California Needs to Get Costs Under Control Without Cutting Health Care: Report Shows How Smarter Spending Can Rein in Rising Premiums

For example, hospitals in Sacramento are more likely to provide proper care for patients suffering from heart disease, congestive heart failure, and pneumonia than hospitals in the Los Angeles region. These are simple steps that manage chronic disease and keep them from becoming medical emergencies. But care in Los Angeles is much more intensive, and therefore expensive: compared to Sacramento patients had three times more visits to specialists, spent twice as many days in intensive care, and were hospitalized 1.6 times longer, ultimately leading to a 67% cost increase.

Again, this higher-intensity care doesn’t wind up helping patients. Being admitted to the hospital, moved to and from the ICU, and referred to an endless series of specialists negatively impacts patient care – because no one doctor is in charge of the overall course of treatment, the risk of medical errors, drug side-effects, and duplicative testing is greatly increased. And patients in L.A. are less satisfied with their treatment as a result. This is one case where too many cooks do spoil the broth.

Reducing this excess treatment, through initiatives like ensuring that chronically ill patients get low-cost, high-benefit treatments, and reforming our payment systems so they reward doctors who provide effective care, rather than just a lot of it, would save us at least $700 million annually.

Second, there’s administrative waste. While some administrative spending – such as maintaining high-quality patient records – can improve patient health, billions of dollars are spent on administrative tasks that don’t help patients. California’s costs just for billing and insurance related activities come to more than $9 billion annually – over $350 per insured Californian. While some spending on billing is inevitable, too much of this money is spent forcing doctors to fill out overcomplicated paperwork, using forms that are different for each insurer.

Nor is billing the only area where administrative costs are higher than they should be. The process by which physicians have to demonstrate to insurance companies and others that they are capable of providing high-quality care is time intensive and duplicative. On average, physicians submit 17 credentialing applications annually to insurance companies, hospitals, and other health care facilities, and completing each application requires nearly 90 minutes of staff time – over half of a work-week just on filling out these forms, in total.

To bring these costs under control, we need to move towards a standardized billing and payment system that would be shared by the state’s insurers and providers, as well as capping insurers’ administrative costs so they have the incentives to run a tight ship.

A third area of wasteful health care spending is drug company marketing. Pharmaceutical advertising is often misleading, and encourages physicians to prescribe, and consumers to purchase, billions of dollars of potentially unnecessary medicine every year. And because drug advertising encourages the use of newer, more expensive medications, even if they are no more effective than existing ones, consumers can end up paying much more than they should.

These ads work: after seeing direct-to-consumer ads, patients ask their physicians for prescriptions, and doctors comply. An estimated 2 to 7 percent of consumers who see drug ads eventually get a prescription for the advertised drug. With that kind of a success rate, it’s no wonder that the industry spends an estimated $2.5 billion on advertising in California each year.

Cutting costs doesn’t have to mean cutting care. With gas prices at record highs and problems in the housing market, Californians need commonsense solutions like these to protect their health, and their pocketbooks. It’s critical that we reform the elements of our health care system that promote spending that does not deliver results. Besides limiting costs, these changes will help, not hinder, doctors as they work to deliver the best care to their patients.

Our report shows that we waste literally billions of dollars in our health care system. We can have more affordable care that’s high-quality and accessible to more Californians. But just jacking up spending – or making cuts across the board – won’t do the trick. We need to be smart about making sure that we’re getting a real bang for our health care buck.

Michael Russo is the Health Care Advocate and Staff Attorney for the California Public Interest Research Group (CalPIRG). He has worked with other public interest organizations on human rights and First Amendment issues. Russo received his law degree from Columbia Law School in 2007. CalPIRG is a statewide membership-based public interest group that stands up to powerful interests, working to win concrete results for Californians’ health and well-being. With researchers, advocates, organizers and students , it advocates on behalf of consumers and all California’s residents.