Trimming the Fat From America's Wasteful Health Care System

Budget hawks in Congress talk a great deal about health care waste. Where does it come from?

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Health care in the United States is distinguished from the rest of the world by its very high costs, which are caused in large part by exceptional levels of waste and inefficiency in our health care system. Many credible estimates put this level of waste at an astonishing 30 percent or more. With health care costs driving federal deficit projections, as well as higher costs for families and businesses, it's past time that we took a hard look at this waste and take steps to address it in a serious way. We can no longer afford the status quo, nor can we afford misguided efforts to cut costs in one part of the system by simply shifting them elsewhere.

There is no magic bullet that will stabilize health care costs as a percent of the economy. Instead, we must pursue a multi-pronged approach designed to affect those cost drivers that are within our power to change. If we are to succeed, every major stakeholder group -- providers, consumers, and employers alike -- has a key role to play. But before describing what must be done, we need to first understand a few crucial facts about our health care system.

First, much of the trend driving spending today is the result of an epidemic in chronic conditions, including heart disease, hypertension, and diabetes, which has origins in changing patterns of diet and physical inactivity. This is a worldwide phenomenon. Medical science cannot reverse it -- only changes in food supply and lifestyle can. We have a health emergency all around us, and our response to date has been far too tepid to have an impact.

There is no magic bullet that will stabilize health care costs as a percent of the economy.

The second reality behind health care costs is that they are often concentrated on a small number of very ill persons. Five percent of patients in any given year account for roughly half of all health care spending. These patients, afflicted with multiple chronic conditions, are the same patients who often receive uncoordinated and ineffective care from multiple specialists, hospitals, and emergency rooms. This lack of coordination hurts patients with the greatest health needs and robs the system of needed resources.

A third reality is that health care costs are not the same in every part of the country. There are major variations in both the price and volume of care that doesn't seem to be related to positive health outcomes or quality, even within the same state or region. In fact, more care and more expensive care turn out not to be better care in many cases. This variation is partly a function of a lack of transparency in health care spending -- too often we don't know what is being done and by whom, at what price, and with what results.

If we are to face up to these realities, changing how providers deliver care and how they are compensated will be vital. The incentives inherent in today's fee-for-service reimbursement system reward volume, not value. Fee-for-service incentivizes distinctly quantifiable medical procedures rather than the more amorphous counseling and follow up consultations, which cannot be billed under the current system but are often the key to improving patient health. It gets in the way of the "team care" approach -- where doctors, nurses, and other health professionals work together -- that is proving most effective at producing the best outcomes for patients in practice demonstrations nationwide.

Presented by

John Rother is President and CEO of the National Coalition on Health Care. Prior to joining the Coalition in 2011, Mr. Rother served as the longtime Executive Vice President for Policy, Strategy, and International Affairs at AARP.

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