The Big Targets for Reform Fall Short as Cost-Cutters : Health care: ‘Waste’ is negligible; the spiraling rate of spending is the problem, driven by new medical services and an aging population.
The crucial issue in the health-care debate is a question: How much waste is there? If waste in the health-care system is huge, then reform could be fairly painless. By eliminating waste, we could buy more health care for less. But if waste isn’t widespread, then there’s a collision between reform’s twin goals--controlling costs and expanding insurance coverage. To control costs would mean limiting services.
In general, Americans believe that waste is scandalously high. The Public Agenda Foundation, an opinion-research organization, recently held more than a dozen meetings on health care. “There was spontaneous agreement on why costs are rising: The health-care system is rampant with waste, corruption and profiteering,” the foundation reported. The Clinton Administration hopes that lots of waste can be cut, making it easier to insure the 35 million uninsured Americans without stiff tax increases.
By contrast, many health-care experts doubt that purging waste is a panacea. Sure, there’s waste, they say. But “you can squeeze it out only once,” as economist Henry Aaron of the Brookings Institution puts it. After that, the basic causes of higher costs--new medical technologies and an aging population--will raise health-care spending. In 1991, spending rose 11% to $752 billion. Of that, the amount of “waste” is unclear, because the term covers many alleged sins. Consider:
* Paperwork: The United States has an estimated 1,500 private and governmental insurers. By contrast, Canada’s national health system has essentially one--the government. Our system’s many forms and rules raise costs. A study by Lewin-VHF, a consulting firm, estimates that nearly $50 billion annually might be saved by converting to a Canadian-like system.
* Greed: Doctors and drug companies are the usual targets. In 1991, doctors earned an estimated $74 billion; a 25% cut would save $19 billion. Drug companies are a smaller target; although there are no good figures on the industry’s total profits, they probably don’t exceed $12 billion.
* Unneeded surgery and tests: Perhaps one-fifth to one-third of some types of operations may be unneeeded, according to studies by Dr. Robert Brook of the RAND Corp., a research group. Other studies have reached similar conclusions about some diagnostic tests. But it’s hard to estimate possible savings, because no one knows how much we spend on surgery and tests annually.
* Pure fraud: Some doctors, hospitals and laboratories charge for services they don’t perform. But again, there are no good estimates of how much fraud exists.
In practice, many savings may be hard to realize. President Clinton reportedly won’t propose a Canadian-like system. Even if he did, lower paperwork costs could be offset by the expense of providing universal health insurance. The Lewin-VHF study concluded that the extra costs of a Canadian-like system ($78 billion annually) would exceed the paperwork savings. The U.S. insurance industry is working on a plan to simplify claims, but cost reduction is estimated to be no more than $10 billion annually.
Similarly, savings from excess tests and operations could prove elusive. The RAND studies leave room for doubt about what’s needed and what’s not. One recent study, for example, examined 1,300 cases of a common heart procedure: 58% were rated “appropriate,” 38% had “uncertain” value and only 4% were deemed “inappropriate.”
“Defensive medicine”--tests or treatments intended to discourage suits--is routinely blamed for high costs. But rhetoric may outstrip reality. Doctors’ malpractice premiums average only about 5% of their costs. As for “defensive medicine,” it may total $25 billion annually, estimates Lewin-VHF. That’s a lot--but it’s only 3% of health spending. Could doctors’ incomes be sharply cut? Maybe. But not all doctors have had big gains. In 1990, the median income of family practitioners was $93,000, up 8% from 1980. By contrast, the median for surgeons was $200,000, up 39% during the decade.
But let’s dispense with these practical problems. Suppose that we magically sweep away about $75 billion of “waste.” So? The savings equal about one year’s rise of spending (the actual increase was $76.8 billion in 1991). The real problem is that health costs are growing faster than the economy. Between 1960 and 1991, health spending increased from 5.3% of the economy’s output to 13.2%. Unless this growth slows dramatically, the upward spiral will continue. Any one-time savings would quickly vanish.
The implicit promise of health-care reform is that it can stop the spiral. The assumption is that much new spending is wasteful and would be vulnerable to the shock of reform--whether more competition, regulation or even price controls. There would be more emphasis on prevention. Doctors would use new technologies less lavishly. The quality of care need not suffer, the argument goes, because patients who don’t need exotic treatment simply wouldn’t get it. And group buyers of health care would force doctors’ rates down. All this is plausible--and unproven.
To many health specialists, it’s also a delusion. What propels spending, they say, are new treatments and tests. Many of these help, and people want them, the argument goes. For example, the number of coronary bypass operations rose from about 14,000 in 1970 to 265,000 in 1991. Even if one-quarter were “unneeded,” the increase would have been huge. There are countless examples like that, and more lie ahead. Biotechnology means “we’re on the threshold of a new era” in drug treatment, says Dr. William Schwartz of the University of Southern California.
By this view, we can’t avoid the hard questions. How much should we spend on health care? To control spending, whose care should be limited?
We have two contrary pictures. One is of a sloppy, self-indulgent health-care system ripe for streamlining. The other is of a system overwhelmed by its own medical advances. Which is right? Both contain some truth. But the course of health-care reform may be determined by whichever one best fits reality.
