In an earlier blog about WTN Media’s Disruptive Health Care recent conference I argued we spend between $900 billion and $1.3 trillion on non-value-added healthcare, aka waste. Why?

First, we pay hospitals and physicians to do procedures, not to keep people healthy. Jeff Grossman, CEO of the University of Wisconsin Medical Foundation and a dean at the UW School of Medicine and Public Health, pointed out that while there is talk of new models of care, providers still get paid largely on a fee-for-service basis; Aurora Health Care officials confirmed the same. Grossman added, “We are all focused on this efficiency thing right now, but I have to tell you that we make our money on waste … that is the name of the game. The focus on hospitals has to end before we can deliver healthcare. Delivery of healthcare (procedures) only accounts for 10% of health, with environment and genetics the key drivers. If we are to be part of advancing well being and that’s the metric by which we earn our dollars, we need to re-conceptualize what we do. Supplying air conditioners may be our best weapon against asthma, for example.”

In any view, we cannot move fast enough to having bundled payments, pay-for-performance and a greater number accountable care organizations, three key recent innovations in healthcare payment systems. Data across 38 states shows that placing a provider and insurer group in charge of a population’s overall health, though a far more expensive primary care model in terms of people required, actually reduces overall costs 6-17% according to Jonathan Ravdin, CEO and President of PDS and former dean of the Medical College of Wisconsin.

Second, US consumers have been largely sheltered from cost unless you’re uninsured or part of a recent trend to raise deductibles and total out-of-pocket limits. How historic sheltering has contributed to our higher spending is debatable. European countries with lower spending and better outcomes do not have more consumerism. Grossman argued consumerism is a marketing campaign hiding business’ drive to shift costs onto employees. But there is no question that transparency on cost and outcomes and incentives (versus penalties) to make smart decisions would make us better shoppers. There’s evidence to this effect.

Third we lack a strong payer exercising market power, unlike other nations where government pays for healthcare and the care is provided either through private sector providers or government providers. We pay more for everything as a result. Unlike many other nations, we have privately paid insurance, largely financed by employers. When wage and price controls were imposed during WWII, benefits became a key way employers attracted workers. In the past, we could afford the benefits, as our nation was so competitive. But the world and its economies have changed.

Fourth, the excess spending represents income for some people and they have strong lobbies to keep the system the way it is. They also keep government, who covers over half US spending on healthcare, from exercising more power.  For example, the American Medical Association makes it hard for foreign trained doctors to practice here. Without a strong pharmaceutical lobby, we could fund pharmaceutical research with public dollars, significantly lowering drug costs. We are the only government that does not negotiate with drug companies over the price of drugs.

Fifth, with so many different payers, providers have far more administrative complexity than other nations. Other nations with private sector providers use their government as the single payer, streamlining administrative work. Administrative complexity is about a quarter of our waste, when looking at major waste categories.

Sixth, as a nation we are not oriented towards good health. Many of the chronic diseases we face are the result of lifestyle decisions about food, exercise, and stress. Furthermore, income and education are the best predictors of health; with both of those declining and our population aging, the trend for expenditures looks dismal. And then there are the processed food, fast food and corn lobbies advancing diets that, when exported, re-create America’s obesity.

Seventh, we are poor managers of the dollars we spend.  Only 1% of our population consumes 26% of our healthcare spending, another 10% consumes 60%—which means the remaining 89% of the population accounts for only 14% of healthcare dollars, according to conference speakers. We need to keep people from developing the kinds of long-term issues that push them into the 10% group, but we devote far too few resources to doing so. The issue is not end-of-life care; in fact, the percent of Medicare dollars going to end-of-life care has been fairly stable over time. The “10% group” is composed largely of people with multiple chronic diseases that are collectively not well managed.

Looking at this list I hope you conclude there is no one silver bullet to wring out waste. In the next blog we’ll see if there are enough forces for change to reverse the mess we’re in.