Health System in U.S. Plagued by $765 Billion in Waste

The U.S. health-care system is plagued by about $765 billion in annual waste and needs stronger government leadership to coordinate practices as the Affordable Care Act increases burdens on caregivers, federal advisers said.

Fully adopting electronic medical records, ushering drug discoveries into use faster and improving physician training are needed most, an Institute of Medicine advisory panel said in a report today. The report recommends the Centers for Medicare and Medicaid Services develop a program to improve learning for doctors and to disseminate ideas for improvement.

“In some ways the system is the best the world has seen, but it could be a lot better for less money,” said Mark Smith, chief executive officer of the California HealthCare Foundation in Oakland and IOM panel chairman. “We’re wasting a fair amount of money and we’re wasting opportunities to improve care.”

Republicans have squabbled with President Barack Obama over whether his 2010 health-care overhaul can trim medical spending while adding 30 million people to insurance rolls. Government data show spending on hospital visits, medications and other care outpaced real gross domestic product last year by 2-to-1, and consumed about 17.9 percent of the economy. Costs are projected to jump 7.4 percent in 2014, when much of the insurance expansion created by the Affordable Care Act begins.

60 Provisions
The Institute of Medicine, known for generating peer- reviewed reports that serve as fodder for debates on issues such as medical errors and vaccines, cited more than 60 provisions in the health law that may help improve health care, including incentives for doctors and hospitals to coordinate services. Where the government falls short, then hospitals, employers and insurers must step up, the panel said.

Hospitals can help by better analyzing their patient flow and adjusting doctors’ schedules to reduce crowding on weekdays, Smith said. Such jams often lead to ambulances diverting from the closest hospitals, delaying care. Forcing surgeons to schedule elective operations on Sundays can free up space during the week for emergencies, he said.

“Here we are sending patients further than they need to go, building operating rooms that we don’t need with an average occupancy rate of 65 percent in this country, and yet when we need them the beds are overcrowded,” Smith said in a telephone interview. “That’s a problem we know how to solve.”

Drug Discoveries
The government and Congress also are in some instances hindering better care as the adoption of new medical and drug discoveries is “maddeningly slow,” the panel said. It took more than a decade after the discovery that a bacterium called Group B Streptococcus can infect and kill newborns before hospitals began to routinely screen pregnant women for the germ, said Gail Cassell, a retired vice president for scientific affairs at Eli Lilly & Co. (LLY) who sat on the IOM panel.

The Food and Drug Administration could play a more prominent role in “translating knowledge into practice” if Congress gave it adequate funding, she said in a telephone interview. The agency’s budget, other than user fees it collects from drug companies to review their products, hasn’t seen a “significant increase” in five years, she said.

The Institute of Medicine, a branch of the National Academy of Sciences that provides the government with nonbinding recommendations on health-care policy, has issued a pair of reports in the past 14 months that helped advance the Obama administration’s health policies.

Financial Waste
One report urged the administration in July 2011 to require insurers to cover birth control pills and devices at no cost to consumers, a recommendation enacted 13 days later. Another panel said in October that health plans regulated by the Affordable Care Act shouldn’t be required to offer more benefits than typical small business plans, advice Obama also followed.

The report today was less definitive in its recommendations, primarily calling for better training and sharing of information. The panel compiled past estimates of health-care waste, including $210 billion a year in unnecessary treatments, $190 million in excessive administrative costs and $75 million lost to fraud.
Some of this waste can be combated if the government, private insurers and employers forced health-care providers to more rapidly ditch their reliance on paper records that lead to duplicative care and mistakes, said Helen Darling, the president and CEO of the National Business Group on Health in Washington and a member of the IOM panel. Advances in computing should enable hospitals and doctors to work closer together and analyze clinical data to improve care, the panel said.

“Every tiny step in the health-care process is flawed in one way or another and it’s very wasteful, very costful,” said Darling, whose group represents large employers that offer health benefits to workers. “Employers should say they don’t want to deal with hospitals and physician practices that don’t have electronic medical records.”

This article originally appeared in the September 6, 2012 online edition of Bloomberg.

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