The Harvard economist, David Cutler, outlines healthcare’s biggest inefficiencies, and explains how to solve them.

Question: Why is their so much waste in our healthcare system?

David Cutler: Let me give you three examples of why we have waste, and how you could get rid of them.  The first example is, look at what actual providers are doing on a moment-to-moment basis. So if you...people have done studies where you follow nurses in a hospital with stop watches, or you have them carry a Palm Pilot where they record everything that they do.  The most common thing that a nurse in a hospital does, is document things.  She takes the printouts from electrical equipment, gets it on paper, reenters it into the computer.  That’s a third of the time that doesn’t need to happen—no other industry does that.  That’s probably thirty billion dollars  a year spent on that.  So that’s one example.

There all sorts of other examples, ranging from infections that are not prevented and so driving up spending, to doctors who spend Seventy-Thousand dollars a year on the telephone with the insurance companies and pharmacies, and their staff doing that.  So the first item is just money spent to doing things than no other industry do we tolerate—which is why productivity is very low in health care.

You could get rid of that with information technology, both what we have, and what we can expect, in the reasonably near future.  You could get rid of that with the payment changes, you could get rid of that through organizational changes. 

The second area is insurance companies that drive up spending a lot by separating out who’s helping and who’s sick.  So they spend a lot of money figuring out who the healthy people are and who the sick people are, and how to ensure only the healthy people.  That is a big, big loss for society. Of course someone has to pay for the sick people, they’re not going to pay for hundred of thousands of dollars on their own; so me and you are going to pay for it through tax dollars or through other programs.  The money spent shuffling them around is just a complete waste, and many of the insurance company recognize this and are willing to do something about it.  So that’s the second example. 

The third example is people who have more very acute episodes than they need to. And when they have those episodes they cost more than they should.  An example: diabetic patients were not treated well and an outpatient basis wind up going into the hospital with kidney failure, immediate amputations of extremities, going blind with heart attacks.  Why? Because we couldn’t get it together to treat them better when they had diabetes without those complications. And then when they have the complications, of course, we don’t manage it very well. They go into the hospital, they come out of the hospital—they don’t get a doctor’s appointment, they don’t see the nurse right away, they wind up coming back into the hospital three weeks later with further complications.  All of that is expense that doesn’t need to happen. 

And if we do a better job coordinating care for people; better job managing them when in their less acute states; better job of dealing with them throughout the course of their illness rather than just that the very end—we can save an enormous amount of that expense as well.

Recorded on: July 06, 2009