Skip to content

What a Waste: Why We Can’t Rein In Extra Health Spending

Depending on whom you ask, waste in the U.S. health care system is either a problem — or a big problem.

The National Health Care Antifraud Association says outright abuse represents 3% of all health care spending. PricewaterhouseCoopers casts a broader net; the firm suggests that more than 50% of total health spending is driven by inefficiencies like overtesting, medical errors and even Americans’ bad behaviors.

But health care stakeholders of all stripes agree on two counts.

1) Our health system is wasteful. 2) We must do more to rein it in.

If only it was that easy.

What’s Been Done

Despite decades of health officials calling for change, inefficiency seems as rampant as ever. Maybe more so.

Joseph Califano, overseeing a decade-old Medicaid program, warned Congress in 1977 that 7% of the program’s costs went toward fraud, overpayments and bureaucratic errors. Don Berwick, departing a mature Medicare program, told the New York Times last week that 20% to 30% of all spending was waste.

Of course, trying to build a perfectly efficient health system may be like chasing a rainbow — you can drive toward it forever, but never quite get there.

But shouldn’t the staggering panoply of efforts to reduce waste have accomplished more by now? A limited sample includes:

  • Agencies ramping up their safeguards: In 1990, the Government Accountability Office launched a special effort to prosecute health care fraud and abuse — and since then the agency has only layered on more scrutiny, like its new Recovery Audit Contractor program;
  • Outside stakeholders piloting changes: Berwick’s own Institute for Healthcare Improvement has spent 20 years undertaking efforts to improve medical care and reduce inefficiency, teaming with thousands of care providers; and
  • National reforms pressuring abuse: Under the Affordable Care Act, the Obama administration began its own “supercharged” federal effort to crack down on fraud and abuse, John Iglehart wrote last year in Health Affairs. HHS in November announced that one effort to reduce improper payments by federal programs, including Medicare and Medicaid, already has saved $17.6 billion.

Yet despite the extra attention, Medicare still represented about 40% of the government’s wasteful spending in fiscal year 2010, topping a list of 70 federal programs, according to GAO. Altogether CMS made more than $70 billion in “improper payments.”

A Culture That Rewards Waste?

What’s improper may depend on your vantage point, though. Like art and beauty, waste is in the eye of the beholder.

In 1995 testimony, a senior Congressional Budget Office official stressed to Congress that there’s a “spectrum” for health services, from clearly fraudulent care to the absolutely needed, fairly priced procedures. But there’s “ample room” between those poles, the official added, and that’s where many medical services that Medicare pays for fall.

And one economist’s unnecessary CT scan is another patient’s sought-after test — or a care provider’s income.

“There is a politically powerful constituency for waste” in the United States, Princeton University economist Uwe Reinhardt told California Healthline. “They don’t march down K Street in D.C. with signs [saying,] ‘We want waste,’ but in effect they lobby for it all the time on the Hill.”

What Other Nations Don’t Do — and What We Do

Reinhardt cited the Business Roundtable’s value index, which suggests that the U.S. has a health care “value gap” of 23% compared with nations like Germany and the United Kingdom; according to the Roundtable, five key peer nations spend $0.63 for every $1 the U.S. spends on health care.

Some of this may reflect our system’s inherent bureaucracy — the added dollars spent on billers and coders, for example. Alternately, the U.S. system may be inflated by higher prices, its sheer size and entrenched interests.

Whatever the reason, systemic waste helps put the U.S. at “a significant global competitive disadvantage,” the Roundtable concludes. The added spending prevents companies from investing in necessary products and equipment; it also doesn’t improve the health of the workforce, which would boost productivity.

Meanwhile, why do other nations seemingly do better at tamping down fraud and abuse?

“Why do Canadian hospitals not have huge compliance departments, as ours have?” Reinhardt asked.

Perhaps “there is greater inbred larceny in our system because Americans do not view health care as a community service, but a business in which everyone — for profit or not — is in for himself,” he concluded.

To avoid wasting words, we’ll wrap “Road to Reform” for this week. Here’s what else is happening around the nation.

Challenges to Reform

  • A woman who joined 26 states and the National Federation of Independent Business as a plaintiff in a lawsuit challenging the federal health reform law has filed for personal bankruptcy, which could pose problems for the case. The U.S. Supreme Court has agreed to review the lawsuit in early spring 2012. The individual plaintiff — Mary Brown, who owned an automobile repair shop — in court filings said that she would have to divert funds from her business to comply with the individual mandate in 2014. However, Brown has since closed her shop and filed for bankruptcy, and because of her financial hardships she likely would be exempt from any penalties for not complying with the mandate. A Department of Justice spokesperson said the department was unaware of Brown’s changed circumstances (Maltby et al., Wall Street Journal, 12/5).

Inside the Industry

  • In a letter to HHS Secretary Kathleen Sebelius last week, more than 2,400 physicians, health policy experts and executives urged the federal government to reject recommendations by an Institute of Medicine panel on how to define “essential benefits” in state health insurance exchanges under the federal health reform law. The panel offered guidance to HHS on how the basic coverage standards for the exchanges should be established and emphasized that affordability should be the agency’s main priority. The letter to Sebelius said the recommendations focus more on “cost rather than medical need” (Robeznieks, Modern Healthcare, 12/1). It added that adopting the recommendations “will sacrifice many lives and cause much suffering” (Baker, “Healthwatch,” The Hill, 12/1).

In the States

  • Arkansas has halted its plan
    to establish a health insurance exchange under the federal health reform law, opting instead to let the federal government create and operate one on its behalf. Arkansas Insurance Commissioner Jay Bradford said the state abandoned the plan because opposition in the Legislature “quashed” the state’s efforts to meet the government’s deadline to establish a state-administered exchange by Jan. 1, 2014. In September, Arkansas received a $1 million federal grant to develop an exchange (Daly, Modern Healthcare, 12/4).

On the Hill

  • Last week, Rep. Leonard Lance (R-N.J.) proposed legislation (HR 3558) that would ensure payments required by the federal health reform law do not fall under the Anti-Injunction Act. The act prohibits a court from hearing a suit until plaintiffs can prove harm. One of the issues the U.S. Supreme Court will consider when it takes up the reform law next spring is whether the Anti-Injunction Act prevents it from ruling on the constitutionality of the individual mandate (Sanger-Katz, National Journal, 12/2).
  • Several Democrats and Republicans say they expect the GOP to renew its efforts to repeal the federal health reform law in 2012. Republicans plan to focus on the most controversial provisions of the reform law — the Independent Payment Advisory Board and the Community Living Assistance Services and Supports Act — while the U.S. Supreme Court considers the constitutionality of the law and the 2012 elections approach. Meanwhile, leading Democrats acknowledge that the debate on the overhaul will continue through 2012, and they are optimistic about their chances (Pecquet, The Hill, 12/2).

Public Opinion

  • A Kaiser Family Foundation poll released last week found that fewer U.S. residents in November had an unfavorable view of the federal health reform law than in October. According to the poll, 44% of respondents had an unfavorable view of the reform law, compared with 51% in October. The poll also found that 63% of respondents view the law’s individual mandate unfavorably (Radnofsky, “Washington Wire,” Wall Street Journal, 11/30).

Rolling Out Reform

  • Although his tenure at CMS lasted for just 17 months, former Administrator Donald Berwick played a prominent role in the implementation of key provisions of the federal health reform law and helped establish key programs and policies — such as accountable care organizations and the Center for Medicare and Medicaid Innovation — to improve the U.S. health care delivery system. Although Berwick’s supporters and industry observers expect those programs and policies to continue without him, some have doubts about their future under new leadership (Baker, “Healthwatch,” The Hill, 12/4).
  • Last week, CMS announced that Medicare will start covering the full cost of obesity screening and counseling services for beneficiaries. The coverage is part of a package of no-cost preventive health care services mandated under the federal health reform law. Under the new benefits plan, beneficiaries considered obese — those who have a body mass index of 30 or more — will be eligible for in-person counseling sessions in a primary care setting that would take place weekly in the first month, biweekly from the second to the sixth months and monthly for an additional six months if they have lost at least 6.6 pounds during the first six months. Each of the sessions would include dietary counseling (Gever, MedPage Today, 11/29).

Studying the Effects of Reform

  • In a study released last week, University of Minnesota researchers reported that a loophole in the federal health reform law could permit employers to force sicker employees into the state health insurance exchanges, a process known as “target dumping.” The researchers wrote that companies that self-insure, or design and cover the cost of their own health plans, could “exclude things and essentially structure their plans to be attractive to low-risk, healthy employees and not attractive to people who are going to have significant health needs.” They found that companies could use several strategies for so-called target dumping, such as limiting the number of specialists in their provider networks, pairing high premiums with discounts for wellness program participation, and increasing copayments and deductibles (Stawicki, NPR/Kaiser Health News, 11/30).

Related Topics

Medicare Road to Reform The Health Law