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Rebutting the recent JAMA article on wasteful healthcare spending

If “healthcare” spending is scrutinized, we will find that medically-related spending is actually 60 percent of overall expenses which means the remaining 40 percent is for NO care at all. Most of this is third-party payment.

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Of the $3.8 trillion dollars the U.S. spends on “healthcare” every year, as much as 25 percent is wasted, according to an article in the Oct 7 Journal of the American Medical Association (JAMA). That would be up to $935 billion—almost enough to cover the federal budget deficit.

So, where does it all go? [“Healthcare” is a new term that refers to the $3.8 trillion enterprise that includes financing and management, not just patient care or medical care.]

The study’s authors searched peer-reviewed and  “gray” literature from 2012 to 2019, looking at six “waste domains” previously identified by the Institute of Medicine. The biggest one is “administrative complexity,” accounting for $265.6 billion. “Fraud and abuse” was said to eat up $58.5 billion to $83.9 billion—note the huge difference between the upper and lower estimates. “Overtreatment or low-value care” (in somebody’s judgment) was estimated to cost $75.7 billion to $101.2 billion. Other categories, in policy-wonk language, are failure of care delivery, failure of care coordination, and pricing failure. The study attracted plenty of press coverage.

So, what can we do?

The JAMA authors pored over 71 estimates from 54 unique peer-reviewed articles. These articles sorted the allegedly wasteful expenditures into different bins and then estimated—guessed—how much could be saved by applying a proposed intervention. Ideas included: “prevention initiatives to address diabetes, obesity, smoking, and cancer”; “standardized pathways in bundled payment models”; and “programs to increase physician efficiency.”

Exactly how would these save money? JAMA leaves this as an exercise for the reader. Denying payment for items not on the pathway? Getting doctors to work faster so fewer of them are needed? “Expanding hospice access” does seem transparent—no more hospital bills.

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Crunching theoretical numbers (to the nearest hundred million dollars) from hypothetical programs springing up nationwide, combining and summing, leads to—the envelope please—a reduction in waste by $191 billion to $282 billion! That’s about 25 percent of the wasted 25 percent, or a stunning 6.25 percent of the total.

The JAMA authors admit that they did not consider the biggest source of waste—administrative complexity. “No studies were identified that focused on interventions targeting administrative complexity,” they explain. A hopeless problem?

The overall study’s recommended solutions themselves all introduce administrative complexity. We already have about nine administrators to every doctor. Why not have more?

The article’s solutions are methods used in managed care. Lead JAMA author William H. Shrank, M.D., is now Chief Medical Officer at Humana, and has a long career as a managed-care executive and advocate.

But what if managed care is the problem instead of the solution? Most “insurance” in the U.S. today is already managed care, including the Medicare Advantage plans that enroll approximately one-third of Medicare beneficiaries.

Instead of giving an insurance company a relatively small, risk-based premium in return for a promise to pay you some amount in case of a big loss like a fire or a car wreck, you turn over a huge sum to the managers in advance in return for a promise to provide all the “healthcare” you really need, from a flu shot to major surgery—or that they think you really need and deserve.

If healthcare were groceries—and someday soon groceries might be included as one of the “social determinants of health”—your pre-paid food would be scrutinized by utilization review and quality assurance personnel. You must get the spinach and the broccoli. You may have a 3-day supply of whatever cuts of meat (if any) are on the formulary, and you get your choice of the three brands of beans that offered the biggest “rebates” (kickbacks) to the Food Benefits Manager.

Unlike an insurance company that builds up reserves as it takes the risk of having to pay your claim in case of a car crash, managed care is pay-go. It takes in premiums, pays out for approved claims, and increases premiums as needed. As premiums go sky-high, the government and management gurus decide to delegate the risk—to the doctors on the front lines, the ones responsible for ordering tests, drugs, and operations. If their patients fail to stay healthy, or if the doctor orders “too much” care, the doctor pays. No care, no cost.

Shrank advocates such “value-based models, in particular those in which clinicians take on financial risk for the total cost of care of the populations they serve.” That means that doing more work results in less pay.

But what if we look at spending from a different perspective? Dr. Deane Waldman, author of Uproot U.S. Healthcare, scrutinized federal “healthcare” spending—which is now about 50 percent of the total—and could identify some medically related purpose for about 60 percent of the expenditures.

In other words, 40 percent went for something other than hospital care, surgery, wheelchairs, medications, office visits, home care, physical therapy, etc. In other words, before we even consider “overtreatment or low-value care,” 40 percent is spent for NO care.

The administrative complexity—NO care—is mostly related to third-party payment. Direct payment, from the person receiving care to the people providing it, with no “insurance” involvement, is very simple. As simple as buying groceries or hardware or clothing. And the price of a self-paid, sophisticated test like an MRI may be a small fraction of what you pay your HMO every month, usually for NO care.

So, does the U.S. waste 25 percent of the “healthcare” dollar? The answer is probably much more, with billions diverted to activities that obstruct rather than provide actual medical care to patients.

Photo: atibodyphoto, Getty Images

Dr. Orient is the Executive Director of the Association of American Physicians and Surgeons (AAPS). Dr. Orient obtained her undergraduate degrees in chemistry and mathematics from the University of Arizona in Tucson, and her M.D. from Columbia University College of Physicians and Surgeons in 1974. She completed an internal medicine residency at Parkland Memorial Hospital and University of Arizona Affiliated Hospitals and then became an Instructor at the University of Arizona College of Medicine and a staff physician at the Tucson Veterans Administration Hospital. She has been in solo private practice since 1981.
Dr. Orient has served as Executive Director of the Association of American Physicians and Surgeons (AAPS) since 1989. She is currently president of Doctors for Disaster Preparedness. She is the author of YOUR Doctor Is Not In: Healthy Skepticism about National Healthcare; Sutton's Law (a novel about where the money is in medicine today); two novels on Kindle books, Neomorts and Moonshine (where environmentalism is leading us as foreseen in the 1980s); and the second through fifth editions of Sapira's Art and Science of Bedside Diagnosis, published by Wolters Kluwer. More than 200 of her papers and op-ed pieces have been published in the scientific and popular literature on a variety of subjects including risk assessment, natural and technological hazards and nonhazards, and medical economics and ethics. She is the editor of AAPS News (www.aapsonline.org), the Doctors for Disaster Preparedness Newsletter (www.ddponline.org), and Civil Defense Perspectives (www.physiciansforcivildefense.org), and is the managing editor of the Journal of American Physicians and Surgeons (www.jpands.org).

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