Unbiased Analysis of Today's Healthcare Issues

Waste in Healthcare

Written By: Jason Shafrin - Mar• 04•08

Joe Paduda has a great post (“Wasted Dollars“) reviewing a study by Alex Swedlow. The study focuses on waste in the health care sector with a focus on Workers Compensation. Mr. Paduda concludes the following:

There’s a lesson here for the non-workers comp world, and policy wonks in particular. It is this – providers overtreat, to the detriment of the patient and the payer. Draconian measures such as flat limits on the amount of treatment do work.

With health reform on the horizon, here’s a great example of the waste in our health care ‘system’, waste that benefits the provider.

Paduda claims that Draconian measure work.  They key is that policymakers/bureaucrats set these limits at an economically efficient amount.  If the medical care becomes too limited (e.g.: the number of doctors visits allowed is below the optimal level for many patients) then patient care could be hurt.  If the limits are too high, than there may be no cost savings.

In the California Workers Comp example, Paduda says regulators got it right.

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  1. bingo says:

    Wow, what a reach. It is not intuitive in the least that the Worker’s Comp data is transferable to medical care in general. There is a strong disincentive on the patient side of the equation to seeing the completion of the care. While under the care of the Worker’s Comp system the worker is paid not to work. Neither the patient nor the physician has any incentive whatsoever to discontinue care.

    Contrast this with “real disase care and we see that there is, indeed, a significant amount of care that is rendered that has little bearing on medical outcome, but the underlying rationale for that care is much more complex and is qualitatively different from Worker’s Comp. To be sure a physician who owns an MRI has an inescapable incentive to order an MRI. But what are we to make of the fact that the overwhelming majority of MRI’s ordered (pick a number–80, 90,95%) are ordered by physicians who will not receive any reimbursement for ordering the test. Why is this care ordered? And why does the patient follow through?

    Simple. The patient is insulated from the economic effect of the test because of the pre-paid service contract she thinks is insurance, and therefore has no financial disincentive. The physician is so fearful of a malpractice tort that there is simply no amount of care that she can order that is enough is the next order might be the one to prevent the tort. Unlimited demand on both the patient and the provider sids equals infinite cost.

    Contrary to Mr. Padua’s conclusion there is nothing in that study that is remotel referrable to the non-Worker’s Comp world.