A recent AARP Bulletin cites the extent to which the current health system includes roughly $765 billion per year of waste, according to combined reports by the Institute of Medicine as well as the Centers for Medicare and Medicaid Services. That dollar amount of waste alone tops what we spend on the entire military in a year.
AARP's editorial begins with the widely reported anecdote regarding health care professionals who don't wash their hands between patients. My late mother, trained as a nurse during World War II, was appalled by the lack of basic hygiene in modern medical practice. When she had a knee replacement, the last thing she told the doctor before "going under" was that she expected to see that antibiotic drip tube stuck in her arm when she woke up.
My dad had terrible luck with the replacement of a hip replacement joint he had worn out. The new replacement was infected during surgery, and a year later he underwent another operation for the installation of what was then his third hip joint. For six weeks he had no hip joint at all while the swelling went down. What a mess.
Anticipating similar problems with his hip replacement, my father-in-law was a retired general surgeon who realized the potential risk of infection. He made arrangements to have his hip replacements conducted in a children's hospital where children's surgery theaters are relatively free of bacteria compared to those at adult hospitals.
Infection falls into the category of preventable errors and mistakes. The total annual cost of this waste component is $130 billion. However, the largest single category of abuse is attributable to unnecessary services at a cost of $210 billion. When the current system is basically a cost-plus oligopoly that includes insurance companies and service providers, nobody in that business model really has an incentive to avoid treatment based upon any hard-nosed determination of what is necessary.
Further waste is identified as insurance and bureaucratic costs. This single item totals $190 billion. The Affordable Care Act limits insurance companies to 15 percent of premiums that they can spend on administrative and marketing costs, so we'll soon see how this provision fairs under the "rule of unintended consequences." Attempting to reduce what insurance companies can make is like placing one's thumb on a blob of mercury. But as a point of reference, the Veterans Affairs Department spends less than 5 percent on administration. In a related but separate component of waste, we have "excessive prices" weighing in at $105 billion per year.
Two final categories with comparatively niggling amounts include $55 billion for missed prevention opportunities and $75 billion for fraud. I am surprised to see fraud at a relatively low rate (about 10 percent overall) because the outgoing director of Medicare, whom Congress refused to approve, estimated fraud at 35 percent of Medicare's total cost. If so, this arithmetic tells us is that the private sector may be better at detecting fraud than government-run programs.
On the other hand, the private sector makes so much money, it doesn't have to waste time thinking of ways to defraud citizens. After all, total health care costs amount to a feeding trough worth $2.8 trillion per year or about 15 percent of our gross national product.
We have a long way to go before reducing $765 billion of waste to some acceptable number, but at least we now have a focus on improved health care in a more cost-effective delivery system. I've already experienced the new government online record-keeping system that doctors are receiving financial incentives to use. Because of my legal status, I can log on to my father's medical records and see the commentary resulting from a series of physician visits. His collection of doctors, of course, have the same opportunity to communicate with each other and gain a better sense of what is happening with their patient.
Until now, there has been little cross-pollination of medical records except at places like Kaiser Permanente. It will take awhile for the American health care establishment to undergo the seismic shift we deserve, so in the meantime, we're on our own as patients. One lesson my parents learned was to insist on being the first surgery patient of the day. My dad's infection occurred in part because he was the fifth person to be operated on in a room that couldn't be effectively sanitized between operations.
As for practitioners not washing their hands, even the people making sandwiches at the deli have to change those plastic gloves between orders. There's a lesson for medicine right there.
Stephen J. Butler is CEO of Pension Dynamics. Contact him at 925-956-0505 ext. 228, or email him at email@example.com.