Report: Making Health Care Work

Health Care in Crisis

How Special Interests Could Double Health Costs and How We Can Stop It
Released by: U.S. PIRG Education Fund

Our health care system is in crisis. Without swift action, that crisis could threaten every American family’s health and finances. 

Unless the new Congress and Administration act to reduce health care costs, the yearly cost of the average employer-paid family health policy in America is projected to more than double from $11,381 in 2006 to $24,291 by 2016 even after adjusting for inflation. If recent trends continue, wages and household incomes will simply not keep up with these high costs. Nor will the business sector be immune to this crisis.  Unchecked, this cost epidemic could also severely impact the small businesses that drive job creation in the American economy.

Unfortunately, too much of these astronomic costs are going to enrich special interests, not buy the best health care. The Congressional Budget Office estimates that nationally as much as one third of health care spending is wasted and does not improve outcomes. That means that, in 2007, one out of every three dollars that Americans spent on health care, or $730 billion, went to the insurance bureaucracies, drug companies, medical device manufacturers, and providers without improving a single person’s health. 

This report examines three important sources of this unproductive spending. We conclude with a package of urgently needed reforms which target those causes, improve quality of care, and rein in this unnecessary spending. As part of comprehensive health reform, these policies will enable America to emerge from this crisis with a health system that consumers and businesses can afford and families can depend on.

Unnecessary Medical Care Undermines Patient Health and Increases Costs

Research has shown that patients who live in regions with above-average health care spending are not any healthier than people in lower-cost regions. In parts of the country where more specialists and hospital beds are available, doctors send patients to specialists or to the hospital more frequently, yet the patient outcomes are no better.

  • Medicare and private insurance payment policies compensate doctors on the basis of how many tests and procedures are ordered, not on the basis of whether effective treatment is delivered.
  • Payment for care does not adequately support effective strategies that improve patient health and reduce the amount of unnecessary care prescribed such as primary care, coordinated care, patient involvement in care decisions, and the use of evidence-based care.
  • High-performing health systems that seek to reduce unnecessary care, like the Mayo Clinic and Utah’s Intermountain Health System, can reduce costs per patient by as much as 43%, while providing quality care. If America’s hospitals achieved Intermountain’s level of quality and efficiency, we would spend $299 billion less a year for hospital care.

Excessive Administrative Expenses Inflate Insurance and Medical Prices

Many administrative costs within America’s health care system are the result of efforts to shift costs from one payer to another—from the insurance company to a hospital, or from a physician to a patient. This paperwork increases total costs without improving outcomes for patients.

  • Unnecessarily duplicative and complex billing and insurance certification requirements add billions in additional administrative costs.
  • The credentialing process by which physicians are certified as providers is unnecessarily burdensome and wasteful
  • Insurers and providers spend tens of billions a year nationally on insurance-related paperwork that does not contribute to the quality of care.

Unchecked Pharmaceutical Marketing Drives Up Costs

Americans spend billions of dollars annually on prescription drugs that are no better than cheaper alternatives or that may have dangerous or unrecognized side-effects. Worse, drug companies’ marketing campaigns in support of their most expensive drugs cost $11.5 billion in 2005.

  • Drug advertising generally encourages the use of newer, more expensive medications, even if they are no more effective than existing ones
  • Pharmaceutical companies increased prescription drug advertising by 250 percent from 1997 to 2007. In response, physicians prescribe and consumers purchase billions of dollars of unnecessary and even risky medicine each year.
  • Direct marketing to physicians, which has been shown to rely on misleading information, boosts the total number of prescriptions and increases the number of prescriptions for newer and more expensive drugs that are no better than old ones.

Solutions

Fortunately, the high cost of care can be reduced and wasted spending is preventable. America can fix this problem now. In light of the 2008 election, health care reform will be on Congress’ agenda in 2009. If these reforms are to be economically sustainable, they must tackle unproductive spending that doesn’t improve health. This report recommends the adoption of the following policy initiatives:

Reduce Ineffective Medical Care While Improving Quality 

  • Fund comparative effectiveness research that studies which medical procedures, regimens and drugs work and which do not.
  • Broadly implement and incentivize coordinated care systems such as medical homes. Compensate primary care providers adequately.
  • Expand information provided to patients and encourage them to share in decision making about their care.
  • Reform public and private payment systems to provide the right incentives for high-quality care and reduce unnecessary but costly tests and procedures.

Reduce Expensive Administrative Bureaucracy

  • Standardize systems for enrollment, credentialing, billing and insurance payment.
  • Limit insurers’ administrative expenditures to a certain percentage of premium dollars.

Reduce Prescription Drug Costs 

  • Strengthen FDA monitoring of false statements in direct-to-consumer advertising and marketing materials
  • Undertake a publicly funded effort to publicize the benefits and prices of drugs to counter the unreliable information provided by pharmaceutical companies.
  • Limit industry’s gifts to physicians and require drug companies to disclose more information about their marketing practices

Some of these reforms could happen fairly quickly; others will take years. But it is critical that we start now by addressing overspending that does not deliver results. Americans simply can not afford any more years of spiraling health care costs.

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