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Health Care in Crisis: How Special Interests Could Double Health Costs and How We Can Stop It

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Health Care in Crisis: How Special Interests Could Double Health Costs and How We Can Stop It Health Care in Crisis: How Special Interests Could Double Health Costs and How We Can Stop It By Larry McNeely, U.S. PIRG Michael Russo, U.S. PIRG Acknowledgements The opinions expressed in this report are those of the authors and do not necessarily reflect the views of our funders or those who provided editorial review. Any factual errors are strictly the responsibility of the authors. © 2009 U.S. PIRG Education Fund With public debate around important issues often dominated by special interests pursuing their own narrow agendas, U.S. PIRG Education Fund offers an independent voice that works on behalf of the public interest. U.S. PIRG Education Fund, a 501(c) (3) organization, works to protect consumers and promote good government. We investigate problems, craft solutions, educate the public, and offer meaningful opportunities for civic participation. Thanks to those who contributed to their ideas, edits, and criticism to this report including Jeff Bernstein, Phineas Baxandall, Steve Blackledge, and Erin Wingo of U.S. PIRG, Deidre Cummings of MassPIRG, Laura Etherton of OSPIRG, and especially our external readers, Terry Gardiner of Small Business Majority and Dr. Robert Crittenden of the Herndon Alliance. Special thanks are due Elizabeth Ridlington of the Frontier Group. Elizabeth is an author of the California Public Interest Group’s May 2008 report Diagnosing the High Cost of Health Care and an insightful editor of this report. We owe a special thanks to the New America Foundation’s Sarah Axeen and Elizabeth Carpenter. Their report, The Cost of Doing Nothing, provided the projections of health costs upon which this report relies. For additional copies of this report, please visit www.pirg.org, or send $20 to: U.S. PIRG Education Fund 218 D Street SE Washington, DC 20003 About the Authors: Larry McNeely, as U.S. PIRG’s Federal Health Advocate, leads federal-level health care advocacy, policy analysis, and communication activities for U.S. PIRG and its state affiliates. Mike Russo is the health care advocate for California Public Interest Research Group (CALPIRG). He is the author of Diagnosing the High Cost of Care, a California-specific report on health care costs and provides health policy expertise for U.S. PIRG and its state affiliates. 2 TABLE OF CONTENTS Acknowledgments ..............................................................2 Executive Summary............................................................4 Introduction ........................................................................7 The Cost of Inaction ..........................................................7 Americans’ Health Spending Fails to Deliver Quality......10 Unnecessary Care that Doesn't Improve Outcomes ..........11 Excessive Administrative Expenses..................................13 Unchecked Pharmaceutical Marketing Drives Up Costs...15 Conclusions ......................................................................17 3 Executive Summary Our health care system is in crisis. from this crisis with a health system that Without swift action, that crisis could consumers and businesses can afford and threaten every American family’s health families can depend on. and finances. _________________________________ Unnecessary Medical Care Unless the new Congress and Undermines Patient Health and Administration act to reduce health care Increases Costs costs, the yearly cost of the average employer-paid family health policy in Research has shown that patients who America is projected to more than live in regions with above-average double from $11,381 in 2006 to $24,291 health care spending are not any by 2016 even after adjusting for healthier than people in lower-cost inflation. If recent trends continue, regions. In parts of the country where wages and household incomes will more specialists and hospital beds are simply not keep up with these high costs. available, doctors send patients to Nor will the business sector be immune specialists or to the hospital more to this crisis. Unchecked, this cost frequently, yet the patient outcomes are epidemic could also severely impact the no better. small businesses that drive job creation Medicare and private insurance in the American economy. payment policies compensate doctors on the basis of how many Unfortunately, too much of these tests and procedures are ordered, astronomic costs are going to enrich not on the basis of whether special interests, not buy the best health effective treatment is delivered. care. The Congressional Budget Office Payment for care does not estimates that nationally as much as one adequately support effective third of health care spending is wasted strategies that improve patient and does not improve outcomes. That health and reduce the amount of means that, in 2007, one out of every unnecessary care prescribed such three dollars that Americans spent on as primary care, coordinated health care, or $730 billion, went to the care, patient involvement in care insurance bureaucracies, drug decisions, and the use of companies, medical device evidence-based care. manufacturers, and providers without High-performing health systems improving a single person’s health. that seek to reduce unnecessary care, like the Mayo Clinic and This report examines three important Utah’s Intermountain Health sources of this unproductive spending. System, can reduce costs per We conclude with a package of urgently patient by as much as 43%, while needed reforms which target those providing quality care. If causes, improve quality of care, and rein America’s hospitals achieved in this unnecessary spending. As part of Intermountain’s level of quality comprehensive health reform, these and efficiency, we would spend policies will enable America to emerge 4 $299 billion less a year for even if they are no more effective hospital care. than existing ones _________________________________ Pharmaceutical companies Excessive Administrative increased prescription drug Expenses Inflate Insurance and advertising by 250 percent from Medical Prices 1997 to 2007. In response, physicians prescribe and Many administrative costs within consumers purchase billions of dollars of unnecessary and even America’s health care system are the result of efforts to shift costs from one risky medicine each year. Direct marketing to physicians, payer to another—from the insurance company to a hospital, or from a which has been shown to rely on physician to a patient. This paperwork misleading information, boosts increases total costs without improving the total number of prescriptions outcomes for patients. and increases the number of prescriptions for newer and more Unnecessarily duplicative and expensive drugs that are no better complex billing and insurance than old ones. certification requirements add billions in additional _________________________________ administrative costs. Solutions The credentialing process by which physicians are certified as Fortunately, the high cost of care can be providers is unnecessarily reduced and wasted spending is burdensome and wasteful preventable. America can fix this Insurers and providers spend tens problem now. In light of the 2008 of billions a year nationally on election, health care reform will be on insurance-related paperwork that Congress’ agenda in 2009. If these does not contribute to the quality reforms are to be economically of care. sustainable, they must tackle _________________________________ unproductive spending that doesn’t Unchecked Pharmaceutical improve health. This report recommends the adoption of the following policy Marketing Drives Up Costs initiatives: Americans spend billions of dollars Reduce Ineffective Medical Care annually on prescription drugs that are While Improving Quality no better than cheaper alternatives or Fund comparative that may have dangerous or effectiveness research unrecognized side-effects. Worse, drug that studies which companies’ marketing campaigns in medical procedures, support of their most expensive drugs regimens and drugs work cost $11.5 billion in 2005. and which do not. Drug advertising generally Broadly implement and encourages the use of newer, incentivize coordinated more expensive medications, care systems such as medical homes. 5 Compensate primary care statements in direct-to- providers adequately. consumer advertising and Expand information marketing materials provided to patients and Undertake a publicly encourage them to share funded effort to publicize in decision making about the benefits and prices of their care drugs to counter the Reform public and unreliable information private payment systems provided by to provide the right pharmaceutical incentives for high- companies. quality care and reduce Limit industry’s gifts to unnecessary but costly physicians and require tests and procedures. drug companies to disclose more information Reduce Expensive Administrative about their marketing Bureaucracy practices Standardize systems for enrollment, credentialing, Some of these reforms could happen billing and insurance fairly quickly; others will take years. But payment. it is critical that we start now by Limit insurers’ addressing overspending that does not administrative deliver results. Americans simply can expenditures to a certain not afford any more years of spiraling percentage of premium health care costs. dollars. Reduce Prescription Drug Costs Strengthen FDA monitoring of false 6 Introduction America’s health care system is in crisis, budgets and their mounting health care and without
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