Sure I'd be interested, I've picked up a lot from anecdotes but actual numbers are hard to get.
From an old post some condensed parts (or parts are) I worked up in 2009 on another site (my blog) (some old links can stop working, and if so and you'd like a new one, just let me know)
I bolded and enlarged some parts for those wanting less detail and just the conclusion parts.
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Why American Care Costs Twice As Much
We often hear health care costs Americans "about twice as much as the high quality care in Europe."
Here is a graph showing health care spending by nation. (click here for more) (Source: Organization for Economic Cooperation and Development via the NYTimes Prescriptions blog)
or a more recent graph
U.S. Health Spending: One of These Things Not Like Others
So European health care costs (on average) about roughly
1/2 as much as American health care and has similar (high) quality.
Wasted Procedures
Now, many will have heard that about 30% of health care in America is for wasted procedures.
For example this NPR piece: "Of the $2 trillion-plus spent on health care in this country each year, about 30 percent, or $660 billion is wasted."
Or from the Health Care Blog:
Fee-for-service incentives are a key reason why at least 30% of the $2.5 trillion expended annually for American health care is unnecessary. (I like Maggie Mahar's version
here.)
Here's a
RAND report: "On average, it appears that one-third or more of all procedures performed in the United States are of questionable benefit."
It is not always obvious to non-scientists just what is of "questionable benefit." I recommend to everyone the
NPR story about hysterectomies in Maine.
Once you read or listen to that, you'll begin to suspect what is going on.
For those wanting a broad and precise picture, I strongly recommend
this brief summary article. For a quick glance only see
this graph (note the shockingly higher costs in Miami are adjusted for age, community health, etc., so the pattern of health care practices in some cities or areas doing more procedures for certain health conditions than is done in other localities -- more treatment without better results -- isn't about age or gender, etc. It's about local medical cultures and practices).
So we lose about 30% of health care dollars in this way (unneeded procedures). Another way of expressing this is that only 70% of American health care procedures are medically needed as demonstrated by health outcomes versus other treatment regimens.
High Prices (are only a piece of a broader measure)
Next one might ask, what of
the fact U.S. medical prices for procedures are generally higher than those in other nations?
At first it may seem the fact that many individual health care procedures cost more in the U.S. than in other countries is an additional, separate factor in costs.
But the cost of a procedure is only a fragment of a more complete measure of cost -- the total cost to effectively treat a specific condition.
We know that other countries have wasted medical procedures also. Might there sometimes be a good reason American doctors cost more? If a doctor is more effective, so that he's on target with his diagnoses and treatments and finishes treating a patient successfully sooner, then such a doctor should be paid more per procedure than one who is less effective on average.
A doctor that treats a certain narrow condition successfully 90% of the time in 2 hours is delivering more value per hour than a doctor that treats the same narrow condition successfully 60% of the time in 2 hours. (See
how to structure payment to increase quality instead of quantity of care.)
Talking about the expense of wasted procedures is another way of talking about the relation of effectiveness and pay rates (e.g. -- which higher pay rates correspond to relatively effective treatments and consultations?).
More highly skilled workers earn more because they produce more (more good results in the same hours of work). If many U.S. doctors are going to earn relatively high pay per hour, eventually some insurers will begin to require that they are highly effective -- as prices get high enough the practical cost will eventually bring comparisons and valuing. One change that may aid the valuing of treatment will be the increased number of patients reform will bring, which will allow doctors to increase revenue by treating more patients instead of doing more treatments per patient.
If a doctor or group of doctors quickly treat patients in an effective manner (various successful or good outcomes with less total treatment than other providers), then their high rate of pay per hour is justified.
Under the coming move from paying for services (fee for service) to paying for quality (such as
paying for outcomes over time) to talk of both pay rates and of wasted procedures is to discuss the same issue (value, or the cost to treat a certain condition) from different angles. It is the most realistic and practical to work towards increasing health care providers true productivity (the proportion of successful treatments and number of patients benefited).
Treating more patients nationwide for only a little more total health spending can be done if incentives and innovation raise the average level of treatment effectiveness.
The best way to balance the system is to pay for outcomes instead of simply for services.
This kind of reform is actually the direction the health care market is moving towards in scattered locations. Some providers are already adopting their side of such changes. Insurers, including Medicare, need to catch up. Medicare is a big force, and the progress of Medicare in adopting already existing innovations will help greatly.
Administrative Waste (it's bigger than you'd guess)
Now, many of you will
also have heard that we waste about a quarter (-25%) of health care dollars on administration and overhead for insurers and medical providers to fight with one another over reimbursements, and also for insurers to screen out preexisting conditions, etc.
For instance here:
HASC estimates that as much as a quarter of U.S. healthcare spending goes to administrative functions, not patient-centered services.
There are
other studies on administrative costs (update:
Reuters offers another overview of waste), and they reach somewhat different (but still large) numbers, so I'll demonstrate a broad numerical conclusion myself as follows:
First, consider the known average payout ratio (also called the medical loss ratio) -- that portion American private insurers take in from premiums which they then pay out for actual health care: about
80%. So, private insurers keep on average about 20% of incoming premiums for administration, profits, and the costs of screening out (dropping and excluding) sick people, etc. Next, compare this to the administrative costs of Medicare, which are about 3% to 6%, depending on whether related spending by other federal agencies is included (including the spending from other agencies raises the total Medicare administrative costs to that 6% region).
These two numerical facts together give a rough but clear indication of the non-health-care costs
above essential administration diverted by private insurers away from health care.
Compare the total non-medical private insurance costs of 20% to Medicare's broadly-inclusive costs of about 6%, and we get a difference of about 14%.
So for private insurers, roughly 14% of health care dollars are spent in ways that do not pay for or help to organize or administer health care. The remaining 6% of private insurer costs we'll consider necessary for needed administration.
Finally, we must add in the costs that doctors and hospitals pay to deal with the blizzard of insurance claim forms. It takes a lot of administrative workers at hospitals and doctors offices to try to get paid from private insurers for what doctors and nurses do. Insurers often initially deny certain cost items for confusing reasons, and...well, these insurance claim paperwork costs inside doctors' offices and hospitals add up, as numerous articles point out. Put these costs together with the roughly 14% excess costs inside private insurers....
and that 25% total administrative waste in the U.S. found by HASC starts to sound entirely plausible, if not low.
Ok. Let's remember this rough number of -25% (dollars lost to) for administrative waste. Another way of expressing this is that only about 75% of the dollars spent on health care are actually spent on health care and it's organization and needed administration.
Putting Together the Numbers -- How Much Waste Is There?
By this time, those of you that think about numbers and percentages every day in a habitual way like I do will begin to see where I am going with this...
So I'll cut to the chase.
Let's do the math, and get a ballpark look at
American health care without all the waste -- without excess overhead, and without medical providers being paid to do unneeded treatments that don't improve health outcomes.
0.75 (rough portion of health care dollars actually spent on care and needed organization) * 0.7 (rough portion of care actually medically indicated by best practices) = about 0.5 (rough portion of health care dollars spent to achieve health outcomes)
Hmmm.... That looks familiar. About 1/2.
That's the same ratio as European health care costs versus American health costs.
Hmmm....
I think we have a winner -- Europe: Point. Set. Match.
But...it appears American doctors and hospitals are reasonably efficient and effective when they get down to it!
Simply reducing administrative waste and treatments that have little benefit compared to alternatives would allow American doctors to deliver European-level costs with American-level take home pay!
Altogether, the real cost problem comes from the way we pay for care and the perverse incentives this structure sets up.
(Update:
This American Life examines some of the issues discussed in this post.)
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(remainder clipped off for this copy and paste)
