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Is ‘Unnecessary’ Care Really Driving Up Health-Care Costs?

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Regardless of a person’s political views, we can all agree that rising cost is a major problem with our health-care system. Last year, Americans spent 18 percent of our economy, or $3.6 trillion, on health care. The ever-increasing cost curve would suggest that by the 2030s the country will spend 30 percent of our gross domestic product on medical treatments.

Extensive research has been done to identify unnecessary care and wastefulness in the system. Estimates vary, but from 20 percent to 30 percent of health care in the U.S. is considered to have no value to patients. Many believe this waste is the low-hanging fruit in health-care reform. What is the reality?

The first thing pundits blame for this waste is the fee-for-service reimbursement plan. Theoretically, providers order more tests and procedures simply because they get paid more for doing more. Yet every other profession is also based on this payment arrangement — dentistry, architecture, even auto repair, for example.

Some argue that medical providers should be paid based on quality and outcomes, as determined by bureaucratic committees. Of course, the easiest way to obtain good outcomes is to stop taking care of the sickest patients.

Most research identifies many small interventions that cumulatively add up to significant spending. For example, the use of antibiotics for the common cold or cancer screening that is determined to be too frequent are often cited as cost drivers for the overall medical system.

A lot of medicine is as much an art as a science. An aggressive intervention may be recommended for one patient, whereas 99 other similar patients may not benefit from the same treatment. Researchers may then categorize the operation for that one patient as “unnecessary,” even though the attending physician knew it was that patient’s best chance for recovery.

Finally, the question of defensive medicine must be addressed. Estimates vary widely depending on definitions, but are in the range of $38 billion to $800 billion each year in the U.S. for tests and procedures to prevent potential lawsuits.

There are three fundamental problems with the unnecessary medical care argument. The first is that it looks at health-care costs in aggregate and not at the individual patient. Researchers simply estimate what the cost savings to the overall system would be if providers ordered cancer screens every five years rather than every year or didn’t order antibiotics as often for patients with viral infections.

This leads to the second problem, which is patient demand. A worried patient sitting in a doctor’s office might ask for, or at least feel reassured, by the provider ordering a particular test or a drug. These may seem “unnecessary,” but the individual cost is relatively low and can be very reassuring for that patient. The doctor may know that a small “unnecessary” expense will have a large benefit on the patient’s overall physical and mental health.

The final and most important problem with unnecessary health-care research is the fact that 85 percent of medical care in the U.S. is paid for by a third party — either by employers or by the government through Medicare, Medicaid, Obamacare, and the VA hospital system. It is an economic principle that if someone else is paying for a service or a product, people will use much more of that service or product without thinking about the cost.

When people spend their own money, they are much wiser consumers than when someone else pays, but the existing health-care system largely doesn’t allow patients to act as consumers and spend their own money. It will take major health-care reform to eliminate the third-party payer system and the distorted incentives it has created. When we do, as we see with countless other goods and services, individual consumer choices will drive prices down and quality up over time. This approach has worked in the medical field in areas such as Lasik eye surgery and would work more broadly.

The challenge for the future is in reminding consumers that the choices and quality they take for granted in food, services, and cell phones are a direct consequence of market forces, and they are denying themselves better, more convenient, and more affordable medical care by removing the individual power of the consumer from our health-care system.

Dr. Roger Stark, MD, FACS, is the author of the new book Health Care Policy Simplified.