Waste in Health Care

Here is RAND on health care waste.

How do we rank on administrative costs?

• “For example, there are significant differences in administrative overhead between public and private insurances, leading some to conclude that the excess spending by private insurance companies must constitute administrative waste. Estimates indicate that overhead/administrative costs (premiums minus claims payments) make up 14 percent of total private insurance expenditures, compared with 3–5 percent of spending in public sector programs such as Medicaid”

Medicynical note: The article points out that between $100 billion and 300 billion can be saved from health costs by curbing administrative waste.

Operational Waste?

• “Paul O’Neill, former U.S. Secretary of the Treasury and former CEO of Alcoa, garnered wide attention for his claims that achieving perfect operational efficiency could reduce health care costs by 50 percent while improving the quality of care (“Editorial,” 2005). While leading the Pittsburgh Regional Health Initiative, O’Neill implemented simple process improvements to reduce “defects in the production of care in intensive care units that resulted in significant reductions in patient infections and deaths.” According to O’Neill, the goal of the health care system should be perfection, particularly in the area of patient safety and the reduction of medical errors.”

Medicynical note: O’Neill is right in his belief that we can cut costs with more efficiency. Now health care operates on a cost plus basis–there is no incentive to be efficient at any level. With change we can achieve substantial savings, but not 50% in my view.

Clinical Waste:

• “Overall, these studies indicate that one-third or more of all procedures performed in the United States are of questionable benefit. (See, for example, Bernstein et al., 1993; Hilborne et al., 1993; Kleinman et al., 1994; Winslow et al., 1988.) Such procedures may constitute clinical waste.”
• “After adjusting for age, sex, and race, per capita Medicare spending in 2000 in New York City was more than twice as much as it was in Portland, Oregon ($10,550 versus $4,823) (Fisher, 2003). Such differences stemmed from differences in practice patterns rather than from differences in price or underlying illness, and outcomes were unaffected. Spending variations that do not result in improved clinical outcomes may constitute clinical waste.”

Medicynical Note: Many interventions are simply ineffective or cost too much for very limited benefit. We, both the consumer and the health care providers, need help in deciding the proper course. Comparison studies are essential to health care reform. One would think that everyone would favor finding our what works better, but guess who opposes this? Amazing!

See the article for references and full explanations.