Recently the CFO for a leading Salt Lake City, Utah company asked: “Who will tackle the problem of healthcare costs?” Will it be government, large employers like Amazon or business groups? Could artificial intelligence and technology or precision gene therapy be the solution? What about Warren Buffets pronouncement to his shareholders last fall that the main problem facing U.S. business is health care costs, not taxes.
Economically healthcare is huge, 18% of our economy, with all its attendant industry groups and market power. Still, at some point, things must change.
Waste Causes Healthcare Costs to Rise
Last week, an announcement for an upcoming national conference of healthcare improvement organizations stated:
- “The American healthcare system is in the midst of an affordability crisis.”
- “The costs drivers are health, price and waste.”
- “It will take all of us”- consumers, purchasers, providers, payers, policy makers
Waste is being cited more often as a cause for rising costs. The Institute of Medicine reported that the American health care system squanders 30% of every dollar spent on health care. This is $750 billion each year which is about the cost of health care for 150 million employees or the annual Defense Department budget.
All the experts agree that this is an opportunity to control costs, improve outcomes and free up funding for other needs. Research shows that this is due to unnecessary services, duplicate tests and inefficient delivery, like scans being performed at a hospital rather than a free-standing imaging center.
It also showed that fraud, missed prevention opportunities and unnecessary administrative costs contribute. The Institute is part of the independent National Academy of Sciences which advises government and the public.
Is This Healthcare Service Really Necessary?
The Washington Health Alliance in Seattle, a non-profit organization that includes leading provider and purchaser organizations, reported earlier this year that an analysis of 1.3 million patients found that almost 50%, or 622,000 people, received an unnecessary service at a cost of $282 million.
The services measured included 47 common tests and treatments that national physician-led groups had concluded were overused. These services have little clinical benefit and may be harmful. These include:
- pre-operative lab tests prior to low-risk surgeries
- eye imaging without significant disease
- EKG’s on people at low-risk for heart disease
- imaging of uncomplicated conditions
In total 36% of all spending was for low-value services. Many services are not costly by themselves but when done frequently add up to tremendous waste and high costs. Being able to identify low-value services, waste, and determine its impact on a population is the essential first step.
This capability is relatively new but several nationally recognized systems are now available for use. Tools are also being developed for use at the state level.
Future blog posts will highlight the other factors increasing costs, health and price, and the innovative initiatives that purchasers and providers are implementing to transform the system and create a better healthcare system for everyone.