Free Markets, Free People

Deconstructing Health Care “Waste” Numbers

We found out recently that the government perpetrated myth that the health insurance industry were a bunch of “robber barons” was a load. So how about this point that it likes to push about “waste” in our health care system?

Well Reuters obligingly publishes an article today entitled, “Healthcare system wastes up to $800 billion a year.”

The estimate is actually 505 to 800 billion but why not go with the higher number when your “perspective” is to support government reform. Anyway:

The U.S. healthcare system is just as wasteful as President Barack Obama says it is, and proposed reforms could be paid for by fixing some of the most obvious inefficiencies, preventing mistakes and fighting fraud, according to a Thomson Reuters report released on Monday.

The U.S. healthcare system wastes between $505 billion and $850 billion every year, the report from Robert Kelley, vice president of healthcare analytics at Thomson Reuters, found.

“America’s healthcare system is indeed hemorrhaging billions of dollars, and the opportunities to slow the fiscal bleeding are substantial,” the report reads.

“The bad news is that an estimated $700 billion is wasted annually. That’s one-third of the nation’s healthcare bill,” Kelley said in a statement.

So now we have 3 numbers to go with telling anyone with an ounce of sense that they’re really not sure how much waste there is. But for the sake of argument, let’s stick with the 800 billion. Obviously they intend too because this is the sop they’re going to throw out there and claim it will “pay” for their “reform”.

The list is rather interesting. For instance:

* Fraud makes up 22 percent of healthcare waste, or up to $200 billion a year in fraudulent Medicare claims, kickbacks for referrals for unnecessary services and other scams.

200 billion or 25% (not 22%) of the waste comes from the portion of the medical system the government already runs. The same system which now saddles us with 52 trillion dollars worth unfunded future obligations.  To this point, the government has demonstrated absolutely no ability to curb such fraud or waste. In fact, it has never shown any interest or desire in tackling the problem.  Why should we believe they’re serious about it now?

* Unnecessary care such as the overuse of antibiotics and lab tests to protect against malpractice exposure makes up 37 percent of healthcare waste or $200 to $300 billion a year.

37.5% of additional “waste” comes from doctors protecting themselves from malpractice law suits. Yet there is nothing addressing tort reform in these bills. How, then, does what the administration and Congress are offering address this problem? It doesn’t. It would be a fairly easy fix – but they’re ignoring it.  It’s called special interest politics.

That means, to this point, 500 billion of the 800 billion dollars in “waste” are either unaddressed (tort reform) or have never been successfully addressed (Medicare).

* Administrative inefficiency and redundant paperwork account for 18 percent of healthcare waste.

Ever talk to a doctor about the administrative hoops one has to go through to get Medicare to pay for service. Certainly private insurance can be a hassle as well, but there are few if any doctors who won’t treat patients with private insurance while there are a whole host (and growing) who won’t treat Medicare patients. Or said more succinctly – it’s mostly a government paperwork problem.

* Preventable conditions such as uncontrolled diabetes cost $30 billion to $50 billion a year.

And that may or may not be helped by more preventive medicine – there are very mixed reviews on how cost effective it really is. However, even if it did a 100% better job than is now being done (which is extremely unlikely), a) it won’t cost less and b) it still remains up to those needing such treatment to seek it out. Regardless, at most it is 6% of this 800 billion in “waste”.

In summary, the government is responsible for 25 – 40% (add in about 15% of that admin number).  Malpractice avoidance – something they could fix or at least lower with tort reform – accounts for 37.5% of the total.  Preventable conditions may or may not constitute the final 6% described here. That leaves 14% or in undocumented waste, probably broken down in numerous smaller categories that are going unaddressed.

What this all means is government could clean up its own mess and cut waste to 600 billion, pass tort reform and cut it to 300 billion, make Medicare easier for doctors to administer and cut it to about 150 billion.

Instead we’re stuck with an attempt at a complete overhaul with the government trying to sell us on the idea that the problem is with the private sector and giving government more power over health care is the cure.

The cognitive dissonance is so loud you have to wear earplugs.



17 Responses to Deconstructing Health Care “Waste” Numbers

  • It’s stunning, really.  Someone is actually promoting government intervention based on its record for efficiency???

  • Or said more succinctly – it’s mostly a government paperwork problem

    Not exactly.  A big reason they’re dropping the medicare patients is that medicare’s compensation to care providers isn’t keeping up with actual treatment costs.  Why would you support medicare patients when doing so will actually lose you money?

    • According to the docs I’ve spoken too, it is that plus the absolute nightmare of paperwork. As one said, if it were as simple as a lower reimbursement rate, it might be worth it. But combined with the hours or sometimes days you end up spending on one claim x however many Medicare patients you have, it is absolutely not worth it.

      • According to computer programmer who have worked on “electronic records”, this won’t save that much and will be a nightmare during the change over.

      • Agreed.  But if medicare paid well, they’d staff the paperwork problem and get through it even though it is a waste of taxpayers funds.  As it is, they don’t pay enough for the cost of treatment including the hassle.

      • The rest of the article is spot on, but not the administrative costs issue.  The big problem is that you have different sets of paperwork for each private insurance and government program, creating a very redundant and complex system.  Most mid to low level private insurance programs have worse paperwork as they use it to discourage claims, Medicare/Medicaid instead uses a strategy of kicking back claims with any missing piece of data as a way of delaying or avoiding paying.
        So paperwork time is one of the few areas that would improve if everyone was on a single program, but provision of actual care would likely suffer.

      • The paperwork involved in Medicare vs Private Insurance is probably much worse.; more complex, more send-backs for more info, etc.
        Plus Medicare is much slower to pay (if my aerospace govt contract experience is any indication).

  • If there really is $200 billion in Medicare fraud and waste every year, why isn’t Obama fighting to eliminate that cost right now?
    God knows we could use $200 billion cut out of the deficits he’s projecting each year.

    • Steverino – If there really is $200 billion in Medicare fraud and waste every year, why isn’t Obama fighting to eliminate that cost right now? [emphasis original]
      It DOES boggle the mind, doesn’t it?  And it isn’t just TAO: why isn’t the Congress doing this?  Where are the hearings?  Where are the new anti-waste laws?  Where are the official reports?  Where is the evidence that Uncle Sugar can reform / run Medicare efficiently before we hand over the rest of the health care industry to him?
      The answer is obvious, of course: neither Congress nor that jug-eared idiot have any interest in curbing waste, because doing so would would not only irritate big donors but also expose the Congress as a pack of incompetent charlatans when they fail to make a real dent in waste and fraud.

      • Whether or not Congress has an interest in curbing waste, I tend to believe the figures thrown around about waste in Medicare are bogus.
        But you’re right:  if the DOD incurred $200 billion in waste annually, Congressmen would be climbing over each other to get on the news announcing the impending hangings of defense contractor CEOs.

  • I had one of those Eureka moments …
    Since Congress has been telling us that they can tax portions of the health car industrial complex to pay for more healthcare .. how about we tax politicians and government employees to pay for government.

  • So Harry Reid has a healthcare bill for the Senate, which has an “opt-out” “public plan.”
    Given that US citizens travel like water across the various state borders, the whole idea of an “opt-out” is completely bogus, since anyone from an “opt-in” state may try to use healthcare in an “opt-out” state, making Harry Reid’s Senate bill a functional reenactment of the “Missouri Compromise“.

  • “Preventable conditions” aren’t “waste” unless one redefines the term, or makes everyone’s health outcomes “the system’s” and forces them to “stop waste” whether they want to take the steps to or not.
    Sadly, I suspect many in the “reform” camp would be happy to do that, from how I’ve heard them talk.

    • I believe the attempt here is to say we “waste” money treating diseases which are preventable or at least treatable to the point that they aren’t acute. But the “preventive medicine” costing less is a myth. For it to work everyone must participate (driving costs up) while only a percentage will benefit to some extent (such as those with diabetes).

  • So if there is currently 800 billion being wasted what will be wasted when we add another 30 million people to the system?

  • I am a chiropractor in Reno, Nevada and I agree with most of the postings on this page and the article as well.  I am a Medicare provider and the entire system is a joke.  The paperwork is lengthy, and the care is poor.  Adding the government into the mix will only increase the paperwork for us as physicians and for what…less pay and more opportunities for the patients claims to be denied.  Weird how they can deny coverage for a patient when they have no medical/chiropractic training and have never even seen the patient.  Last time I checked telling someone how much or how little care they can receive as an insurance company or government is called practicing medicine without a license.