Conservatives love to apply “cost-benefit analysis” to government programs—except in health care. In fact, working with drug companies and warning of “death panels,” they slipped language into Obamacare banning cost-effectiveness research. Here’s how that happened, and why it can’t stand.
Where’s the Waste in Health Care?
Source: Institute of Medicine
Why are you reading this when you could be doing jumping jacks?
And how come you’ve gone on to read this sentence when you could be having a colonoscopy?
You and I could be doing all sorts of things right now that we have reason to believe would improve our health and life expectancy. We could be working out at the gym, or waiting in a doctor’s office to have our bodies scanned and probed for tumors and polyps. We could be using this time to eat a steaming plate of broccoli, or attending a support group to help us overcome some unhealthy habit.
Yet you are not doing those things right now, and the chances are very strong that I am not either. Why not?
Even people who take their health very seriously calculate costs and benefits. Time spent at the gym, for example, is time we cannot spend playing with our kids, or making the money we need to pay for our ever-rising health insurance premiums. Submitting to a colonoscopy, while minimally costing time, money, and discomfort, may not provide us with any personal benefit whatsoever—all of which we put into the mix before deciding if this is the day we have the test done.
In short, in our day-to-day lives we regularly apply a kind of informal cost-benefit analysis to the decisions we make about health care. To take another example, say you decide it’s worth the effort to lose twenty pounds and firmly resolve to do so. Then your mind will instantly turn to mulling what would be the most cost-effective way to go about it: eat less or exercise more, for example, or perhaps take a pill or undergo a liposuction operation or some combination of all of those.
In making this decision, you may well act on assumptions that are shortsighted or misinformed. You may ascribe more effectiveness to those interventions that seem easy (taking a diet pill) than to those that seem hard (giving up sweets and sweating it out in the gym more often).
Similarly, you may underestimate the risk that a liposuction will bring with it a hospital infection and other complications that will get you killed. Your decision may also be constrained by lack of money to throw at the problem, or lack of time, or competing ambitions. Yet however imperfectly, your mental energies will be directed at how to achieve your goal of losing those twenty pounds at the least cost in other things that matter to you.
This pattern of “rationing,” if you will, our own health and health care on the basis of perceived costs and benefits is arguably a defining feature of what makes us human. Certainly my fat cat does not deliberate the pros and cons of how and whether to overcome her obesity.
Yet here is a curious fact about humans, in the United States, at least. Though we spend more per person on health care than any other people on earth, and with results that are no better and often worse than all other advanced nations, we have allowed conservatives and corporate interests to bind us with laws that explicitly forbid the use of formal cost-benefit analysis to determine how health care dollars are spent. Until we get our heads around this contradiction, we are in big trouble.
The stunning inefficiency of the U.S. health care system as a whole is now beyond dispute. To see the magnitude of aggregate waste, one only has to look at the gross disparities in how medicine is practiced in different parts of the country and with what results.
The best-known work in this area comes from the Dartmouth Atlas Project. For more than a decade, researchers there have systematically reviewed the medical records of deceased Medicare patients nationwide, including those who suffered from specific chronic conditions during their last two years of life. And by doing so, the researchers have uncovered striking anomalies that point to vast inefficiencies.
In Miami, for example, the Dartmouth researchers have discovered that the average number of doctor visits for a Medicare patient during the last two years of his or her life is 106. But in Minneapolis, among Medicare patients suffering from the same chronic conditions, the average number of doctor visits during the last two years of life is only twenty-six. Yet in both cities, all of these patients are equally dead at the end of two years.
The implication is unavoidable. The much higher volume and intensity of medicine as it is practiced in Miami as compared to Minneapolis may benefit some patients in some ways. But all the extra exams, as well as the extra tests, drugs, and operations that doctors in Miami regularly order for their patients, bring no aggregate gain in life expectancy.
By extrapolating from such disparities in medical practice around the country, Dartmouth researchers have developed the widely accepted estimate that roughly a third of all health care spending in the United States is pure waste or worse, mostly in the form of unnecessary and often harmful care—amounting to some $700 billion a year. Using a similar approach of comparing best and worst practices, a recent study by the Institute of Medicine concludes that overtreatment and other forms of waste in the system consume $750 billion annually. That’s roughly the cost of the entire Iraq War.
This finding is in line with that of another recent study published in the Journal of the American Medical Association (the house organ of America’s doctor lobby!). It calculates that on its current course the U.S. will spend nearly $11 trillion between 2011 and 2019 on health care that has no benefit to patients and that is often harmful to their health. Cutting that waste by just 4 percent a year, the study concludes, would be enough to keep health care spending in line with the growth of the economy, which in turn would be enough to evaporate the federal government’s long-term deficits. And it would mean that wasteful health care would no longer crowd out care that actually improves and prolongs the lives of patients.
Yet while we know the system as a whole is grossly inefficient, it remains easy for those responsible for the waste to escape detection, let alone accountability. The biggest single reason is that, due to the insistence of conservatives allied with drug manufacturers and medical device makers, the federal government is not allowed to consider the cost-effectiveness of different treatments in deciding how to invest health care dollars.
To be sure, in recent years, the Obama administration has begun to underwrite research into the so-called “comparative effectiveness” of different drugs and treatments. It has done this primarily through a new entity called the Patient-Centered Outcome Research Institute (PCORI), which was created by the Affordable Care Act. Late last year, PCORI announced its first grants and is now funding research on, for example, how well stroke victims do when they receive rehabilitative therapy at home as compared to care in nursing homes.
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