Report: Health care system wastes $750B a year

Nurse Allison Miller, left, checks the blood pressure of Keri Anderson as nurses and physicians give free basic health screenings to call attention to what they say is an ongoing health care emergency July 10, 2012, in Los Angeles. / Getty Images

(AP) WASHINGTON - The U.S. health care system squanders $750 billion a year — roughly 30 cents of every medical dollar — through unneeded care, byzantine paperwork, fraud and other waste, the influential Institute of Medicine said Thursday in a report that ties directly into the presidential campaign.

President Obama and Republican Mitt Romney are accusing each other of trying to slash Medicare and put seniors at risk. But the counter-intuitive finding from the report is that deep cuts are possible without rationing, and a leaner system may even produce better quality.

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"Health care in America presents a fundamental paradox," said the report from an 18-member panel of prominent experts, including doctors, business people, and public officials. "The past 50 years have seen an explosion in biomedical knowledge, dramatic innovation in therapies and surgical procedures, and management of conditions that previously were fatal ...

"Yet, American health care is falling short on basic dimensions of quality, outcomes, costs and equity," the report concluded.

If banking worked like health care, ATM transactions would take days, the report said. If home building were like health care, carpenters, electricians and plumbers would work from different blueprints and hardly talk to each other. If shopping were like health care, prices would not be posted and could vary widely within the same store, depending on who was paying.

If airline travel were like health care, individual pilots would be free to design their own preflight safety checks — or not perform one at all.

How much is $750 billion? The one-year estimate of health care waste is equal to more than 10 years of Medicare cuts in Mr. Obama's health care law. It's more than the Pentagon budget. It's more than enough to care for the uninsured.

Getting health care costs better controlled is one of the keys to reducing the deficit, the biggest domestic challenge facing the next president. The report did not lay out a policy prescription for Medicare and Medicaid but suggested there's plenty of room for lawmakers to find a path.

Both Mr. Obama and Romney agree there has to be a limit to Medicare spending, but they differ on how to get that done. Mr. Obama would rely on a powerful board to cut payments to service providers, while gradually changing how hospitals and doctors are paid to reward results instead of volume. Romney would limit the amount of money future retirees can get from the government for medical insurance, relying on the private market to find an efficient solution. Each accuses of the other of jeopardizing the well-being of seniors.

But panel members urged a frank discussion with the public about the value Americans are getting for their health care dollars. As a model, they cited "Choosing Wisely," a campaign launched earlier this year by nine medical societies to challenge the widespread perception that more care is better.

"Rationing to me is when we are denying medical care that is helpful to patients, on the basis of costs," said cardiologist Dr. Rita Redberg, a medical school professor at the University of California, San Francisco. "We have a lot of medical care that is not helpful to patients, and some of it is harmful. The problem is when you talk about getting rid of any type of health care, someone yells, `Rationing.' "

More than 18 months in the making, the report identified six major areas of waste: unnecessary services ($210 billion annually); inefficient delivery of care ($130 billion); excess administrative costs ($190 billion); inflated prices ($105 billion); prevention failures ($55 billion), and fraud ($75 billion). Adjusting for some overlap among the categories, the panel settled on an estimate of $750 billion.

Examples of wasteful care include most repeat colonoscopies within 10 years of a first such test, early imaging for most back pain, and brain scans for patients who fainted but didn't have seizures.

The report makes 10 recommendations, including payment reforms to reward quality results instead of reimbursing for each procedure, improving coordination among different kinds of service providers, leveraging technology to reinforce sound clinical decisions and educating patients to become more savvy consumers.

The report's main message for government is to accelerate payment reforms, said panel chair Dr. Mark Smith, president of the California HealthCare Foundation, a research group. For employers, it's to move beyond cost shifts to workers and start demanding accountability from hospitals and major medical groups. For doctors, it means getting beyond the bubble of solo practice and collaborating with peers and other clinicians.

"It's a huge hill to climb, and we're not going to get out of this overnight," said Smith. "The good news is that the very common notion that quality will suffer if less money is spent is simply not true. That should reassure people that the conversation about controlling costs is not necessarily about reducing quality."

The Institute of Medicine, an arm of the National Academy of Sciences, is an independent organization that advises the government.

[seshadri]

One man's waste is another man's meat. If a million people waste a dollar each, nobody is going to fight over eliminating it; but the one guy who benefits will do everything he can to protect it.

[commercial-pilot]

separation of the supplier and purchaser always causes people to think things are free. Our current system with no lawsuit relief, MEDICARE procedures and programs which encourage fraud, huge government bureaucracies, makes people think health care is free, just ask them. There are no controls and countries that proceed down this road always end up rationing because there is no other way to fix a rational budget for medical care. A better way is to make people control costs and make decisions by allowing them a fixed amount of money to spend in most cases and tell them that it is their problem to spend wisely.

[jtdev1]

are you out of your mind?

the real problem is back in the early 70's Nixon approved the notion of FOR PROFIT HEALTH CARE with Kaiser which over the course of the decades turned into the system we have where there is no control over the price they are charging for the poor services.

Do you think the Cleveland Clinic will help you without sufficient health insurance???


Why should it cost $2500 or more to see a specialist for 5 minutes??? If you're uninsured it costs over $5000 for the same thing???

something is really wrong with our healthcare system and it all has to do with profits.

[oldasdirttoo]

Let us face it, the Government will never get a handle on any of these costs. Basely the people who are doing the fraud and over charging are all smarter and more motivated than anyone in the government. We will just have to live with it.

[nearl451]

That's ridiculous.

If it were all centralized, there would be little need for multiredundant accounting systems for every office and every doctor group.

Public Healthcare works for civilized Countries (like Japan and Germany) thorughout the world.

I am not for everything being public, but for a mixed economy. Healthcare should not be a for profit industry.

[taxed01]

A couple months ago I was in for my annual physical. I pay for my own health insurance, $600/month with $5000 deductable. I don't pay for all that with money that I just happen to "have". I pay with money that I expended a large part of my life "earning" and saving.
While waiting for my turn, a young breeding couple with their illegitimate baby came in. The woman said to her irresponsible boyfriend "What if they want money?"
He smiled and replied "We have Medicaid so everything is free."
These people have no regard for anybody or anything. Life is just a big free ride as long as somebody else is paying the bills.
My blood pressure was still high when they took it for the physical.

[skeezix06]

"Young breeding couple"? "Illegitimate?" Did they say the baby was born outside of wedlock? How did you decide they weren't married? What kind of mindset allows that kind of thinking?

[jtdev1]

Yupp, the whole problem is MEDICAID. everything else would be perfect without it.

(Oh god)

[ludvig1-2009]

Government not involved in spending for these 2 items. (1) Wife goes to specialist. He says my wife needs $1300 of additional work done other than the $25K he charges us for his specialty. We go back to our regular dentist. She says there are so many dentists in the area they have to do unnecessary work in order to get by. (2) I go home to my mom's house to help her get ready to auction off all her belongings. I figure out how to get 2 really heavy objects moved without hurting my back and then I pick up a gas can and hear a pop in my back. I go to the local hospital to get checked out. I'm told there is no doctor there so they call one in to look at me. She looks at the X-ray and says "Arthritis" and gives me some pain meds. I go back home after the auction and the radiologist who was not there but instead probably 100 miles away where he lived playing golf sends me a bill for reading the X-ray. He had nothing to do with it. I told my insurance company and they didn't seem to care.

[Yeah_Its_Me]

Tsk tsk... all those GOP doctors abusing the system for personal enrichment. I take it cutting out the fraud will be seen as punishing success by the GOP.

[sjc_1]

They successfully defraud the government by padding the bill...GOP success.

[sjc_1]

Reagan was going to get rid of "waste, fraud and abuse" then he borrowed money to feed the Pentagon, where there is more of that every day.

[Martha12345]

Wow !!! Let's give the government more control .......... their just about finished with screwing up SS and Medicare.

[rksharma-2009]

This proves that we need to have a better control on spending, which of course republicans are going to call it more government. Republicans like to spend more and waste more, this is the reason we are in this hole. Republicans will lie all the time on everything, including taxes, that they cut taxes for all, when in reality they cut taxes for the rich and raise taxes on the middle class. Why is Romney not disclosing his taxes for the last 11 years? Is it because he may end up in Jail and he releases his tax returns, or is it that we will find how to cheat on taxes like Romney does and should pay only less than 10%. Do you wonder why republicans keep on talking to flat tax of 9% on all? This 750 billion dollars of waste is only because the system is rigged. We need to have a better system. We need a single payer insurance so that we can develop a better database in order to tack such misuse of money in real time and hold people accountable. With republicans, we will never get there.

[Yes_ABWH_Fan]

Resetting costs at all levels in the hierarchy, such as Pharmaceuticals, bandages, etc., BACK to a TRUE COST +% system needs to occur, with Chain-of-Custody proof, via datacube truth-tabled cost rollups, at ALL levels of costing for both goods and services.
Injecting true competition will LOWER these costs (e.g., 2-vendor min. for EVERYTHING, at all levels).
Once that occurs, LEAN Mfg. style principals are applied, you will see costs drop DRAMATICALLY.
The way costs are now, it's "What the market will bear" and "What we can get away with", and then working backward from that.

[Boomer_Sooner]

Good post. I agree with everything you said. In addition, deregulation of the insurance industry will allow health insurance companies to reduce massive overhead that is borne from state and federal level rules. It's basic business since.