Wasteful healthcare spending hurts us all: Report from the National Affordability Summit

Healthcare leaders, policy experts and pundits recently gathered in Washington DC at the National Affordability Summit hosted by NRHI.

Twin themes driven home effectively at the Affordability Summit were:
1. Overspending on US healthcare damages our society.
2. Lots of unnecessary, potentially harmful, and wasteful care is happening and it is fostered by the fee-for-service system.

Overspending on US healthcare can be defined as growth in US healthcare spending greater than the growth of the US Gross Domestic Product (GDP). The US spent approximately $3 trillion on healthcare expenditures last year. As government spending currently accounts for about 2/3 of all US healthcare spending, allowing healthcare spending growth to go unchecked could make the recent Greece debt crisis look like a bump in the road.

This rapidly growing healthcare spending is the driving force behind our federal deficits. Princeton economist Alan S. Blinder has written: “The implication for budgeteers is clear: If we can somehow solve the health care cost problem, we will also solve the long-run deficit problem. But if we can’t control health care costs, the long-run deficit problem is insoluble.”

Overspending on US healthcare damages society by:

• Driving impending insolvency at every level of government (federal, state, county and municipal).
• Crowding out spending on all other government priorities (social services, education, national defense, public safety, transportation, etc.).
• Squeezing employer profits, reducing American competitiveness in world markets.
• Raising the cost of US labor, thus discouraging US firms from hiring US workers and encouraging outsourcing jobs overseas.
• Raising the cost of US made goods and services in comparison to overseas goods and services.
• Capping wage growth. (Healthcare insurance premium growth has sucked up what employers otherwise could have devoted to increased wages for the middle class.)
• Causing some citizens to skip necessary, or preventative medical care, resulting in patient harm and larger medical bills down the road.

As healthcare spending consumes an ever increasing portion of the federal budget, the very principle of our representative democracy is at risk. How can our elected officials make decisions regarding allocating resources if nearly all of those resources have already been committed by previous administrations? George Will recently noted: “Most alarming is American democracy becoming a gerontocracy. The Steuerle-Roeper Fiscal Democracy Index measures how much of the allocation of government revenues is determined by current democratic processes and how much by prior decisions establishing permanent programs running on autopilot. The portion of the federal budget automatically spent by choices made years ago is approaching 90 percent.”

Lots of unnecessary, potentially harmful, and wasteful care is happening, and it is fostered by the fee-for-service system.

The Institute of Medicine suggests that 30% of healthcare spending is avoidable. Unnecessary care is not just wasteful, it actually hurts people. More than one speaker noted that if you want affordable care, “here’s an idea… Stop wasting 30 to 40 cents of every dollar we spend.”

The drivers of medical waste (unnecessary, and potentially harmful care) in the fee-for-service world include:

• A fragmented, uncoordinated delivery system.
• Misaligned incentives between patients, physicians, payers and society (which create artificial demand for unnecessary care).
• Lack of routine access to clinical decision support.
• Imperfect knowledge, both on the part of physicians and patients.
• Unconscious and conscious bias to provide unnecessary care.
• Lack of price and quality transparency, to both physicians and patients.
• Under-investment as a society in the social determinants of health.
• Poor transitions of care from one setting of care to another.
• Unnecessary administrative burden, usually driven by insurers and government.
• Defensive medicine, in an effort to ward off medical malpractice lawsuits. (One study suggests the US wastes 200 billion dollars each year on wasteful and unnecessay medical testing alone.)
• Aggressive, unnecessary, and often harmful end-of-life care.
• A failed behavioral health system.
• Self-enriching self-referral. (This only exists in the fee-for-service world.)
• Direct to consumer marketing of pharmaceuticals.
• Inappropriate utilization by patients due to our third party payment system.
• Medical errors.
• A medical arms race of unnecessary, underutilized, and overpriced shiny new toys; surgical robots, proton beam machines, cyclotrons and high end imaging machines often bought to, “keep up with the Jones.”
• Pharmaceutical price escalation. (If the pharmaceutical industry wants to price their miracle drugs at $475,000.00 per patient, as if they were a monopoly, then they should be regulated like a monopoly utility, but that’s a post for another day.)

How can we get to affordability? By eliminating wasteful healthcare spending.

Dr. Glenn Steele, Geisinger’s former president notes, “Our core belief is that about 40% of what doctors and hospitals do is wasteful. If you can extract that percentage of crap, you can redistribute it into savings and profits but also into procedures that actually help patients.”

Under the fee-for-service system, we won’t pay for a patient to call their doctor to ask if something is a true emergency, yet insurers will pay for their ambulance ride to the ER and for an unnecessary ER visit. Our current incentives are misaligned and incent unnecessary care. Fee-for-service is the enemy of population health.

Path to the future:

We won’t solve this problem by tinkering around the edges. We need an all-in, bold, new approach to healthcare reimbursement which rewards improving the health of the population. Today’s well-intentioned but hopelessly misaligned population health strategies and alternative payment models are built on the chassis of specialist fee-for-service payments. It’s specialists who drive most of the healthcare spending within the US. No physician’s salary should be volume driven. In a future post, I will explore what I call Accountable Specialist Care; a healthcare payment reform which can be embraced by specialists and has the potential to dramatically reduce wasteful healthcare spending.

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