Resources for Population Health Improvement: What About the Savings from Waste in Health Care?

Originally posted 5/17/2010

he release of the national County Health Rankings demonstrates how large the gaps are across our communities in both health outcomes and the factors producing health. Particularly in the lowest ranking counties in any state, there are significant resource constraints in all the factors producing health. These include health care access, disease prevention and health promotion programs and policies, early childhood and health literacy efforts, jobs and economic development, air and water quality, and the built environment. Where might the resources come from to make improvements toward better health—particularly for our most under-resourced communities?

One place to look is at the waste in our health care system. For years organizations as prominent as the Institute of Medicine have been observing that 25% to 33% of all of our health care expenditures may be wasted because they are ineffective in improving health. Dr. Elliott Fisher and colleagues at Dartmouth have been calling attention to the approximately threefold regional variation in per capita Medicare expenditures from $5300 to $16,300 without differences in health care quality and health outcomes (1). They have also recently observed inflation adjusted Medicare growth rates varying from 2.3% in Atlanta and Pittsburg to 5.3% in Dallas over the period 1992-2006. The Dartmouth group indicates that reducing the spending rate from the national average of 3.5% to the 2.3% experienced by San Francisco would save Medicare $1.3 trillion by 2023.

Looking at it another way, total health expenditures in 2009 were projected to be $2.5 trillion. If 25% of that could be saved, that would amount to $625 billion per year. Providing health insurance to everyone would require an estimated $100 billion per year. That would leave more than $500 billion for smoking cessation, exercise and nutrition efforts, education enhancements, job creation, and creating safer communities. To put this in context, total national expenditures in 2005-2006 for all K-12 education in the entire country was $461 billion.

However, achieving these savings is challenging. Republicans and Democrats alike are skeptical that cost-containing provisions of the Obama Health Insurance Reform law will be strong enough to reduce expenditures substantially. Even in places that have low health expenditures and good outcomes, cultures of cost effective practice have been developing for decades; they cannot develop overnight. A current proposal is to develop Accountable Care Organizations, in which financial incentives would be provided for developing efficient practices. Discussions have begun around the concept of shared savings, in which savings are divided between the providers who produce them and insurers. Vermont has already been using savings to hire staff for community clinical prevention while leaders in Minnesota have raised the possibility of using part of the savings to create Accountable Health Communities.

These are only initial ideas and beginning steps; vast resources will be necessary to fully implement the plans described above. Dan Fox, a careful observer of American health politics, has observed that policymakers “most likely would ration spending to improve overall population health in order to avoid rationing health care…there is no reason to expect that a value dividend, if one accrues, would be used for any other purposes than slowing the growth of spending or providing more access to health care (2).” Bentley similarly observes that “as a society we may prefer to provide care to the sickest, most vulnerable patients even though our money could buy greater improvements in life span or quality of life if used for another purpose (3).”

While common sense suggests a systemic streamlining that involves exchange of ineffective resources for those shown to be most (or at least more) effective, political realities are not necessarily rooted in common sense. Paul Starr’s book The Social Transformation of American Medicine sums up 150 years of medical history by saying that “the dream of reason did not take power into account.”

We must hope that approaches to shared savings in health care develop more robustly and gain traction. But they are not the only hope. We have to look for other inefficiencies as well. Governments, philanthropies, and businesses will have to make additional resources available. Promising current examples include the California Endowment’s Building Healthy Communities initiative and the Minnesota’s State Health Improvement Plan (SHIP).

In summary, waste and inefficiency in our health care system are one potential source for investing in the broader determinants of health. A fundamental population health challenge is to identify incentive structures and cross-sectoral allocation models to bring such possibilities into policy and practice.

A future post will expand on these ideas and examine additional sources of funding for fundamental population health improvement.

References:

1. Fisher ES, Bynum JP, Skinner JS. (2009). Slowing the growth of health care costs—lessons from regional variation. The New England Journal of Medicine, 360(9), 849-852.

2. Fox DM. (2010). Realizing and allocating savings from improving health care quality and efficiency. Prev Chronic Dis, 2010;7(5). In press.

3. Bentley TGK, Efros RM, Palar K, Keeler EB. (2008). Waste in the U.S. health care system: A conceptual frameworkThe Milbank Quarterly, 86(4), 629-659.

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