being lesser users of the Medicare system for these patients than the average. I have ideas why this is, but they are pure conjecture, and i'll hold my tongue.
October 15, 2009 8:58 PM | Reply | Permalink
My personal physician worked (and taught) in a hospital for many years but left for the less lucrative are of private practice.
How the end of life people - and even those not end of life - were treated upset her.
Indecently she is a big proponent of hospice care for those terminally ill.
C
October 15, 2009 9:10 PM | Reply | Permalink
You've touched a subject dear to my heart, Fred, in your comment about putting too much onus on health care consumers to choose cost-effective medical care.
The term "health care consumer" was widely promoted by DHHS during the last administration, in an attempt to define health care services as just another commodity, like pet supplies and kitchen appliances. It's an ideological term, designed for the specific purpose of abetting the shifting of responsibility for good health care from the system to the individual, and I don't use it. I wouldn't be surprised to learned that this was another Frank Luntz strategem.
It's catching on, though. My local Catholic hospital now defines itself in eye-catching billboards around town as the go-to place for stroke and myocardial infarction.
Let me be clear. I'm a believer in learning as much about your body and your health as you can, and taking responsibility for it. But, as you say, even very intelligent and knowledgeable people are over-matched by the prospect of trying to sort through all the pros and cons of different treatment plans, the certainties and uncertainties of medical advice, to make an informed decision about the best course of action chose when the health of a loved one is threatened.
Hell, even physicians are are often confused when it's their own family on the line.
Educated patients (not consumers) are better for the system than ignorant patients, and they'll have better results by participating in their own treatment, but we can't shift the onus of cost containment onto them. They'll typically either underspend (if it's their own money) or overspend (if it's someone else's money) and in either case attain less than optimal results.
October 16, 2009 12:02 AM | Reply | Permalink
Red Planet, I think you are mixing up two different kinds of costs by saying that chronic diseases are a big source. No doubt they are, but this isn't the kind of cost that we factor into percent of GDP calculations: it's a cost of bad health outcomes. US treatment of chronic diseases is fairly mediocre among industrialized nations, apparently due to access issues. So our goal should be to improve this outcome while reducing input costs. We could do that for example with Medicare for All.
Also, I have not actually done too much looking into specifically why provider costs are much higher in the United States than elsewhere. The answer is clearly includes a lot of unnecessary tests and procedures. On the other hand, I don't think including hospital stays per se is a good idea: Japan has considerably longer hospital stays than we do and spends about half as much as a percentage of GDP on health care, such a low amount that they may actually need to raise it.
So it's not just a clear issue of "cut back on everything." You have to be careful in identifying sources of waste.
October 15, 2009 8:24 PM | Reply | Permalink
One of the points I tried to make here is that better chronic care not only has the potential to save costs (fewer expensive hospitalizations and ER visits) but it also results in better outcomes. That's the goal of a great deal of the QI work going on these days. So I think I agree with you, khin. I even agree that Medicare for All is one of the more promising ways to accomplish this.
It doesn't seem to be helpful to think of inefficient chronic care as just "waste." The problem begins with the fragmentation of our system and the upside-down incentives for preventive care and health maintenance. Then, when adverse events happen, they are often over-treated in ways that are quite expensive. If we back up and look at the entire picture, it's an oversimplification to lay the system-wide costs of poor chronic care at the feet of just providers.
I certainly don't advocate cutting back on everything. Quite the contrary.
October 15, 2009 11:26 PM | Reply | Permalink
Oh, I didn't mean to say I thought you were advocating cutting back on everything. It was more just a random note.
Overall it was a thought provoking post and you make some good points.
You're probably right to say it's an oversimplification to lay these costs narrowly at the feet of providers without taking into account that they have to work within a certain system.
I think this relates to something else that I have read lately, namely that in other countries there may be long wait times to see a specialist, but there are for the most part not such long times to see a primary care physician and at least get a diagnosis. This is an important distinction because the primary care physician can find out if the person is suffering from some dire ailment that needs emergency treatment, whereas the other sort of wait is maybe a recipe for disaster.
So it seems there is a kind of schizophrenic quality about the US health care system: it tries to deny needed care but on the other hand suffers from massive overtreatment for patients already in the system. I think that national health care could potentially try to limit the worst extremes of this schizophrenia on either end and bring our system into balance.
October 16, 2009 6:44 AM | Reply | Permalink
The private insurance companies, with the help of Congress and the anti-trust exemption, have divided the country into insurance fiefdoms where they enjoy little or no competition and drive health care delivery systems in the direction of producing profits rather than in the direction of better outcomes.
That's what we have to overcome, and I think, as you do, that a single-payer universal program is the most effective way to do it.
Medicare works, the infrastructure is in place nationwide, and it could be scaled up to universal coverage relatively quickly, so "Medicare for All" is one of the better options for making this happen.
October 16, 2009 11:47 AM | Reply | Permalink
Whatever operational mechanisms are in place as elements of the management of healthcare you can be sure that they are so devised where the first priority is to deliver profits to the corporate entity. That is an irrefutable absolute.
The above is an understandable premise. However where the formula goes wrong is the arcane mechanizations devised to produce profits with not a single purpose except that. As a provider of IT services I have observed this over and over throughout my career. Sharp MBAs never leave an i undotted or a T uncrossed in this regard. That is their primary goal with no ethical aspect ever entering the picture. The singlemindedness of this is unbelieveable to behold. All across the economic landscape there are tens or more likely hundreds of millions of business transactions which occur every year which do nothing except produce a profit. And in all these cases there exists an illogically derived and corrupt assertion of an entitlement to that profit.
October 16, 2009 6:30 AM | Reply | Permalink
Like program trading?
I remember getting very hot about the diversion of huge amounts of capital into non-productive but profitable activities back when people knew who Michael Milken was. Now we have credit default swaps.
The genius of credit default swaps is that they are non-productive but profitable instruments that require little or no capital up front. They just blow up the universe when things go wrong.
What'll they think of next? (Oh god no please. I'm sorry I asked. I don't want to know!)
October 16, 2009 11:54 AM | Reply | Permalink
Program trading is a good example of what I speak. And yes. There will be other devisements which adhere to this same recipe. Count on it.
The fundamental issue of the perpetration of a lie which stipulates something useful is being undertaken is the epic ethical failure of our time.
October 16, 2009 12:36 PM | Reply | Permalink