Money down the medical drain.

ALMOST DALLY THE NEWS has another story about the spiraling cost of healthcare, often with new twists that underscore the tenuous state of medicine in the United States. A recent report added to the disturbing list by documenting that one in seven people under age sixty-five spend 25 percent of their income on healthcare, one half of bankruptcies in the United States spring from medical bills, and the number of employment opportunities that offer healthcare benefits is decreasing (five million fewer from 2000 to 2004). And, most astonishingly, the article cited an Institute of Medicine estimate that 18,000 Americans die unnecessarily each year due to lack of health insurance.

Lawmakers have made some awkward attempts at healthcare reform, but patchwork (and inefficient) efforts like the Medicare drug benefit don't begin to address some of the fundamental problems with the organization of healthcare.

A study recently released by the Medical Group Management Association (MGMA, a private physician management firm that conducts research on medical group management) provides insight into some of the reasons medical costs are out of control. MGMA looked at 300 group practices in the country and found that, in a medical group practice of ten physicians, an average of $247,000 per year is wasted on useless or duplicative administrative costs. This figure includes about $38,000 a year to verify patient coverage and $20,000 on phone calls to pharmacies regarding formulary issues (does a patient's particular health plan pay for a particular drug?). A ten-physician group practice typically spends $33,000 each year negotiating contracts with an average of fifteen different health plans. Nine thousand dollars per year is the cost for resubmission of claims denied by health insurers (of which seventy-three percent are eventually paid). And, since each physician must be credentialed (that is, provide documentation regarding medical school, residency training, board certification, malpractice history, disciplinary issues, and so forth) for each health plan with which the group contracts, the average ten-doctor group spends $8,000 per year submitting credentialing applications for each member.

These expenditures are a very small part of the nonmedical costs that burden the healthcare system in the United States, but they add up to real money. For Americans who wonder how such an enormous financial commitment to medicine results in such spotty coverage, they are examples of the many hidden costs of which most medical consumers are unaware.

There are about 800,000 practicing physicians in the United States. Simple math (800,000 divided by 10, all times $247,000) shows that the unproductive administrative expenses described above alone account for almost $20 billion of our healthcare costs (which is about one percent of the total). There are of course many more nonmedical costs to our labyrinthine system of healthcare, but the examples show how healthcare costs in the United States could be trimmed fairly readily. Some analysts believe that the total expense required to run the bureaucratic monstrosity that is our healthcare system exceeds 30 percent of the overall expenditure on health. The figure for single payer Canada isn't quite 17 percent. Insurers in the United States alone typically skim off over 10 percent of health insurance premiums, while the administrative overhead for our most prominent public insurance program, Medicare, is less than 4 percent.

These facts suggest that groups advocating a national healthcare plan might be correct when they say universal coverage is both desirable and affordable, once the waste of our current system is eliminated with a simple, comprehensive approach to the administration of healthcare. The organization, Physicians for a National Health Program, for instance, claims that its proposal for a public insurance program could realize administrative savings sufficient to hold healthcare spending at current levels while providing medical coverage for the forty-five million Americans who currently have no medical insurance. Many states have also concluded that a single payer policy would result in huge savings.

As Americans begin to confront the structural issues in healthcare that result in so many financial and medical dislocations, they should recall the famous line from Winston Churchill--"Americans will always do the right thing ... after they have tried everything else."

It may be time to do the right thing and institute a national healthcare plan.

BY JAMES P. WHALEN, MD

Dr. Whalen is a practicing physician and a freelance medical writer who can be reached at [e-mail].