When speaking about a $1 trillion reform—whose price tag has at least doubled—it seems silly to use the term “nickels and dimes.” But the “savings” part, as designed, would offset only a small fraction of the additional spending component.
Those who are paying attention will notice that the reformers don’t generally talk about drastic reductions in spending, but about “cost containment.” In government-speak, a “cut” means a slower increase.
No less an authority than Donald Berwick, former head of the Centers for Medicaid Services (CMS), essentially admitted that “reform” is just nibbling around the edges. Costs could be reduced by 20 percent or more, he acknowledges, in an article in the Apr 11 issue of the Journal of the American Medical Association. However, he writes: “Instantaneously reducing health care waste at the theoretically accessible scale—that is, 20 percent or more of total health care costs—is neither practical nor, from the standpoint of economic stability, desirable.” What about people whose jobs became unnecessary? Or hospitals with “stranded capital”? Waste keeps the economy going, in this view.
The 20 percent is probably much too low. Deane Waldman, M.D., has estimated that 40 percent of the dollars going into the system simply vanish without providing anything recognizable as medical goods or services. Stanley Feld, M.D., estimates that $1 trillion out of $2.5 trillion (about 40 percent) is wasted. These numbers come from poring over financial reports. The real-world price charged for surgery at hospitals is often five to ten times the total package price for the same service at the Surgery Center of Oklahoma. Where does the 80 percent or 90 percent go?
So where do the reformers look for savings? At the very end of the trickle-down spending: the doctor. Doctors receive perhaps 19% of the healthcare dollar, and at least 60% of that is consumed by overhead.
Suppose your family is going bankrupt. Where should you first look for savings: in the food budget, utilities, car maintenance, piano lessons, and children’s school fees? Surely some savings could be found. But would it make sense to ignore the $10,000 a week you are paying to a financial adviser who is mismanaging your money and embezzling a lot of it? Would it make sense to hire a $1,000 per week “coordinator” to tally spending for groceries or soap, to enforce rules about bicycle riding, to decide whether to skimp on new tires for the car, and to implement a costly information technology system to keep track of all family activities?
That’s the way the reformers are approaching the problem. Of course, there are savings to be achieved at the bottom. High-deductible insurance with health savings accounts would likely cut spending by 30 percent, as patients weigh the value of a scooter against other needs—that’s 30 percent of the spending on real medical care as opposed to the much larger amount on the “healthcare” payment system. Frugality by patients can’t compensate for all the money now drained off the top by third-party payers and their armies of consultants, managers, lawyers, planners, data-crunchers, clerks, and lobbyists.
CEOs of managed-care companies get paid multimillion-dollar salaries because they are in charge of billions of dollars. They are worth far more to the system than lowly doctors, who are merely responsible for human lives and who cost the system money.
The Medicaid expansion in the Affordable Care Act (ACA) is estimated to bring $356 billion in revenue to insurers over 10 years. Care of the poor that used to be provided as charity is now a cash cow for insurers, though Medicaid often doesn’t pay doctors enough to cover their expenses.
Around 85 percent of those thousands of billions of healthcare dollars are flowing through third-party payers, with diversions to other special interests—big drugmakers, big hospital chains, big management firms, and litigation. The back-room deals that got these special interests to help ram the ACA through Congress are beginning to come to light. That’s where we should start looking for savings when we start over on real reform—at the top of the funnel, not the bottom, where all actual medical care is delivered.