Richard Fogoros, M.D.  

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There’s Not Enough Waste And Inefficiency In Healthcare

Jul 20, 2009 - 7 comments



healthcare reform

In what is quickly becoming a bad habit, DrRich once again provides a misleading title. Obviously, there’s plenty of waste and inefficiency in our healthcare system, enough to suit almost any taste, and DrRich deplores every bit of it.

Indeed, DrRich strongly suspects that at least 20 to 30% of all healthcare spending is completely wasted, and has seen claims (masquerading as proof) that the actual value is as high as 50%.  So again, despite the title of this post, no matter how you look at it there is plenty of waste and inefficiency to go around.

It’s just that there’s not, well, enough.

Before you go away mad, let DrRich quickly explain (quickly, at least, for DrRich) what he means here. Healthcare reform is in the air, and we all know that any effective healthcare reform is going to have to find a way to control healthcare spending.  And a central assumption of any reform plan yet proposed is that we can control spending by eliminating - or at least substantially reducing - the vast amount of waste and inefficiency in the healthcare system. Some propose to do this by incorporating the efficiencies of the marketplace (though these individuals have now been run out of town and won’t be bothering us anymore), some by adopting and enforcing stricter regulations, others by introducing a single payer healthcare system, and still others by mandating new technologies such as electronic medical records. But one way or another, each scheme for reforming healthcare proposes to bring spending under control by reducing waste and inefficiency.

Another way of describing what the reformers are telling us is: There is so much waste in the system that we can avoid healthcare rationing by getting rid of it. Most Americans believe this. Most policy experts believe this. DrRich suspects that even most of his loyal readers believe this, despite what he’s been telling you all this time.

But this is unfortunately false. No matter how much waste and inefficiency you think might be plaguing our healthcare system today, there’s not enough to explain the uncontrolled rise in healthcare spending we have been seeing for decades, and therefore, not enough to allow us to avoid rationing altogether.

And in this sense, there is not “enough” waste and inefficiency in healthcare.

DrRich has tried to explain this before, but he will now try to do it better, because it’s important. He will do it using one of the three universal languages, the language of Math (the other two being the language of Love and the language of Healthcare Rationing, both of which are encumbered by expressions of impassioned pledges, heartfelt exaggerations, and other blandishments, and are thus unsuited to a sober discussion of unpleasant truths).

But first, there is an underlying concept we must agree upon, a concept our political leaders are loath to address. To wit: The real fiscal problem with our healthcare system is not simply that we’re spending a lot of money on healthcare, or even that we’re spending a large proportion of our GDP on healthcare. Surely, if we simply had to live with continuing to spend 15% of our GDP on healthcare, we could figure out a way to do that. But that’s not really the problem. The real problem is that healthcare expenditures are growing at a double digit rate of inflation, several multiples faster than the overall inflation rate, such that, over time, an ever larger proportion of our annual GDP is being consumed by healthcare expenditures. Unless this disproportionate rate of growth is stopped, eventually healthcare spending will consume our entire economy. (Rather, what will actually happen is that it will grow to the point of producing societal upheaval, sending us back to a more typical era  for mankind, where healthcare is a little-thought-of luxury, and not a necessity or a right. This will happen well before healthcare consumes 100% of the economy.)

To reiterate, it’s not the amount of spending on healthcare that is creating a fiscal crisis, it’s the rate of growth of that spending.

There are only two things that can possibly account for this excessive inflation in healthcare expenditures.  Either it is caused by unrelenting growth in wasteful spending (as we are assured by our political leaders), or it is caused by unrelenting growth in useful healthcare spending. If it is the latter, then in order to get spending under control we must ration. So therefore (we all fervently pray), the rate of growth must be caused by wasted spending.

This desired conclusion, unfortunately, leads to mathematical absurdities, and therefore (for anyone who eschews magical thinking) turns out to be utterly false.

DrRich is going to show you data from a spreadsheet. It illustrates what would have to happen in order for wasteful spending to account for our current healthcare inflation.  The spreadsheet is based on the following four assumptions:

Assumption 1) The proportion of healthcare spending today that is wasteful is taken as 25%. The actual number, of course, is not possible to discern with any real confidence. It depends, for one thing, on who gets to define “wasteful.” If I’m a 92-year-old man who gets a $12,000 stent procedure to eliminate my angina, I and my doctor might consider it money well-spent, while you might consider it wasteful. DrRich has arbitrarily chosen a number that falls within the range of popular estimates. But it’s a spreadsheet. If you don’t like 25%, substitute your own estimate. You will find that the rate of wasteful spending we assume for Year 1 in this spreadsheet has little effect on the outcome.

Assumption 2) The annual overall rate of growth of healthcare spending (i.e., healthcare inflation) is 10%.

Assumption 3) The annual growth rate of useful (i.e., not wasted) healthcare spending is economically well-behaved. That is, it matches the rate of overall inflation. The spreadsheet therefore assumes a 3% annual inflation rate for useful healthcare spending. (We must make this assumption if we would like to avoid healthcare rationing, because if useful healthcare spending were not economically well-behaved, that is, if the growth rate for useful healthcare expenditures were substantially higher than the overall rate of inflation, then no matter what the rate of growth for wasted healthcare spending, we would still have disproportionate healthcare inflation - and rationing would be unavoidable.)

Assumption 4) The difference between the “well-behaved” growth of useful healthcare spending and the overall rate of healthcare inflation is accounted for by spending on waste and inefficiency. This of course, is the assumption that underlies all proposals for healthcare reform.

(Note: If you would like to play with the actual spreadsheet itself, e-mail DrRich and he’ll send it to you: DrRich at covertrationingblog *******)

(see photo for table1 )

We see from this table several things. First, as expected, the amount of money we’re spending on healthcare, assuming a rate of healthcare inflation of 10%, is doubling roughly every 8-9 years, a growth rate that is ultimately unsupportable.

Second, in order to account for this unsupportable growth in healthcare spending by invoking waste and inefficiency, the proportion of healthcare spending that is caused by waste must increase to ridiculous proportions very rapidly, such that (for instance) by the 10th year we will have more than doubled (59%) the proportion of all healthcare expenditures that are wasteful; and by the 20th year, nearly 80% must be wasteful. Similarly, the proportion of the annual increases in healthcare spending that would have to be due to waste and inefficiency rapidly climbs to equally ridiculous proportions. By year 5, wasteful spending will have to account for 82% of the annual increase in healthcare expenditures, and that proportion continues to climb, eventually approaching 100%.

To DrRich, these numbers seem absurd on their face. But if you still need to be convinced, consider that in real life, runaway healthcare inflation has already been taking place for decades - so our position on such a spreadsheet would not be at year 1, but at year 20 (or higher).  And no matter what value for wasteful spending we might have plugged in at year 1, by year 20 wasteful spending would have to be well above 80%, and more likely approaching 100%.  In order for waste and inefficiency to account for the situation in which the American healthcare system finds itself today, therefore, one would have to believe that virtually all healthcare spending is wasteful.  (And if you believe that, then what does it matter that tens of millions can’t afford healthcare?)

Now let us illustrate the same point in a slightly different way.  This time, let’s assume that as recently as 2006, our healthcare system was 100% efficient. That is, only three years ago there was no waste whatsoever.  Then let’s allow that the remaining three assumptions given above are still operative. The following table results:

(see photo for table 2)

We can see from these results that, even if only three years ago we had a completely efficient healthcare system, in order for waste to account for the excess growth in healthcare spending we’ve experienced since that time, then as much as 74% of today’s annual increase in spending has to be due to waste and inefficiency.  Indeed, unless at some point within the second term of George W. Bush we actually had a completely efficient healthcare system (which seems doubtful), this spreadsheet tells us (again)  either that our fervently held belief that waste and inefficiency accounts for healthcare inflation is completely wrong, or that today virtually all of our annual increase in healthcare spending must be due to waste and inefficiency, and none due to useful healthcare.

Play with the spreadsheet yourself. You will quickly see that as long as we insist that wasteful spending must account for the unsustainable growth we’re seeing in healthcare costs, then whatever our assumptions may be regarding the current proportion of wasteful healthcare spending - whether we say it’s 20% or 50% or 0% - we very quickly encounter the same mathematical absurdities.

One can only surmise from this analysis (done, DrRich reminds you, with actual Math) that our desired conclusion is wrong. A substantial proportion of our growing healthcare expenditures must necessarily be coming from real, honest-to-goodness, useful healthcare. And if we’re going to substantially curtail that growth, we’re going to have to curtail useful spending. Which means we have to ration.

But, once again, we’re Americans and Americans don’t ration. Which is why we’ve commissioned the big insurers and the government to do the rationing covertly, a task they have accepted with great gusto. DrRich is compelled to point out, once again, that waste and inefficiency is the sine qua non of covert rationing. Disguising all the rationing activity as something other than rationing fundamentally requires opaque procedures, unnecessary complexity, bizarre incentives, Byzantine regulations arbitrarily and variably enforced or ignored, and the diversion of healthcare dollars to non-healthcare ends (such as corporate profits, expanding layers of government bureaucracies, and other massive bureaucracies within the healthcare system created to defend against government bureaucracies). Covert rationing multiplies waste and inefficiency, and does so systematically. To reduce the necessary rationing to the smallest amount possible, we will have to figure out a way to do the rationing openly, and not covertly.

In the meantime, DrRich does not kid himself that exposing the mathematical absurdity of the chief assumption espoused by our political leaders, in their brave efforts to reform healthcare, will change hearts and minds.  American political partisans, not to mention the American media, eat mathematical absurdities for lunch.  And magical thinking amongst the populace, at least when it comes to the exuberant accumulation of household (and national) debt and the application of medical science, far from being discouraged, is actively promoted.

*This blog post was originally published at The Covert Rationing Blog*

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389974 tn?1331015242
by swampcritter, Jul 20, 2009
As long as you let someone else pay for your health care, then you must expect whatever limits they put on the  spending, be it an insurance company or the government.

But with insurers, there is a difference. In a private market, there is a push for efficiency. As an example, two equally effective treatments for a disease, the one that is cheaper (which also tends to be less invasive and faster) will be the one that eventually wins out. Of course, that takes many years for all the doctors to be comfortable with a new treatment, for studies to prove effectiveness, for unique complications and counterindications to be well understood...

The reason there is overhead (the term "waste" assumes the money isn't going anywhere, but it goes to pay wages) is because of accounting overhead, HIPPA regulation, fraud guard, etc. Also, there are systems to try to find, for instance, patients who shop for drugs and so forth. All of this costs money.

With the government, you get decisions according to political pressure, not efficiency. The effect of such a thing would be slow down technology adoption (unless it was mandated).

881165 tn?1265984588
by AireScottie, Jul 20, 2009
I think it's great to take a rational, mathematical approach to the healthcare numbers.  That's a necessary approach.  However, I've seen a lot of "wasteful spending" in my healthcare odyssey.  For instance: paying a salary to a nurse's aide who gossips so much that she's still alphabetizing the same patient file after I've spent 30 minutes with the doctor as she was when I showed up at the front desk.  Paying a salary to a doctor who tells a patient with a bleeding disorder to take Aspirin when she says she can't take NSAIDs.  Paying a salary to anyone in a medical records department who copies none of the specified records that are important, and instead copies a couple pages of allergy tests.  And I can't help but feel that it shouldn't have taken 14 years to diagnose Sjogren's, seeing as how I had the symptoms, had inflammatory markers, and was seeing doctors frequently.  Oh, and then there was the rheumatologist who didn't understand that Sjogren's could destroy part of my nervous system.  These are not isolated anecdotes.  I just don't want to take up a huge amount of space typing up all the appalling lapses that have occurred at major teaching hospitals where health care is supposedly good.  My experience has been that if you don't have high blood pressure, high cholesterol, or diabetes, most doctors are clueless.  So the patient, who's really sick, keeps making more appointments, the insurance gets billed, and there's no diagnosis.  So, more appointments, more bills, no diagnosis.  The doctor gets paid for doing nothing.  No rheumatologist should get a paycheck for telling a patient that "Sjogren's is more an irritation...It doesn't affect anything serious...", especially after she's already seen the biopsy showing the nerves are almost gone.  Oh, and then there was the cardiologist who didn't do anything to follow up after my heart STOPPED during a tilt test...

325405 tn?1262290178
by 888mom, Jul 20, 2009
Oh, and then there are the doctors who refuse to take the diagnosis of a previous doctor.  I have been diagnosed with lupus, then the next doc didn't concur and said it was something but definitely not lupus and lots of tests and then 2 years later told me that me having the doc test my ANA rate every 3 months was wasteful spending of insurance money.  I was not the person who ordered the tests.  I didn't even ask them to do that. The doc was the one who ordered the testing. Got a new doctor after that fiasco, who wanted to start tests all over.  Came up with mixed connective tissue disorder.  Then i moved to another state.  New doc came up with connective tissue disorder not specified and then after a year decided it was a mild case of lupus which is what the diagnosis I had previously was.  I have since moved again and I refuse to see a rhumatologist because it's wasteful spending and I hate getting thrown on steroids since I now have a cataract (very tiny) in one eye whom the eye doc believes it is possibly from the steroid history taking I have (steroids do keep inflammation under control, but the docs never told me at what cost to my health!).  Oh, and now I have toxoplasmosis in my one eye, which is active yet again due to the fact that I have an autoimmune disorder, which means compromised immune system.  For many years before I had the initial lupus diagnosis most docs told me it was all in my head.  I was desperate to get my health taken seriously.  And then when my health was taken seriously it was too many tests that were probably unnecessary.

I know there are great doctors out there.  Finding them is hard!!  And it isn't a matter of where the doc got their degree.  To me, a great doc is a doc who takes me seriously, listens to what I say, and isn't trying to kick me out the door in 10 minutes. And yes, part of that is the healthcare system, not the doctors.  My aunt worked for a doctor's office in billing and she retired early because she was upset at what was coming down from the administration.  And she was also appalled at the billing help who were totally incompetent at what they did, not because they didn't have the intellectual ability to do billing, but because they didn't care to take the time to do anything right and would rather gossip on the phone or surf the internet.

535822 tn?1443976780
by margypops, Jul 22, 2009
Yup I have the same tale to tell, my most recent is...New to my area needed some blood work done to find out if I am Hypothyroid and have Lyme Disease, Went o the New Doctor last week, tried to tell him my symptoms ,when he was listening, he was very doubtful said I had other things and yet again could it be GAD ...in the end I said very positvely to him, can you please give me a paper order for blood work, so he did ,wrote down TSH and also Lyme Titer and quite a few other tests I didnt  want. So the results will be back tomorrow I asked for specific tests I knew about from the internet he didnt like that at all. I felt as if I hadnt been heard, this has happened to me before, here and in the UK.especially under the socialised med programme they have there. I found it difficult there to change a Doctor they,the Government wont let you,if you have a bad one hard luck you are stuck with it.

325405 tn?1262290178
by 888mom, Jul 22, 2009
I am fearful of Obama's new health plan.  Sure, getting rid of waste... but he compared out healthcare system to other socialized medicine countries who have healthier people.  I have a friend from Canada who is fearful about getting sick if he's back in Canada because with their system you have to wait forever to get seen by a specialist after getting approval from your primary care physician first.  I had an HMO many years back which I found similar.  Had to get primary care physician approval first.  It was the worst 4 years of my life for medical stuff.  I had allergy problems that they were ignoring and when I finally got to the allergist he was against shots to help you and when I begged him to do the skin test, his office did it incorrectly (I didn't find out until years later) because the nurse who was untrained in  how to do it didn't know she was supposed to prick my skin -- she was just rubbing it on my skin and  of course I didn't have much reaction... years later I found out I was severely allergic to some things that that incompetent allergist's office said I had no allergy to.  Oh, and yes, the worst thing was that this happened when I was working at Yale when my husband was a grad student there.  Yale is supposed to have the best medical  school and great doctors.  The problem is that there they are more concerned with their research, not with their patients.  Sure, they might be some of the best and the brightest, but if you are just a lowly peon, well, s****w you.  I hate moving around.  Unfortunately with my husband's career,  that's what we had to do for him to climb up the ladder.  Now we seem to be stable and will be living here for hopefully sometime.

325405 tn?1262290178
by 888mom, Jul 22, 2009
Oh, to add, the Yale Health PLan was an HMO.  I hate HMOs.  Not sure if they are all as sucky, but not wanting to try another.  PPOs seem much better.

649848 tn?1534633700
by Barb135, Jul 25, 2009
I agree with swampcritter - as long as you let someone else pay for your healthcare, you must accept the limitations they specify.

Because we live in a society where people are so quick to bring a lawsuit over the least thing, doctors are forced to pay out a lot of money for malpractice insurance, and then there are the many other regulations they must adhere to in their practices.  Admittedly, these things cost money.  Granted. the doctors had to spend the time and $ to get their education and they deserve to earn a fair and reasonable income.  But it's not necessary to price themselves so far out of reach of the majority of the population.  

There are a lot of ways to bring down the costs of a doctor visit.  For instance - I don't see any way that my annual physical should cost $295.  I arrive at the doctor's office in time for my appointment, only to have to sit in the waiting for an hour or two before I even get brought to an exam room.  Once in the exam room, the nurse checks my blood pressure and heart rate, weighs me and confirms the meds I'm on.  Then she leaves and after another wait, (I've had to wait as much as an hour in the exam room), the doctor finally comes in.  He puts the stethoscope against my chest to listen to my heart, does the same thing on my back, looks down my throat, in my ears and up my nose. Then he thumps on my knee to test reflexes, asks if I need any refills for my meds and is out the door.  I've waited all that time and the whole visit has taken less than 10 minutes....... If I ask any questions, I'm treated like I'm either a hypochondriac or an idiot. If I say my medicine isn't working right, not making me feel better, I'm told that *I* am doing something wrong.  I ask again - how is this 10 minute visit worth the $295 that my insurance company is billed for?  My answer is that it's NOT worth it.  

The doctor has to pay for his cushy office and often, incompetent staff, as pointed out above.  Why do they  have to have the big fancy offices with the patterned floor tiles, expensive pictures on the walls, huge potted plants and all the other costly decorations you are likely to find in a doctor's office, along with the fancy landscaping, etc.  Yes, I know having pleasant surroundings makes that 2 to 2.5 hr wait a lot easier to bear, but they do absolutely nothing to insure that I get the care I need.  I'd much rather go to a doctor's office that's clean, but not so fancy and be seen by doctor that CARES about his/her patients and charges a reasonable fee for reasonable service.  

Because I have a chronic disease - Hashimoto's/hypothyroidism - I have to make a large number of visits to the doctor's office and it's basically the same every time - the doctor hands me a copy of my labs, tells me what, if any changes he wants to make in my meds and leaves the room.  For this, my insurance is billed about $150.  Why can't I be allowed to go get my blood work done, get a copy of it and if necessary, consult with the doctor via phone rather than keep going to his office every time.  No, I can't even get a copy of my lab work, without making an appt to see the doctor.  There's a lot of the waste.  

Then there's the drugs ------- I won't even start on that one.  

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