Last month, the Institute of Medicine (IOM) released a report that provided a major wake up call for the entire country. The report concluded that in 2009, $765 billion of health care spending was actually “wasted.” How does an amount of money that enormous become wasted, you ask? There are various culprits, including unnecessary treatments and other useless medical costs.
The report, The Healthcare Imperative – Lowering Costs and Improving Outcomes, explores the problem deeply and explains the main issues rather well. The IOM breaks the wasteful health care spending down into categories:
Category One: Unnecessary Services – $210 Billion
This includes the conducting of a medical test or procedure that didn’t need to be done. With hind sight being 20/20 and all, we only can tell that some medical services are pointless after they have already occurred. For example, if a patient is having severe recurring headaches, the likelihood of them being caused by a brain tumor is extremely low. Some would argue that ordering an expensive MRI to rule it out is not a cost-effective course of treatment. However, if a tumor is indeed, found, the MRI is deemed “necessary” and in some cases life-saving.
Category Two: Excessive Administrative Costs – $190 Billion
And you thought your office’s bookkeeping was sloppy! Unproductive and duplicative costs to administering health insurance are to blame here. Imperfect human beings make administrative errors all the time. While this portion of the overall waste cannot be eliminated completely, huge changes can be made to lower this number significantly.
We are already seeing Electronic Health Records gain a lot of momentum in the health care industry. This is expected to cut down on human error. In addition, health reform calls for a Medical Loss Ratio (MLA) that requires health insurance companies to designate 80 to 85 percent of premiums to pay for actual medical treatments. In other words, only 15 to 20 percent of health insurance premiums can be used to pay for administrative costs.
Category Three: Inefficiently Delivered Services – $130 Billion
This category exists because of the following:
- Medical errors
- Uncoordinated care
- Inefficient operations
Category Four: Outrageous Prices -$105 Billion
The inflation rate of health care costs is nowhere near in line with other rates of inflation. The IOM points out that if the following household items had inflated at the same rate as health care costs since 1945:
- A gallon of milk would cost $48
- A carton of eggs would cost $55
- A dozen oranges would cost $134
Category Five: Fraud – $75 Billion
Medicare and Medicaid fraud are rampant in America. Just a few weeks ago, the Department of Justice announced that the Medicare Fraud Strike Force had charged 91 individuals for approximately $430 million in false billing.
Category Six: Missed Prevention Opportunities – $55 Billion
Why do we so often wait until a medical issue is full blown to seek treatment? Well, there are a variety of reasons, but for many it has been the fact that they have no insurance. As of 2014, the Affordable Care Act will take full effect and around 26 million more Americans will have access to free preventive care. It will be interesting to see if/how this helps to cut down waste.