As everyone should know by now, we have a little bit of a problem with the cost of health care in the U.S. Eliminating waste, fraud, abuse from our current system is frequently cited as an easy way to greatly reduce the cost of health care. I mean, who likes wasting their money, everyone can get behind that, right? Unfortunately, the definitions of these three elements are rather poorly understood/explained in the public sphere. I hope to clear that up for at least you, intelligent and dedicated reader, if not for the commenters on like 95% of blog posts and newspaper articles I read.
Yeah, just a little problem. (I don’t necessarily like this graph. I took it from Paul Ryan’s 2012 budget proposal and while it does illustrate the growth of entitlements, it leaves out defense spending and tax cuts for some reason…)
There are a few aspects of the U.S. health care system that are the usual suspects when it come to placing blame for our high (and growing) expenditures:
- Medical Malpractice
Each of these have their own remedies and potential impact. I will go through each of these below and attempt to give you an unbiased view on each. (Notice the inclusion of the word “attempt” in that prior sentence. If you read/feel/know something to the contrary of what I state below, by all means make it known in the comments section.)
The logic behind medical malpractice/tort reform is that by capping the damages awarded to any patient/plaintiff not only will malpractice insurance premiums be reduced, but the pressure for physicians to practice defensive medicine will also be reduced. The theory goes on to suggest that these savings would flow back to the pockets of employers and patients as opposed to staying with the physicians themselves (which is a questionable assumption. I am always skeptical when someone suggests that a cost reduction on the part of the provider will reduce cost in the system overall, but more on that in a later post).
Per the Congressional Budget Office, this logic holds, but only to a very limited extent. In 2009, the CBO estimated that large scale tort reform would result in $54B in savings accruing from 2010-2019, primarily from a decrease in defensive medicine, not from malpractice insurance premiums. While $54B is in fact $54B, it is not much at all when we are talking about spending $2.6 trillion in health care each year. So, a good move in theory but not nearly large enough to solve our problems
The next 4 items are a bit more complicated to parse out. Luckily, a recent Health Affairs policy briefing does a good job of defining them, so I will quote directly:
“Fraud” refers to illegal activities in which someone gets something of value without having to pay for it or earn it, such as kickbacks or billing for services that were not provided. “Abuse” occurs when a provider or supplier bends rules or doesn’t follow good medical practices, resulting in unnecessary costs or improper payments. Examples include the over-use of services or the providing of unnecessary tests… “Waste,” refers to health care that is not effective.
Fraud is best characterized by providers who bill Medicare, but who aren’t providers at all and are just abandoned warehouses in Florida. Abuse is when a provider up-codes charges to say they did things that they didn’t really do in an attempt to make $25 more per visit. Waste occurs when patients receive care that does not create a benefit large enough to offset the costs of care.
A 2012 JAMA article by Donald Berwick and Andrew Hackbarth does a great job of quantifying the yearly costs of fraud, abuse, waste and prices. (Reader beware: Berwick and Hackbarth consider fraud and abuse to be a type of waste. These two categories are lumped together while other forms of waste are specifically labelled as such on the chart.)
While fraud and abuse eclipse overtreatment in the high estimate, overtreatment is clearly a consistently high source of misused dollars in Medicare and Medicaid.
So, what can we do to address fraud, abuse, and overtreatment/waste? Well, Health and Human Services already has efforts underway to predict, prevent, capture, and return funds that have been stolen from the government; in 2011 these efforts amounted to $4.1B returned to federal coffers. Since 4.1< 30 (or 64 or 98, depending on which estimate you favor) clearly more can be done along these lines, but at least some effort is underway.
Unfortunately, the same cannot be said about addressing waste/overtreatment. There have been suggestions on ways to reduce “care…that cannot possibly help [patients]” but they are much more complicated and much more political inflammatory. Why? Because patients tend to be okay with receiving care that cannot realistically help them, and doctors tend to be okay with providing care for patients that cannot realistically help them.
The ACA attempts to address this type of waste by providing funding for cost-effectiveness research and creating the Independent Payment Advisory Board, but these have both been met with huge resistance. Turns out, everyone ever hates the IPAB. Everyone hates death panels and everyone hates being told that they can’t receive care. Friendly reminder for you, reader: you can always receive care if you pay for it out of your own pocket. Free market advocates would say that a truly competitive market would reduce waste in the system, but current market inefficiencies such as information asymmetry and third-party insurance hamper the ability of the market to perform in a proper fashion. Solution forthcoming.
To make things that much more complicated, even if all of these areas are meaningfully addressed and corrected, we will still have a problem on our hands. The difficulty with an out of control rate of health care inflation is that expenditures keep going up. So even if we do manage to remove $200-400 billion in defensive medicine, fraud, abuse, and waste per year, that savings will eventually be devoured our 4-9% growth rate in health costs on a base of $2.6 trillion per year.
In the end, “It’s the prices, stupid.” (I’m not calling you stupid, decidedly not stupid reader. It’s the title of an article that discusses prices as the major issue in our system.)
So, next time you hear someone say “We should start by cutting fraud, abuse and waste from the system,” realize not only the definition but the scale of what they are suggesting. Maybe they are referencing types of waste but not including overtreatment (33% of yearly waste per Berwick’s and Hackbarth’s calculations) in that statement. Maybe they are including overtreatment but are downplaying what actually comprises overtreatment. Maybe they don’t know what they are talking about at all. But at least you will. And knowing is half the battle.