Wasteful Spending in Healthcare

Wasteful Spending in Healthcare

            Wasteful spending in healthcare in the United States is a significant source of concern for both policymakers and the American public. It is estimated that the nation spends over $3.5 trillion on healthcare annually. Unfortunately, up to 20 percent of this amount could end up wasted. Indeed, the annual costs of wasteful spending compare to the government’s spending on Medicare, and these costs exceed total government spending on primary and secondary education. Thus the nation’s economy would greatly benefit from curtailing these losses. All the sources of wasteful spending in the health sector must be closely identified to avoid further damage. Among the main culprits of wasteful spending in healthcare include administrative costs, exorbitant prices (including the prices of drugs), and hospital consolidation. Concerning these three factors, this discussion aims to establish the source of inefficiency in these critical areas. The possible solutions for addressing the issues entirely and permanently will also be provided. The arguments presented in this discussion will defend the proposition that – despite having the world’s most expensive healthcare system, the country falls short of having a satisfactory healthcare system, thus the need to curtail wasteful spending.

The Impact of Exaggerated Administrative Costs

In recent decades, it has emerged that the United States incurs higher administrative costs than other developed nations. According to Papanicolas, Woskie, and Jha (1024), the country spent nearly twice as much as ten developed countries in 2016, but the population health outcomes were worse in the United States than in some of those countries. The main explanation for the higher administrative cost spending by the United States is the reliance on a disparate system of private providers and insurers. On the contrary, other developed nations rely on the more cost-efficient single-payer systems. A developed country whose healthcare model starkly contrasts that of the U.S. is that of Canada. In 2017, when the U.S. incurred $2500 per person on administrative costs, Canada spent $550 (Himmelstein et al.). Considering that the United States’ healthcare is not necessarily better than that of Canada, it is evident that a costlier structure is not necessarily advantageous.

Insurers’ overhead is the chief cause of bloated administrative costs. Of the $812 billion spent in healthcare administration in the United States, insurers’ overhead accounted for over $275 billion (Himmelstein et al.). Of the $275 billion, only $45 billion was used to administer the government’s healthcare programs, with the rest being used to cover private insurers’ overhead and profits. In comparison, Canada incurred $5.4 billion in insurance overhead (Himmelstein et al.). A close analysis of the U.S.’s administrative spending since the turn of the century reveals that insurance overhead is the chief source of incremental expenditures in this category of healthcare spending. The continual increase in insurers overhead has been contributed, in part, by the trend of private insurers assuming the role of subcontractors of managed care. By so doing, these subcontractors handle managed care plans for Medicare and Medicaid, which gives them the liberty to recruit clients to premium insurance plans and privately managed care plans at the expense of the more cost-effective publicly administered care plans.

The other healthcare administrative costs shouldered by the taxpayer relating to the cost of planning, regulating, and managing healthcare. Having several unnecessary administrative costs that do not translate into quality health care continue to injure the health sector. The figures here, despite being dwarfed by those of insurers’ overhead, still exceed those of other developed nations. As with the overall healthcare expenditure model, high administrative costs do not translate to better healthcare management and service delivery.

Recommendation

There is an urgent need to lessen administrative costs. Reducing the administrative expenses in the United States is necessary because, as it stands now, it is xcessive. What is even more worrying is the fact that the cost of healthcare in the United States exceeds that of other developed nations (Gee and Spiro; Himmelstein et al.; & Papanicolas, Woskie, and Jha 1030). The most effective way to achieve this end is to transform the United States into a single-payer healthcare system. Indeed, Himmelstein et al. suggest that although there exist alternative strategies for lessening administrative costs, none would bring about the amount of savings that would be made possible by a single-payer healthcare system. This shift in the healthcare delivery system has been tried and tested, particularly in Canada, where the cost of a single-payer system accounts for a fraction of the cost of sustaining the disparate system used by the U.S. Also, all the other unnecessary administrative costs such as in the management of healthcare ought to be revised by experts to ensure that only productive employees whose input contribute to quality health care are retained. Substantial investment in the automated workflow programs may reduce the number of the workforce employed to undertake the healthcare provision task. It is, therefore, necessary to make the best choice of a technology partner because a wrong decision may mean that the cost can go higher. Having a company that can provide all IT related issues can provide the best remedy to some of the higher administrative costs. The partner must be committed to reducing the administrative costs in healthcare through the reduction of the burden of administrative tasks. This can be achieved through the standardization of specific activities in an attempt to reengineer the system for efficiency. The healthcare sector must be aware of savings opportunities available and continuously introduce reforms that can mitigate the ever-increasing administrative costs and the challenges linked with healthcare reasoning.

Exorbitant Prices

The other key factor that has caused wasteful spending in healthcare is the tendency by different stakeholders in the healthcare industry to overcharge the American public for healthcare. Overcharging the public has a negative impact on the population because it can hinder individuals from receiving quality health because they cannot afford the services. This factor is contributed by a wide range of factors, including the lack of sound policies to regulate the pharmaceutical industry, inefficiencies by regulatory agencies (particularly the Food and Drug Administration (FDA)), and the lack of state-level pharmaceutical marketing disclosure laws. The pharmaceutical industry has been the main culprit for the exorbitant prices of healthcare. Evidence shows that big pharmaceutical companies (big pharma) have been responsible for setting premiums over the cost of producing drugs, resulting in ridiculous prices of essential medication (Kesselheim et al. 857). Indeed, Kesselheim et al. (858) confirm that the U.S. has the highest per capita spending for prescription drugs globally, which is caused by market exclusivity of the drugs sold by the leading pharmaceutical companies and the patenting these drugs, which prohibit lesser manufacturers from offering alternatives to customers. The capacity for the big pharma to overcharge for prescription medication points to a lack of sound policies regulating the industry. The premium prices charged for essential medication render healthcare unaffordable for poor Americans without insurance cover. The described situation has encouraged the trend of Americans traveling to other countries in search of primary healthcare.

Inefficiencies by the federal agencies charged with regulating private actors in the healthcare industry, particularly the FDA, have also played a key role in facilitating the exaggeration of the cost of essential medication. These agencies can authorize the entry of generic drugs into the American market, as long as they meet the necessary quality standards. However, the FDA, seemingly acting under the influence of the big pharma, only approves the drugs manufactured by renowned pharmaceutical companies even when those produced by the smaller corporations are up to standard. Other than upholding the quality of drugs, these regulatory agencies are responsible for cushioning the American public from the greed of big corporations by prohibiting pharmaceutical companies from setting premium prices on prescription medicine. Such protection is aimed at upholding every individual’s right to health, an objective that can hardly be achieved if the ordinary American cannot afford necessary medication.

Finally, the lack of proper state-level pharmaceutical marketing disclosure laws has played a part in promoting the regressive tendencies of pharmaceutical companies. It has been agreed that the transfer of gifts from drug companies to physicians adversely affects patient care and the cost of healthcare (Kesselheim et al. 858). For instance, a recipient of a gift from a pharmaceutical company is likely to prescribe drugs sold by the company to patients in spite of the availability of better, less expensive alternatives. According to Ross et al. (1220), pharmaceutical firms are known to offer substantial payments to physicians in Minnesota and Vermont, often exceeding $100. In spite of this evidence, there are hardly any measures in place for curtailing pharmaceutical companies from influencing physicians.

Recommendations

it will be necessary to regulate the prices charged by the pharmaceutical industry, particularly concerning essential medication to increase the affordability of healthcare provision in the country. A critical first step in this agenda should be restricting pharmaceutical companies from patenting critical drugs. It FDA must set guidelines for the pricing of prescription medication and ensure that these companies follow them. For instance, it would be fitting to restrict these companies from pricing such drugs at a rate exceeding 100% of the cost of production. To achieve such a measure, these companies would need to be required to be exercise transparency. Secondly, pharmaceutical companies must be restricted from patenting prescription medication. Indeed, the intervention of federal regulatory agencies and perhaps the input of lawmakers would be needed to change the existing laws.

Thirdly, the FDA is given more authority over these companies to lessen the influence of big pharmaceutical companies on the country’s healthcare system. In serving its duty to American citizens, the agency ought to be independent of the control of private companies. That way, the agency can revoke the licenses of those companies that act contrary to the public’s collective interest. Fourthly, the FDA should be able to exercise its authority to approve generic drugs that meet the quality standards in place to make medication affordable to all.

The fifth factor of necessity in the effort towards making medicine affordable for all entails lessening the influence of drug companies on the practice of physicians. These companies aim to make profits, and they often exploit physicians to achieve that objective. Since evidence suggests that bribing physicians from drug companies adversely affects patient care and the cost of healthcare, lawmakers at the state level ought to implement policies that will hold these companies accountable for such actions. For example, requiring drug companies to disclose payments made to physicians and health facilities would be a necessary action because it would discourage these enterprises from bribing healthcare practitioners. Lastly, states should institute punitive measures against drug companies found trying to persuade physicians to favor them. Such penalties should also apply to physicians because accepting such gifts constitutes a form of bribery, which is contrary to the law, thus punishable. Additionally, the sanctions should be high enough, especially when it comes to the pharmaceuticals, for them to be effective.

Hospital Consolidation

Hospital consolidation entails the formation of mergers and acquisitions among healthcare providers that often occurs in response to a policy change that threatens the capacity for healthcare providers to offer their services profitably. Such consolidations became common in the mid-1990s in response to the threat of managed care and again in the 2010s after the passage of the Affordable Care Act (ACA). The idea behind consolidation is for hospitals to become big enough to not only survive but also to thrive in a post-reform environment (Lineen 315). According to Lineen (316), well-positioned and financially distressed healthcare providers actively engaged in mergers and acquisitions following the passage of ACA. However, consolidation generally results in higher prices for healthcare services (Gaynor and Town). Consolidation also reduces competition in the market because when competitors merge, they stop competing in favor of working with each other.

Competition not only leads to low prices but also improves the quality of care. Therefore, without it, the prices of medicine and other healthcare services are bound to increase (Gaynor and Town). Besides, the quality of services is linked to decrease. The passing of ACA also saw an upsurge in physician-hospital consolidation without integration because physicians were motivated by the need to improve bargaining power with clients, rather than to improve the quality of care. As a result, healthcare became costlier, but the quality of care did not improve significantly. As such, the patients were paying more for healthcare service but receiving substandard care. When healthcare providers consolidate, the public is exposed because the plot always leads to a higher cost. The healthcare providers that have colluded can exploit the clients with the higher prices, and unfortunately, the public may not have anywhere to run to. Health consolidation, therefore, increases the expenditure in the healthcare sector by reducing the competition and having a more comprehensive control of the market.

Recommendations

The key to sustaining a competitive healthcare environment is providing physicians with ideal legal and economic conditions to deliver services to clients. These physicians need to be free to perform their roles, albeit be responsible for their actions, instead of being unnecessarily restricted for them to be productive. Letting physicians free to perform their duties is likely to encourage them to accomplish while at the same time, discouraging them from engaging in consolidation activities that may raise the cost of healthcare. Competition is healthy for any sector because the public tends to be the ultimate beneficiary. Having strict rules is likely to demoralize the healthcare providers. Although ACA was well-intended, it fell short of upholding the interests of physicians. Going forward, the government ought to liberate physicians from the restrictions set forth by bundled payments. Lawmakers ought to engage healthcare providers in coming up with policies that will favor all parties involved to promote competitive conditions in the healthcare delivery system. Finally, the government must restrict physicians from pursuing consolidation with hospitals without a rigorous integrative process. Integration would ensure that mergers result in improved quality of care.

Conclusion

Wasteful spending is a major hindrance to the attainment of healthcare objectives in the country. If funds are wasted, then it means that they have not played the role they were intended to represent. The efficient utilization of healthcare facilities and funds translate to quality healthcare. Addressing this problem necessitates wide-ranging policy changes that will affect different stakeholders in the healthcare system. Indeed, it will be necessary to transform the United States into a single-payer healthcare system to control the ever-growing administrative costs of healthcare. The problem of excessive pricing, on the other hand, can be addressed by exercising authority over big pharmaceutical companies and permitting lesser manufacturers to introduce generic drugs. If the pharmaceutical prices are barred from selling medication at extremely high costs and the generic drugs are made readily available, then medicine would be affordable for all. Finally, the problem of hospital consolidation can be addressed by liberating physicians from the legal restrictions that may limit them from serving profitably. If they earn well and comfortably, then the need for consolidating hospitals for profitability will be eliminated.

Works Cited

Gaynor, Martin, and Robert Town. “The Impact of Hospital Consolidation—Update.” The Synthesis Project. Robert Wood Johnson Foundation. http://www. rwjf. org/content/dam/farm/reports/issue_briefs/2012/rwjf73261 (2012).

Gee, Emily, and Topher Spiro. “Excessive Administrative Costs Burden the U.S. Healthcare System.” Center for American Progress. April 8, 2019. https://www.americanprogress.org/issues/healthcare/reports/2019/04/08/468302/excess-administrative-costs-burden-u-s-health-care-system/

Himmelstein, David U., Terry Campbell, and Steffie Woolhandler. “Health Care Administrative Costs in the United States and Canada, 2017.” Annals of Internal Medicine (2020).

Kesselheim, Aaron S., Jerry Avorn, and Ameet Sarpatwari. “The High Cost of Prescription Drugs in the United States: Origins and Prospects for Reform.” Jama vol. 316, no .8, 2016, pp. 858-871.

Lineen, Jason. “Hospital Consolidation: “Safety in Numbers” Strategy Prevails in Preparation for a Value-Based Marketplace.” Journal of Healthcare Management 59.5 (2014): 315-317.

Papanicolas, Irene, Liana R. Woskie, and Ashish K. Jha. “Health Care Spending in the United States and Other High-Income Countries.” Jama vol. 319, no .10, 2018, pp. 1024-1039.

Ross, Joseph S., et al. “Pharmaceutical Company Payments to Physicians: Early Experiences with Disclosure Laws in Vermont and Minnesota.” Jama vol. 297, no .11, 2007, pp. 1216-1223.