A View from the Institute of Medicine

The need for health insurance reform just became clearer with the release from the non-partisan Institute of Medicine (IOM) of an estimate that the health care system contains over $800 billion in excess costs, a number consistent with previous studies. In other words, according to this new estimate, we spend more than $800 billion a year on health care that does not make us healthier. The result is higher premiums for us all and higher costs for the government — but it also means you may receive tests and procedures that you do not need, putting your health at risk.

 

According to the study, excess costs arise from a variety of sources. Excessively high administrative costs for insurers, physician and hospitals come to about $200 billion. Unnecessary services, such as using more expensive brand name drugs when generics are just as good and overusing tests and treatments compared to professional guidelines, account for another $200 billion or so. Errors and avoidable complications add $75 billion, and fraud adds another $75 billion.  Preventive measures — both in terms of keeping healthy people healthy and keeping people with chronic illness such as diabetes out of the hospital — tack on another $55 billion. And the list goes on. 

 

The big question is how can we get reduce these costs?  The IOM identifies different levers to push change, including: uniform administrative requirements for paperwork; reform of payment incentives so that they are more oriented toward results and quality; increased reliance on evidence-based quality practices; the development of more independent evidence of what works and what does not work; electronic clinical records that can be shared and are privacy protected; and providing incentives for more consistent and widespread prevention interventions. As one goes down the list, almost all these changes have been endorsed by the Administration and most are included in the reform bills making their way through Congress, including the legislation currently being considered by the Finance Committee.   

 

The bottom line is that this report highlights the hundreds of billions of dollars wasted every year on inefficient and unnecessary care in our health care system.  And there is an evolving consensus — from the non-partisan IOM to the recent bi-partisan, Brookings Institution study — that the types of policies the Administration has endorsed will help to reduce these excessive costs over time. This both will help put the nation on a more sustainable fiscal path and enable us to use these now-wasted funds to provide higher quality medical care to more Americans.