Monthly Archives: September 2012

Waste Not, Want Not: Curtailing Healthcare Costs in the US today

A recent press release by the Institute of Medicine has reported that US Healthcare systems have wasted nearly $750 billion dollars annually.  As Healthcare costs continue to skyrocket in the US today and politicians continue to tout healthcare reform strategies I fear that somehow we are missing something.  The IOM is part of the National Academy of Sciences and is comprised of physicians, business leaders and public officials and can be quite influential to policy makers.  In the report, 6 areas of waste were identified: (There was some overlap in categories)

1. Unnecessary services: $210 Billion
2. Inefficient Delivery of care: $190 Billion
3. Inflated prices: $105 Billion
4. Fraud: $ 75 Billion
5. Prevention Failures: $55 Billion

Breaking down these numbers, the US healthcare system wastes 30 cents on every dollar spent.  Even a first year undergraduate student majoring in business administration can recognize that this type of squander is unsustainable.  As a nation struggling to provide affordable healthcare we must eliminate waste.  The IOM report suggests that if we simply impact and eliminate much of this waste we are able to save billions of dollars annually.

Healthcare spending in the US today far exceeds other comparable industrialized nations.  For example, in 2009, US spending reached $8000 per capita.  The next closest nations were Switzerland and Norway at around $5000 per capita.  Even when adjusted for national wealth, the US outspends all others at around 17% of its GDP compared to 12% or less in all other countries.  Certainly the waste from the IOM report explains a good bit.  But beyond waste, the most obvious question is “why”?

I believe that there are several factors in addition to waste which contribute to this expenditure.  Although it may be easy to attribute increased US healthcare expenditures to factors such as an aging population of baby boomers, increased per capita income and an overwhelming supply of doctors and hospital facilities, I believe that other factors may be more important to examine.

1. Obesity:  Obesity is epidemic in the US today.  One third of the US population is classified as obese.  More children and adults are sedentary and are becoming overweight at earlier ages.  Physical activity is not emphasized nearly enough.  Obesity predisposes patients to type II diabetes, coronary artery disease, cerebrovascular disease, and many other chronic illnesses.

2. Access to and Use of Expensive Technologies:  In the US today, we are fortunate to have access to the best technologies in the world.  We do not ration healthcare and we continue to treat patients who we know have a very poor overall prognosis.  For example, we place elderly patients who may be demented and have a very poor overall quality of life on hemodialysis when their kidneys fail.  This is a very expensive endeavor that will do nothing to change overall mortality or patient quality of life.  In addition, the US has a high percentage of use of expensive diagnostic technology such as MRI and CT scanning as compared to other industrialized nations.  The overuse of expensive diagnostic testing contributes greatly to the excess US healthcare expenditures.

3. Costs of Drugs and Medical Devices:  Certainly there is a very complex system of price negotiation among private payors in the US.  There is relatively little regulation of cost and pricing in the healthcare sector today.  In the US, drug makers are able to charge nearly anything they want for newly developed drugs.  Device makers are able to set prices and negotiate contracts with hospital systems which in turn pass these prices on to the healthcare consumer or third party payor.

As I mentioned above, technology is used at much higher levels in the US as compared to other similar countries.  Healthcare spending in the US is rocketing out of control.  The forces that have created spending that far exceeds other similar nations are complex and are not easily muted.  Certainly, lifestyle modification and reduction of obesity rates is an important step.  We, as a country must also make better decisions about when and how expensive testing and technologies should be utilized.  Moreover, we must begin to regulate drug and device manufacturers and bring costs down.  Unless we intervene, US healthcare will become an unaffordable luxury.  Most importantly, we must impact waste.  The IOM report should certainly serve as a wake up call to us all.  Waste, not…want not.