Short Takes On News & Events

IOM Report Focuses On $750 Billion In Inefficient Health Care Spending

By Ankita Rao

September 6th, 2012, 1:42 PM

“If home building were like health care,” says a new Institute of Medicine report, “carpenters, electricians, and plumbers each would work with different blueprints, with very little coordination.”

With physicians, hospital administrators and insurance companies on often diverging building plans, the idea that the health care system could fall apart like a badly built house is not surprising, according to committee members at a press conference on Thursday. They called for collaboration across different sectors of the industry.

The cost of an inefficient system is no small burden: the institute, a nonprofit that advises the government, estimated that $750 billion was wasted on inefficient spending and care in 2009.

But the solutions, according to the report, are not strictly financial. In that report, “Best Care At Lower Cost: The Path to Continuously Learning Health Care In America,” a group of public health experts, physicians and scientists propose a strategy to make health care cost effective based on examples of best practices in health technology, leadership and administration.

The 382-page report exhorts physicians to keep up to date with technology, hospitals to improve their management, patients to learn about the system to make more informed decisions and scientists to use stricter standards to evaluate their research.

Eugene Litvak, one author of the report and head of the Institute For Healthcare Optimization, said that hospitals have not been maximizing their productivity. He cited Cincinnati Children’s Hospital, a case study in the report, and one of his organization’s clients, as a success story.

By staggering the surgeons’ schedules more, for example, the hospital was able to decrease its physicians’ overtime and use more of the costly patient beds that were often left empty. The adjustment spared the hospital the need to spend $100 million on new beds.

“These methods of operations management exist in every other industry – it’s only health care and education where they don’t,” Litvak said.

The report also supports the highly debated use of financial incentives to motivate doctors and others to be more efficient. The authors said the new federal Center for Medicare & Medicaid Innovation should take the lead in evaluating  payment systems.

A graph in the report shows that $210 billion was wasted on excess services in 2009, which the authors said could have been avoided by rewarding physicians and hospitals who cut down on unnecessary procedures and treatment.

But the incentive model has met resistance in the health care industry, and some researchers have found that value-based incentives do not significantly affect  the cost of services.

John Goodman, head of the National Center For Policy Analysis, said in an interview that rewarding physicians in this way was not an appropriate method to address the issue. He said that health care providers should be able to choose how to run their own programs.

“I don’t think that the demand side should try to tell the supply side what to do,” Goodman said.

The IOM committee said that the U.S. was spending up to 17 percent of its GDP on health care, a far higher proportion than other developed countries, and with very little additional benefit. That not only affects spiraling government spending on health care, but also siphons off resources that they said should be used for other public services such as education.

Litvak said that the larger problem with the health care system was stubborn adherence to the status quo. “It’s not a shortage of resources,” he said. “It’s the shortage of leadership and willingness to change.”

2 Responses to “IOM Report Focuses On $750 Billion In Inefficient Health Care Spending”

  1. rusty adams says:

    U.S. spends 17 percent of GDP on health care while other nations spend half that amount? So, what’s not to like? So what if there are 50 million Americans that are uninsured and another 25 million more that are underinsured. Who cares? Insurers, big pharma, medical device makers, doctors and hospitals have always loved the health care system they’ve been allowed to build here in America. The health care industry has always done very well in the past. They’ve always made a nice profit. Why disturb it? So what if America’s health care consumers are the very last to be considered. Who the heck are they to be making demands? Consumers are nothing but a bunch of chronic complainers. Patients are simply whiners and crybabies! We should go back to the status quo before Obamacare like Romney and Ryan propose to do! Things were much more simple back then.

  2. David Goldschmid says:

    The IOM is correct that we waste a lot of health care dollars, but not so much because of inefficient surgeons scheduling or treatment plans, but rather because of design flaws that produce massive and wasteful bureaucracies and unnecessary competition.

    The truth is that the so-called “healthcare system” in this country is not designed to deliver healthcare. The major product of the system is to deliver care, but it was designed as a system to promote commerce and competition and it has been wildly successful. The real wealth and waste is in the administrative and bureaucratic sector and is most apparent in the massive and unprecedented profits of our health insurance industry-billions- and the compensation of their administrators-millions. The bureaucracies that have been created by and flourish under the system is impressive. We have Foundations, Independent Practice Associations, large and ever growing multi-specialty and specialty clinics, HMOs, PPOs, EPOs, massive hospital systems each with impressive administrative structures and generous CEO compensation. We create layer upon layer of rules and regulations that require teams of government employees and lawyers to enforce and to continue to produce new regulations. We have Byzantine rules of reimbursement that need the help Practice Management Companies and Medical Services Organizations to navigate. Advertising and Television enjoy generous contracts in the billions thanks to big Pharma. Marketing firms enjoy the business of competitive health systems. Legal firms prosper in litigating malpractice cases. Polling companies and their consultants prosper measuring the tiniest of differences between hospitals in patient satisfaction scores and offering competitive advantages to hospitals that use their consultants to improve. We compete for patients instead of cooperating to care for them.

    In 1969 American and Canadian administrative costs were similar. Now we have a system with administrative costs that are roughly three times higher than Canada. From 1970 to 1999 the total number of physicians increased by 200% while the number of administrators has increased by 3,000%. If we add the total profits and compensation of all of these entities we get a very impressive number that continues to grow exponentially. A seriously large part of any hospital’s budget includes payments for consultants, administrators, case managers, management fees (to their governing bodies), polling companies, etc. that could be used for patient care.

    If we are to have a system devoted to the delivery of healthcare we must understand that it cannot be “fixed” by insurance reform, tinkering, or adjustments. We must do what other societies have done and create a system from the ground up designed to deliver care. As our resources begin to shrink and as the need for reduction in the healthcare sector becomes essential, the current system will perform predictably. The “quantity” of healthcare that patients will get and the access to care will shrink. The business side of healthcare and competitive imperatives will continue to grow. Government will generate even more regulation to “fix” the problems. We cannot delay the re-engineering that we need.