[Vision2020] Save big healthcare bucks

[Ron Force]

http://www.smartmoney.com/investing/economy/how-much-could-health-care-reform-save-you/?cid=1108
 By the Numbers by Jack Hough
A Real Health-Care Fix Would Save You $7,100

How much money could health-care reform save the average American family? A new Senate plan would deliver $71 a year, maybe. But the total savings that should be wrung out of America’s health-care system is probably closer to 100 times that amount.

The health-care plan backed by Senate Democrats would trim the deficit by $81 billion over 10 years while extending coverage to about half of the roughly 50 million people who now lack it. Senate Republicans aren’t applauding; Sen. Chuck Grassley of Iowa, a key member of the Finance Committee, said the plan merely shifts spending to consumers in the form of higher fees and taxes.

Whatever the plan’s merits, its disputed savings is a pittance next to the total amount America wastes on health care each year, and thus, the total amount it could save. The $81 billion works out to $71 per household, per year. Remember that figure for a moment.

In the 1970s, Dr. John Wennberg noticed something odd about the tonsils of Vermonters. Kids in one zip code were far more likely to have them removed than those in another nearby. In a 1973 article for Science magazine, he detailed the frequency of nine operations in 13 Vermont areas. The data showed plainly that location mattered far more than it should. Doctors in some regions were yanking more tonsils than they had to. Wennberg took his research to Dartmouth, where he founded a center for evaluating health-care delivery, known for its influential Dartmouth Atlas of Health Care reports.

Together with two colleagues, Dr. Elliott Fisher, who today leads the Atlas project, wrote a widely read study published in the Annals of Internal Medicine in 2003. It took Wennberg’s tonsil approach to a new level, looking at end-of-life care for people with broken hips, colorectal cancer and heart attacks, broken down by regions across America. In the regions with the highest spending, patients received 60% more health care, including minor procedures, tests, doctor visits and specialist use—and for all of it, they were slightly more likely to die. Fisher wrote that if all regions could safely reduce spending to match the low-use regions, Medicare would save 30%.

Medicare will spend $484 billion this year, and 30% of that is about $145 billion. That works out to $1,276 a year for the average household, money that could be used to reduce taxes or help close the federal budget deficit. But that’s just Medicare. In 2007, the U.S. spent a total of $2.2 trillion on health care, including government and private payers and out-of-pocket costs. What if the 30% waste estimate holds for the whole thing? That’s $660 billion a year in potential savings, or $5,811 per household.

The Atlas finding caused a kerfuffle. Some doctors, hospital administrators and lawmakers called the methodology flawed, saying it failed to acknowledge that some regions should spend more on health care. For example, the poor are more likely to get sick, so cities with many poor residents are expected to have higher costs. Fisher and his colleagues address the issues in a study published this year in The New England Journal of Medicine. Using an expanded data set adjusted for differences in income and health, they find that more than 70% of regional differences can’t be explained away by such factors. The critics, they wrote in a recent essay summarizing the study results, are in “denial,” with each claiming that patients in their area need more care than average, in what seems a “reverse Lake Wobegon” effect, a reference to the fictional Minnesota town created by author and radio personality Garrison Keillor, in which “all the children are
 above-average.”

On the subject of “average,” consider a simpler way to judge health care bloat. What if America were a little more average among its peers in terms of health-care spending? The nation currently spends more per person than any of them, after all, but it does no better on standard measures of health. The U.S. spends over 16% of its gross domestic product on health care. Among the 30 members of the Organization for Economic Cooperation and Development, the average is 9%. Suppose the U.S. could get down to the level of France, the second-biggest spender, at 11% of GDP. That’s a savings of 5% of GDP, which for America works out to about $715 billion a year. That’s $6,296 per household.

But I’m just throwing numbers around. A better group to do the math is the non-partisan National Academy of Sciences. Its Institute of Medicine ran the numbers in September. It found $210 billion waiting to be saved from unnecessary services, like branded drugs used where generics would do. It also found $85 billion in overspending on doctors and hospitals that are overpriced relative to benchmarks. And there was $195 billion in unnecessary insurance administration costs. And a lot more. The total: $810 billion a year in health-care spending that doesn’t make us healthier. That’s 10 times the savings Congress is arguing over, only delivered ever year instead of being spread over a decade. Per household, it’s $7,132 a year.

Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."


      
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