Health care: How the U.S. system is designed to waste your money

On Monday, Thomson Reuters released "Where Can $700 Billion in Waste Be Cut Annually from the U.S. Healthcare System," a white paper exploring American health-care costs. The report identified six factors -- administrative inefficiency, provider inefficiency, lack of care coordination, unwarranted use, preventable conditions, and fraud -- that cost the U.S. health-care system roughly $700 billion a year.

That's a shocking figure, but $700 billion is a conservative estimate. The price of waste may be as much as $850 billion annually, the report concluded, and other studies suggest the figure may be closer to $1.2 trillion. Given that the most expensive health-care proposal on the table in Congress would cost about $1 trillion, it's clear that significant industry reform could fund most of the cost of universal health insurance.
Where do these costs come from? As much as $150 billion can be chalked up to inefficient hospital administration. Our hospitals spend 25 percent of health-care revenues on administration -- twice as much as Canada's. Better scheduling and more attention to avoidable errors could save up to $100 billion per year, Reuters says. "If all hospitals reduced their average cost to the average cost of the most efficient 10 percent of hospitals," the white paper says, "operating expenses would [drop] by $73 million per year."

Another big potential money saver: coordination between caregivers. Duplicated tests and overuse of emergency rooms result in as much as $50 billion of unnecessary expenditures annually. Preventive medicine could save as much as $50 billion.

It would be reassuring to pretend that such waste is accidental, but it seems to be part of a larger business plan. Every time a patient has blood taken, the hospital gets to bill for administering the test, analyzing it, and storing additional materials, and the insurer subsequently often challenges the patient over the necessity of the test. By the time the transaction is complete, a few vials of blood have supported doctors, nurses, lab technicians, billing agents, test manufacturers, insurance adjusters, and other health-care professionals; the question of whether the test was necessary in the first place is moot.

One of the central points of today's battle over health-care reform has been the issue of a public option: a government-administered insurance plan designed to encourage competition in the marketplace. Reform's most extreme opponents criticize the public option as a step in an inexorable death march to Soviet-style communism and conjure Kafkaesque fantasies of "death panels" and rationed care in an apocalyptic prophesy of American health care. Reform's most ardent supporters, on the other hand, view the public option as an all-purpose solution to a system with no checks and balances: a government-administered price-setter that automatically injects price cuts, improves service, and increases efficiency.

But the Reuters white paper suggests that the public option is a red herring. The real heart of the debate, it says, lies in wonkier issues like efficiency and oversight. The system is now designed to maximize profits by minimizing efficiency: The longer a patient languishes in the hospital enduring tests and procedures, the more money goes to hospitals, drug companies and the medical industry. As health-care becomes more complex and expensive, insurers reap the harvest. For the health-care industry, making money is the primary goal. Healing the sick is a mere side effect.

While a public option might encourage industry players to strive for efficiency and lower prices, it doesn't directly confront the central issue of waste; nor do the health care proposals on Capitol Hill. The focus on universal health coverage is overshadowing the issue of health-care waste, inefficiency and fraud. In a recent New York Times op-ed, former Treasury Secretary Paul O'Neill warned, "Any health care reform that does not address the pervasive waste and the associated burden of needless suffering for patients and staff alike will give us little to celebrate."
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