Where do our wasted health dollars go to?

The biggest problem with health care delivery in the US is cost, which seems to have taken a back seat to other issues meant to be addressed by health care reform. We spend about $2.5 trillion dollars a year on health care—that’s over eight thousand dollars a year for every man, woman, and child. What’s that getting you?

According to the government, about 30% goes to hospitals; 20% goes to doctors and other clinicians, 10% goes for prescriptions, and the other 40% or so goes for “other spending,” mostly administrative costs and haircuts for insurance executives. But it’s probably even worse than that: according to a recent JAMA study, about 20% of total healthcare expenditures are wasted dollars.

20% of 2.5 trillion dollars, by the way, is 500 billion dollars. Each year. The JAMA article breaks down the waste into several categories:

  • Failure of care coordination ($25 to $45 billion wasted). I see examples of this all the time. Docs and hospitals don’t talk to each other, and patients don’t bring records—so tests get repeated, or (even worse), medicines are added on top of other (unknown) medicines, creating costly havoc. The patients suffer. Why does this happen? Docs (like me!) get paid to see patients, not to read charts and chase down forms. In fact, HIPAA “privacy” laws have made care coordination even more time-consuming and frustrating for everyone.
  • Failure of care delivery ($102 to $154 billion). I’m not really sure exactly what that means. I imagine they mean waste created by not treating medical conditions early, when they’re less expensive to address.
  • Overtreatment ($158 to $226 billion). In part, this is defensive medicine—docs do whatever they think they need to do to they don’t get sued. Show up in the ER with a headache? You get a $1600 CAT scan! Those tests not only cost money themselves, but they lead to more tests and procedures and costs that really aren’t making anyone healthier. (Except the medical-malpractice industry. They’re doing real well.) Overtreatment also includes steps taken by lazy doctors who find it quicker—and better for business—to just order the tests and treatments the patients expect, rather than doing what’s medically appropriate.
  • Unnecessary administrative complexity ($107 and $389 billion). We love filling out forms, and we love hiring staff to wait on hold for administrative pygmies at the insurance agency to approve Grandma’s catheters. Yup, that’s why we went to med school.
  • Noncompetitive pricing ($84 and $178 billion). “Noncompetitive”, I think, must be a euphemism for “batshit crazy”. Ever see a doctor or hospital’s price sheet? They’re locked up, guarded by poisonous lizards deep in an underground bunker. Prices have to be super-inflated so the insurance companies can negotiate them down to what they’ve already decided they’ll pay (when they get around to it, which is after they’ve paid for the VP’s executive jets and haircuts.) People who don’t have insurance, of course, get hosed.
  • Fraud and abuse ($82 to $272 billion). With this much money sloshing around, scumbag frausters (including some with MD degrees) crawl out and starting grabbing what they can. For every jerk the government finds and prosecutes, there’s a handful of other cockroaches to take their place. Though there’s certainly insurance fraud in the private market, there is far more abuse designed to extract money from government health programs. Insurance companies do what they can to guard against fraud, which could hurt their profits or drive them out of business. Government agencies just don’t seem as driven to control costs. I guess they figure we can always borrow more money from our grandchildren.

I have no idea if that 20% estimate of wasted dollars is accurate—the researchers claim to have used the lowest, most conservative numbers. It wouldn’t surprise me if the percentage were actually quite a bit higher. I don’t know if these figures even include the huge amount of waste that occurs when people seek health care through emergency rooms inappropriately. Whatever the exact number, it’s certainly true that after waste, fraud, and the huge expense of our enormous, multilayered government and private insurance industries, it’s unlikely that even half of the money spent on health care does anything that plausibly improves anyone’s health. The system itself is obviously bloated and unhealthy, staggering under its own weight. Do we have the guts to fix it?

Roy Benaroch is a pediatrician who blogs at The Pediatric Insider. He is also the author of Solving Health and Behavioral Problems from Birth through Preschool: A Parent’s Guide and A Guide to Getting the Best Health Care for Your Child.

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