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3
Imperative: Achieving Greater
Value in Health Care
Thomas Kundig periodically suffered back pain from an old rock
climbing accident. When the pain recurred, he would contact his
clinician, only to wait for at least a week to obtain an appoint-
ment with a specialist. He would have his back imaged (generally
with an x-ray but at least once with magnetic resonance imaging
[MRI]) and then receive a prescription for painkillers to get him
through the episode. For Thomas, the problem was not just the
cost of these therapies, but the hassle and time demands of tests
and visits. But Thomas’s outlook improved when his health care
system changed the way it treated back pain at its spine clinic. Pa-
tients now began with physical therapy, with MRIs and intensive
imaging being limited to those patients they were most likely to
benefit. As a result of this new approach to back pain treatment,
when Thomas’s back pain returned the next time, the clinic had
an appointment available for the next day. Based on an evaluation
of his symptoms, a doctor found he did not need an MRI or pre-
scription medications, but instead prescribed physical therapy and
an over-the-counter anti-inflammatory drug. After four physical
therapy sessions, Thomas’s back felt better, and he learned how to
continue the exercises on his own, which felt to him like more of a
permanent solution to the problem (Fuhrmans, 2007). Nationwide,
studies have found that imaging for lower back pain is overused,
being prescribed for many patients who will not benefit from these
intensive tests (Good Stewardship Working Group, 2011).
91
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92 BEST CARE AT LOWER COST
As patients and providers struggle with the increased complexity of
modern medicine (Chapter 2), the nation struggles with the clear and com-
pelling imperative to improve the value of health care—that is, to achieve
better outcomes at lower cost. The challenges of complexity and value are
closely linked as the central dilemmas driving the need for attention to op-
portunities for the continuous learning and improvement that is the focus
of this report.
UNACCEPTABLE OUTCOMES
Currently, the U.S. health care system is failing to achieve its potential
in either the quality of care or the outcomes of care. These shortfalls can
be seen in areas as diverse as patient safety, the evidence basis for care, care
coordination, access to care, and health disparities. If the health care system
is to realize its potential, a concerted effort to learn and improve on each
of these dimensions will be necessary.
Patient Safety
More than a decade ago, the Institute of Medicine (IOM) released To
Err Is Human: Building a Safer Health System, in which it was estimated
that at least 44,000 people, and perhaps as many as 98,000, died in hospi-
tals every year as a result of preventable medical errors (1999). Ten years
later, as illustrated in Box 3-1, medical errors still occur routinely (Downey
et al., 2012). A study of 10 North Carolina hospitals over a 5-year period,
for example, found that approximately 18 percent of patients were harmed
by medical care, with 63 percent of those cases being judged as preventable
(Landrigan et al., 2010). This finding was reinforced by a nationwide study
revealing that one in seven Medicare patients suffered harm from hospital
care, with an additional one in seven suffering temporary harm from care-
related problems that were detected in time and corrected; 44 percent of
these errors were found to be preventable (Levinson, 2010). A third study
found that the rate of adverse events in hospitals could be as high as one-
third of all admissions (Classen et al., 2011). One of the difficulties of mea-
suring the magnitude of medical errors is that they often are unreported.
A recent study found that 86 percent of adverse events were not submitted
to existing hospital incident reporting systems, partly because of confusion
about what constitutes patient harm (Levinson, 2012). These errors carry
substantial financial costs, lengthen patients’ hospital stays, and in some
cases increase mortality (Zhan and Miller, 2003).
Although infections and complications once were viewed as routine
consequences of medical care, it is now recognized that strategies and
e
vidence-based interventions exist that can significantly reduce the incidence
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ACHIEVING GREATER VALUE IN HEALTH CARE 93
BOX 3-1
An Example of Patient Harm
The human impact of medical errors is best appreciated from the lens of
the individuals affected. One notable example is that of Ms. Grant, a 68-year-old
nondiabetic who underwent cardiac bypass surgery. Two weeks after a series of
complications related to her surgery, she was in stable condition in the intensive
care unit (ICU). Her doctor noted that she was doing well and appeared to be on
the way to a full recovery.
At 6:45 AM, Ms. Grant’s arterial line became blocked—a frequent occur-
rence for this type of case—and her ICU nurse promptly responded with a 1-2
mL heparin flush. Ms. Grant appeared to be recovering from the setback until 8:15
AM, when her ICU nurse heard her coughing and rushed into her room to find
her seizing. The nurse gave Ms. Grant labetalol to control her high systolic blood
pressure, and the ICU team administered a barrage of diagnostics and therapies.
At 8:45 AM, Ms. Grant’s results returned from the laboratory. Her serum
glucose level was undetectable. Confused by these results, the ICU team admin-
istered two ampules of 50 percent dextrose in water to control Ms. Grant’s sudden
hypoglycemia, and then began to investigate her rapid deterioration.
At 9:15 AM, the team discovered a near-empty 10 mL vial of insulin on a
medicine cart outside Ms. Grant’s room, suggesting that earlier that morning, the
ICU nurse had inadvertently treated Ms. Grant’s arterial line blockage not with
heparin but with insulin. Upon further investigation, the ICU team found that mul-
tidose vials of both heparin and insulin were on top of the medicine cart outside
Ms. Grant’s room at the time of the error. The vials looked similar, both held 10
mL of solution, and it was ICU practice to use multidose vials. Even though insulin
should have been stored in the refrigerator, it was routinely kept on the medicine
cart, and the hospital had no system of double checking or barcode checking
high-risk drugs before they were administered.
Ms. Grant spent 7 weeks in a coma, at which point her family withdrew life
support and she died (Bates, 2002).
As with many medical errors, the problem was not just the action of the indi-
vidual clinician but the system that allowed it to happen. This particular error, the
incorrect administration of insulin, accounts for 11 percent of serious medication
errors, and insulin and heparin are known to be mistaken for one another because
they are both administered in similar units and often stored in close proximity. Fur-
ther, Ms. Grant’s case is not unique to the hospital at which she sought care, but
involved an error that has been experienced by many patients across the country
(Cohen, 1999; Cohen et al., 1998).
and severity of such events. For example, there are proven methods for pre-
venting catheter-related bloodstream infections, especially in intensive care
unit (ICU) settings (Pronovost et al., 2006). Given that these potentially
deadly infections prove fatal 12-25 percent of the time, such interventions
can have a substantial impact on mortality (CDC, 2011). Despite progress
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94 BEST CARE AT LOWER COST
in reducing the number of these infections with evidence-based interven-
tions, however, 23,000 such infections occurred in inpatient wards in 2009,
at an extraordinary cost to the health care system and with an unacceptable
risk of serious harm to patients (CDC, 2011). Such evidence-based inter-
ventions exist for many aspects of patient safety, yet few are used widely
in patient care.
The Evidence Basis for Care
Another area for improvement is ensuring that clinical evidence guides
patient care. For example, Americans receive only about half of the pre-
ventive, acute, and chronic care recommended by current research and
evidence-based guidelines (McGlynn et al., 2003). Patients with diabetes,
for instance, receive the recommended preventive care only 21 percent of
the time (AHRQ, 2011b).
Estimates vary on the proportion of clinical decisions that are based
on evidence, with some studies suggesting only 10-20 percent (Darst et al.,
2010; IOM, 1985). The need for evidence also is reflected in clinical guide-
lines. A study of guidelines for the 10 most common types of cancer found
that only 6 percent of the guidelines’ recommendations were based on a
high level of evidence with uniform consensus (Poonacha and Go, 2011).
An examination of 51 guidelines for treating lung cancer, for example,
found that less than a third of the recommendations were evidence based
(Harpole et al., 2003; IOM, 2009a). Another study found that fewer than
half of the guidelines for treatment of infectious diseases are based on clini-
cal trials (Lee and Vielemeyer, 2011).
Even when evidence-based guidelines are available, they are not al-
ways followed. For example, a recent analysis of implantable cardioverter-
defibrillator (ICD) implants found that 22 percent were implanted in
circumstances counter to the recommendations of professional society
guidelines (Al-Khatib et al., 2011). While ICDs can be life-saving for many
patients, they can be uncomfortable, inconvenient, and even life-threatening
when implanted inappropriately.
This failure to deliver evidence-based care to patients results in subop-
timal health outcomes. For example, consistently providing preventive ser-
vices and interventions according to the best clinical evidence could prevent
or postpone the majority of deaths from heart disease in the adult popula-
tion (Kottke et al., 2009). The limited evidence supporting care delivery
also contributes to widespread variations in clinical practice. For example,
one study found that deliveries of normal-weight babies by caesarean sec-
tion accounted for 7 percent of all births in some regions and almost 30
percent in others (Baicker et al., 2006).
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ACHIEVING GREATER VALUE IN HEALTH CARE 95
Care Coordination
The coordination of each patient’s care over time is another area
for improvement. As patients move among providers and settings, they
are subject to treatment errors and duplicative services. A recent survey
revealed that patients experience problems with receiving results of medi-
cal tests and information about their medical history and that test results
frequently are unavailable at the time of doctors’ appointments. Almost
20 percent of patients reported that test results or medical records were
not transferred from another provider or a laboratory in time for an ap-
pointment. Nearly one-quarter of patients said their health care provider
had to order a previously performed test to have accurate information for
diagnosis (Stremikis et al., 2011). Similarly, care often is not coordinated
with the patient. One study found that in 1 of every 14 tests, either the
patient was not informed of a clinically significant abnormal test result, or
the clinician failed to record reporting the result to the patient (Casalino et
al., 2009). In the previously cited study of Stremikis and colleagues (2011),
half of survey respondents said they had experienced waste and inefficiency
in the health care system, and one-third said the system is poorly organized
(Stremikis et al., 2011).
Patients also have reported poor communication between their primary
care providers and specialists, and the reported likelihood of these coor-
dination failures increases with the number of physicians seen (Stremikis
et al., 2011). This trend is particularly concerning given that, as noted in
Chapter 2, Medicare patients see an average of seven physicians, including
five specialists, split among four different practices (Pham et al., 2007). The
presence of multiple comorbidities only exacerbates this trend. One study
found that while the average Medicare patient with type 2 diabetes but
no comorbidity saw an average of 5.6 physicians in a year, a patient with
10 comorbidities saw 28.2 physicians (Niefeld et al., 2003). Another study
found that in a single year in fee-for-service Medicare, the typical primary
care physician had to coordinate with 229 other physicians in 117 differ-
ent practices (Pham et al., 2009). Further, the rate at which physicians refer
patients has doubled over the past decade, and the number of primary care
visits resulting in a referral has increased by nearly 160 percent (Barnett
et al., 2012). Coordination failures also are likely exacerbated by the wide
variety of professionals in health care today (Leape and Berwick, 2005).
Modern medicine includes nurses in more than 50 specialties, physicians in
more than 50 medical specialties, physician assistants, pharmacists, physi-
cal therapists, psychologists, dentists, and many others, all of whom must
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96 BEST CARE AT LOWER COST
communicate with each other across specialties and across professional
lines to manage a patient’s care successfully.1
Poor communication and coordination among providers extend to
inpatient care. A survey of hospital patients found that 75 percent were
unable to identify the clinician in charge of their care (Arora et al., 2009).
Moreover, the number of clinicians a patient sees in the hospital is growing;
in just the period from 1970 to the late 1990s, the number of clinicians seen
by a typical hospital patient increased from 2.5 to more than 15 (Gawande,
2011). A recent study of hospital patients’ contact with health care profes-
sionals found that during their hospitalization, medical patients saw an av-
erage of 18 different doctors, nurses, and other health care workers, while
surgical patients saw an average of 27 (Whitt et al., 2007).
Patient handoffs—the transfer of responsibility for a patient from one
provider to another—exemplify the care fragmentation experienced by
many patients. A study of handoffs from ICUs to inpatient wards found
that only 26 percent of receiving physicians communicated verbally with
sending physicians during the transfer (Li et al., 2011). Fragmentation
among different elements of the health care system continues upon a pa-
tient’s discharge from the hospital. A study investigating the adequacy of
discharge summaries found that they mentioned only 16 percent of tests
with pending results and failed to document follow-up providers’ informa-
tion 33 percent of the time (Were et al., 2009). This communication gap
makes it difficult for patients’ primary care providers and other members
of their care team to remain informed of their condition and to guide their
care successfully going forward (Leape and Berwick, 2005).
One of the most dramatic results of this lack of care coordination is
the number of patients who must reenter the hospital soon after discharge.
One study found that almost one-fifth of Medicare patients were rehospi-
talized within 30 days (Jencks et al., 2009). These rehospitalizations were
responsible for $15 billion in Medicare spending in 2005 alone (Medicare
Payment Advisory Commission, 2008). While a patient may have to be
rehospitalized for many reasons, one of the most prominent is a lack of
effective transition between hospital care and care delivered in community
settings. Indeed, half of patients who were quickly rehospitalized were not
seen by a health care provider before being readmitted (Jencks et al., 2009),
suggesting that no provider was responsible for transitioning the patient
back into the community. Figure 3-1 shows a representative timeline of
1 he
T number of specialties was calculated based on specialty and subspecialty certificates
provided by American Board of Medical Specialties member boards, American Osteopathic
Association specialty certifying boards, and American Board of Nursing Specialties approved
certification programs.
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ACHIEVING GREATER VALUE IN HEALTH CARE 97
1 out of 5 elderly patients are
readmitted within 30 days
Nurses
Every year the average elderly
7 doctors
patient sees Doctors
across 4 practices
Less than 50% Allied
Health
Elderly patients with
of elderly patients are
up to date on clinical comorbities require up to
Specialists
Average surgery patient is seen by Fewer than half of nonsurgical
preventive services
19 medication Primary 27 different health follow up
patients with their
primary care provider after discharge
doses daily Care
care providers
Preventive Self-Management Outpatient Care Hospital Follow-up
FIGURE 3-1 Representative timeline of a patient’s experiences in the U.S. health
care system.
SOURCE: Data derived from Boyd et al., 2005; Jencks et al., 2009; Pham et al.,
2007; Shenson et al., 2007; Whitt et al., 2007.
Figure 3-1
the preventive, self-management, outpatient, hospital, and follow-up care
patients experience in the U.S. health care system.
Multiple evidence-based interventions exist to improve care coordina-
tion. These range from the transitional care model (Naylor et al., 1994,
1999, 2004) to guided care (Boult et al., 2008, 2011; Boyd et al., 2010), to
many varieties of medical homes (Rosenthal, 2008). Many care coordina-
tion problems thus could be resolved if the knowledge that currently exists
were applied.
Access to Care
A lack of timely access to care is another concerning impact of com-
plexity on the quality of health care. Many studies have explored the num-
ber of Americans who lack insurance coverage and the deleterious impact
on their health (IOM, 2002, 2003a,b, 2004, 2009b). Other obstacles to
accessing care exist as well. In one survey, 29 percent of patients reported
having difficulty obtaining an appointment with their health care provider
when sick, while almost 60 percent noted problems with obtaining care
outside of traditional business hours (nights, weekends, holidays) without
going to the emergency room (Stremikis et al., 2011).
As a result of these access issues, many Americans are forced to visit
the emergency room—one of the most costly settings for care—for treat-
ment of chronic illnesses that could be managed in an outpatient setting.
For example, asthma can be properly managed entirely through outpatient
care. However, many patients fail to receive high-quality asthma manage-
ment, which results in 1.75 million visits to the emergency room and almost
0.5 million hospitalizations each year (Akinbami et al., 2011). As a result,
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98 BEST CARE AT LOWER COST
the United States has a higher rate of hospital admissions for asthma than
other developed nations (Squires, 2011).
Health Disparities
The complexity of modern health care often has impeded efforts to
close unacceptable gaps in quality of care and health outcomes based on
race, ethnicity, and income. As noted in previous IOM studies, the use of
evidence-based treatments and the quality of care vary by race and ethnicity
(IOM, 2003c). These disparities continue to be reported; for example, one
recent study noted three-fold differences among different ethnic groups in
the use of intravenous tissue plasminogen activator (tPA) for eliminating
cerebral blood clots in stroke patients (Hsia et al., 2011). Moreover, an
evaluation by the Agency for Healthcare Research and Quality (AHRQ)
found that individuals with lower incomes received lower-quality care on
80 percent of the AHRQ core quality measures (AHRQ, 2011a). These
disparities in care, along with social determinants, contribute to disparities
in overall health (Woolf and Braveman, 2011). For example, life expectancy
at birth is 4-6 years less for African Americans than for Caucasians, and the
mortality rate for African American infants is double the national average
(National Center for Health Statistics, 2011).
Overall Impact
The above shortfalls in the generation, diffusion, and application of
knowledge on effective clinical care have a measurable impact on Ameri-
cans’ health. One way to measure this impact is through mortality ame-
nable to health care, defined as the number of deaths that should not occur
in the presence of timely and effective health care. Examples of amenable
mortality include childhood infections, surgical complications, and diabe-
tes. The level of amenable mortality varies almost threefold among states,
ranging from 64 to 158 deaths per 100,000 population (McCarthy et al.,
2009; Schoenbaum et al., 2011). If all states had provided care of the qual-
ity delivered by the highest-performing state, 75,000 fewer deaths would
have occurred across the country in 2005.
It is important to stress that there are multiple areas of excellence in
the U.S. health care system in which technically advanced, compassionate
care improves the health of patients and extends their lives. One such area
is cancer care. The outcomes for cancer patients in the United States tend
to be better than those in other countries (Coleman et al., 2008; Gatta et
al., 2000). For breast, colorectal, and cervical cancers, 5-year survival rates
are high compared with rates in other developed nations, while overall
mortality is comparatively low (Squires, 2011). The positive outcomes for
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ACHIEVING GREATER VALUE IN HEALTH CARE 99
cancer care underscore the potential for the health care system to improve
in overall quality and address the areas for improvement discussed above.
Conclusion 3-1: Health care safety, quality, and outcomes for
Americans fall substantially short of their potential and vary sig-
nificantly for different populations of Americans.
Related findings:
• Medical care is guided insufficiently by evidence. Americans receive
only about half of the preventive, acute, and chronic care recom-
mended by current research and guidelines.
• Preventable medical harm is pervasive, despite proven methods
for its reduction. One study found that nearly one in five hospital
patients are harmed during their stay, and nearly two-thirds of that
harm is preventable.
• The nature and quality of health care vary considerably among
states, with serious health and economic consequences. If all
states could provide care of the quality provided by the highest-
performing state, an estimated 75,000 fewer deaths would have
occurred across the country in 2005.
• Poor continuity of care is both harmful and costly. In 2004, one-
fifth of Medicare patients were rehospitalized within 30 days, and
Medicare rehospitalizations were responsible for $15 billion of
Medicare spending in 2005 alone.
UNSUSTAINABLE COSTS
In addition to quality shortfalls, the value of health care is compro-
mised by excess costs and waste (Brook, 2010). In 2012, the United States
will spend $2.8 trillion, about 18 percent of the nation’s gross domestic
product, on the health care system (Keehan et al., 2011). The high cost of
health care by itself might not be a reason for concern. Patients, consumers,
and the public might simply be choosing to invest more of their resources
in health care because this investment is improving their health (Baicker
and Chandra, 2011; Cutler et al., 2006). What is concerning, however, is
the unsustainable rate of growth in health care costs. For 31 of the past 40
years, health care costs have increased at a greater rate than the economy as
a whole, and health care spending is expected to continue increasing more
rapidly than the total economy, growing 4 to 8 percent per year through
2020 (CMS, 2012; Keehan et al., 2011). To put these cost increases into
perspective, if the cost of other goods had risen as quickly as health care
costs in the post–World War II period, a dozen eggs now would cost $55,
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100 BEST CARE AT LOWER COST
Labor Productivity
Real Sector Growth (%) Growth (%) Employment Growth (%)
U.S. Economy 2.5 1.7 0.8
Health Care and
2.3 −0.6 2.9
Social Assistance
Manufacturing 2.6 4.7 −2.1
Retail Trade 3.1 2.7 0.4
Finance, Insurance,
2.9 2.2 0.7
and Real Estate
Professional, Scientific,
2.9 0.7 2.2
Technical, and Legal Services
FIGURE 3-2 Real sector growth, broken into labor productivity and employment
growth, for health care and other sectors of the U.S. economy.
SOURCE: Kocher and Sahni, 2011. Copyright © (2011) Massachusetts Medical
Society. Reprinted with permission from Massachusetts Medical Society.
a gallon of milk would cost $48, and a dozen oranges would cost $134.2,3
Notably, moreover, growth in health care costs has not been accompanied
by a commensurate growth in 3-2 replaced
Figure the productivity of the health care labor
force similar to the gains seen in other from original Figure 3-2) (Kocher
with vector editable image industries (see source
and Sahni, 2011).
In considering the growth in health care costs, it is important to con-
sider the specific impact of this growth on different stakeholders. For
governments, health care expenditures are quickly consuming larger and
larger fractions of the overall budget. Health care costs for the Department
of Defense alone now top $50 billion a year, almost a tenth of its budget
(Government Accountability Office, 2011). Likewise, Medicaid expendi-
tures now consume almost 20 percent of state budgets, crowding out other
priorities, such as education (National Association of State Budget Officers,
2011). State funding for higher education has seen decreases of up to 20
percent as a result of increasing Medicaid costs (Kane and Orszag, 2003).
These decreases in spending for education and other national priorities can
be expected to continue unless the rate of health care spending is slowed.
For the public, the cost of health care is consuming more of every pay-
check and rising higher than any increases in pay. In the past decade, the av-
erage income for a family of four with health insurance rose by 30 percent,
while the family’s health care costs (including health insurance premiums
2
All monetary estimates were converted to 2009 dollars using the Consumer Price Index
inflation estimates unless otherwise noted (U.S. Bureau of Labor Statistics, 2011b).
3 or the estimate of the cost of various food products assuming health care inflation rates,
F
food prices from 1945 were calculated from the 1945 U.S. Statistical Abstract, with health
care prices being drawn from national health expenditure accounts (Hansen, 1945; Keehan et
al., 2011; Rice and Cooper, 1971).
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ACHIEVING GREATER VALUE IN HEALTH CARE 101
and out-of-pocket costs) increased by 76 percent, effectively eliminating
any wage increases (Auerbach and Kellermann, 2011). In 2012, almost 4 in
10 Americans with a serious illness, medical condition, injury, or disability
reported that medical costs were a serious financial problem for them or
their families (NPR et al., 2012). As a result of these rising costs, many
families must forgo care; the percentage of the public unable to receive
needed care in the past year because of its cost rose from 9 percent in 1999
to 15 percent in 2009. That figure for 2009 was fully 37 percent for those
who were uninsured (National Center for Health Statistics, 2011). These
high costs have strained families’ budgets and put coverage out of reach for
many, contributing to the 50 million Americans without health insurance
coverage (DeNavas-Walt et al., 2011).
In addition to unsustainable cost growth, there is evidence that a
substantial proportion of health care expenditures is wasted, leading to
little improvement in health or in the quality of care. Estimates vary on
waste and excess health care costs, but they are large. The IOM work-
shop summary The Healthcare Imperative: Lowering Costs and Improving
Outcomes assesses waste by evaluating excess costs in six domains: un-
necessary services, services inefficiently delivered, prices that are too high,4
excess administrative costs, missed prevention opportunities, and medical
fraud (IOM, 2010). These estimates, presented by workshop speakers with
respect to their areas of expertise and based on assumptions from limited
observations, suggest the substantial contribution of each domain to excess
health care costs (see Table 3‑1). Although these estimates have unknown
overlap, their sum—$765 billion—indicates the significant scale of waste
in the system.
Two other independent and differing analytic approaches—considering
regional variation in costs and comparing costs across countries—produce
similar estimates, with total excess costs approaching $750-$760 billion in
2009 (Farrell et al., 2008; IOM, 2010; Wennberg et al., 2002). One ap-
proach entailed analyzing health care spending in the United States versus
that in peer countries of the Organisation for Economic Co-operation and
Development (OECD) after adjusting for wealth. Based on 2006 data, ex-
cess U.S. health expenditures compared with those of OECD countries were
estimated to constitute almost one-third of overall spending. After adjusting
to 2009 health care expenditures, this estimate would be approximately
$750 billion (Farrell et al., 2008). The second analysis examined variations
4 this report, price refers to the amount charged for a given health care service or product.
In
It is important to note that there are frequently multiple prices for the same service or product,
depending on the patient’s insurance status and payer, as well as other factors. Cost is the total
sum of money spent at a given level (episodes, patients, organizations, state, national), or price
multiplied by the volume of services or products used.
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102 BEST CARE AT LOWER COST
TABLE 3-1 Sources of Estimated Excess Costs in Health Care (2009)
Category Sources Estimate of Excess Costs
Unnecessary Services • Overuse—beyond evidence- $210 billion
established levels
• Discretionary use beyond
benchmarks
• Unnecessary choice of higher-
cost services
Inefficiently Delivered • Mistakes—errors, preventable $130 billion
Services complications
• Care fragmentation
• Unnecessary use of higher-cost
providers
• Operational inefficiencies at
care delivery sites
Excess Administrative • Insurance paperwork costs $190 billion
Costs beyond benchmarks
• Insurers’ administrative
inefficiencies
• Inefficiencies due to care
documentation requirements
Prices That Are • Service prices beyond $105 billion
Too High competitive benchmarks
• Product prices beyond
competitive benchmarks
Missed Prevention • Primary prevention $55 billion
Opportunities • Secondary prevention
• Tertiary prevention
Fraud • All sources—payers, clinicians, $75 billion
patients
SOURCE: Adapted with permission from IOM, 2010.
in Medicare spending across the country. It found that if Medicare spending
were at the same level as the lowest decile, after adjusting for age, sex, and
race, almost 30 percent of Medicare spending could be saved (Wennberg
et al., 2002). Extrapolating this result to national health care spending in
2009 would lead to an estimated $750 billion in excess costs. While there
are methodological issues with each approach to estimating excess costs,
the consistently large figures resulting from each approach signal the po-
tential for reducing health care costs while improving quality and health
outcomes.
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ACHIEVING GREATER VALUE IN HEALTH CARE 103
To highlight one factor in Table 3-1, higher prices are a major contribu-
tor to higher health care spending in the United States. A 2012 review found
that the average commercial price in the United States was higher than that
in the country with the next-highest price by 150 percent for a daily stay in
a hospital, by 120 percent for an appendectomy, and by 50 percent for a hip
replacement (International Federation of Health Plans, 2012). While prices
do not fully explain the differences in costs among different countries, they
are one major factor (Anderson et al., 2003).
To understand the scale of this waste, it is useful to compare it against
other national expenses. For example, the estimated unnecessary costs and
waste in health care outstrip the Fiscal Year 2009 outlays for the Depart-
ment of Defense by more than $100 billion (OMB, 2010). Similarly, it is
more than 1.5 times the nation’s total infrastructure investment in 2004,
including roads, railroads, aviation, drinking water, telecommunications,
and other structures, counting both public and private funding.5
This represents a tremendous opportunity cost, because this money
could be directed toward higher-value health care uses. For instance, one-
quarter of the amount could provide all recommended childhood and
adolescent vaccinations to 152 million children (nearly the number of
children born in the 40 years between 1968 and 2008).6 If this health care
waste were eliminated, the redirected funds could provide health insurance
coverage for more than 150 million workers (including both employer and
employee contributions), equal to the entirety of the civilian labor force.7
And just a fraction of the unnecessary expenditures in health care could
fund the $24 billion investment in public health needed to enable the deliv-
ery of a minimum level of public health services to every community in the
United States (IOM, 2012).
Such waste also has opportunity costs for society more broadly. If only
half of these excess expenditures were applied to other functions, it would
be enough to buy groceries for every household in America for an entire
5 omparisons of health care waste with the national infrastructure investment were drawn
C
from a Congressional Budget Office analysis (Congressional Budget Office, 2008), while the
Department of Defense budget was calculated from the Fiscal Year 2009 outlays listed in the
Fiscal Year 2011 U.S. Government Budget (OMB, 2010).
6 he cost of childhood and adolescent vaccinations was drawn from a paper by Lindley et
T
al. (2009), while the number of children born between 1968 and 2008 came from Centers for
Disease Control and Prevention (CDC) data (Martin et al., 2010).
7 he average premiums for a single worker were calculated using the Kaiser Family Foun-
T
dation’s 2009 Employer Health Benefits survey, with the size of the 2009 civilian labor force
being derived from Bureau of Labor Statistics estimates (Kaiser Family Foundation and Health
Research & Educational Trust, 2009; U.S. Bureau of Labor Statistics, 2012).
OCR for page 104
104 BEST CARE AT LOWER COST
year.8 If the waste in health care were redirected, it could provide every
young person in America aged 18-24 the average annual tuition and fees
of a 4‑year institution of higher learning for 2 years.9 Or the total could
pay the salaries of all of the nation’s first response personnel, including fire-
fighters, police officers, and emergency medical technicians, for 12 years.10
Conclusion 3-2: The growth rate of health care expenditures is
unsustainable, with waste that diverts major resources from neces-
sary care and other priorities at every level—individual, family,
community, state, and national.
Related findings:
• Health care costs in the United States far outpace the growth rate
of costs in the rest of the economy. For 31 of the past 40 years,
health care costs have increased at a greater rate than the economy
as a whole, and now constitute 18 percent of national gross domes-
tic product.
• The growth in health care costs has contributed to stagnation in
real income gains for American families. Although income for fami-
lies with health insurance has increased by 30 percent over the past
decade, these gains have effectively been eliminated by a 76 percent
increase in health care costs.
• A substantial portion of health care spending is wasteful. The total
amount of unnecessary health care costs and waste in 2009 was an
estimated $750-$765 billion, more than a third of total health care
expenditures.
• Wasteful health expenditures directly stifle progress on other priori-
ties. State Medicaid expenditures have displaced education invest-
ments, for example. If the waste in health care were redirected, it
8 he
T cost of groceries was estimated from household expenditures on food for home use
as listed in the Consumer Expenditure Survey, while the number of households was obtained
from census estimates (U.S. Bureau of Labor Statistics, 2011a; U.S. Census Bureau, 2010).
9 o calculate the years of tuition that could be available for young adults, the average cost
T
of a 4-year institution of higher learning was obtained from U.S. Department of Education
statistics, while the number of young adults aged 18 to 24 came from 2010 census estimates
(Aud et al., 2011; U.S. Census Bureau, 2011).
10 he comparison with expenditures on first responders was calculated from the annual
T
salary data for firefighters, police officers, and emergency medical technicians provided in
the 2009 National Compensation Survey, while the total number of individuals in those
occupations was drawn from the 2009 Occupational Employment Statistics (U.S. Bureau of
Labor Statistics, 2010a,b).
OCR for page 105
ACHIEVING GREATER VALUE IN HEALTH CARE 105
could provide every young person in America 2 years of education
at a 4-year institution of higher learning.
CONSEQUENCES OF INACTION
The examples discussed in this chapter highlight areas in which the
health care system is failing to achieve its potential. They demonstrate the
unevenness of the system’s performance, with many organizations and clini-
cians providing good care while others struggle in an increasingly complex
and chaotic environment. Overcoming these problems will require trans-
forming how the health care enterprise generates, processes, and applies
information to improve the care of patients.
The stakes are high, with measurable impacts on care effectiveness,
the economy, and overall health. If the nation’s care reached the quality
of the highest-performing state, an estimated 75,000 fewer deaths would
have occurred nationwide in 2005 (McCarthy et al., 2009; Schoenbaum
et al., 2011). And several estimates suggest that up to $750 billion is lost
annually as a result of care delivered inefficiently and ineffectively (IOM,
2010). If the necessary transformation does not occur, the health care
system will continue on its current path, and each of these shortfalls will
persist or worsen. While some patients will continue to receive world-class,
excellent care, too many others will experience unnecessary harm and
poor-quality care. Stress on clinicians will grow as they try to coordinate
increasingly complex care with an increasing number of other health care
providers. Costs and waste will continue to grow as well, squeezing out
other important priorities. This future does not have to occur. The prob-
lems of shortfalls in outcomes and cost excesses can be addressed through
the application of tools and strategies that enable continuous learning and
improvement in care delivery, the subject of the next chapter.
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