BusinessWeek published a nice article last month on waste in health care spending. Apologies for the delay in getting on top of this – I didn’t even know about it upon its release, but luckily our office’s periodicals are significantly out of date (which reminds me, I should check our milk…). One key message I took away from it was nicely summarized by the post’s author, Catherine Arnst, as follows:
None of the health-care reform bills on the table in Washington do anything meaningful to address (wasted health care spending of) $700 billion.
$700 BILLION dollars in wasted spending?? That’s about a third of what we spend on healthcare, and equal to 5% of US GDP. Depressingly, PWC actually pegs this figure at over a trillion (yes, that was with a ‘t.’ Did I stutter?). But geez, $700 billion…That’s equal to the size of Treasury’s Wall Street bailout program (TARP: the gift that keeps on giving…to Wall Street). That’s over 6 times the combined net worth of Bill Gates, Warren Buffet and Carlos “Senor Telefonica” Slim. And it’s even 7 times more than Dr. Evil’s (eventual) ransom amount set in the first Austin Powers. The difference here is that US health care waste is recurring each year and only seems to be growing.
Another thing to keep in mind is that this figure has only approximated wasteful spending in our current, mostly privatized, system – not additional costs due to healthcare policy (i.e., private vs. public payers). While it’s arguable as to which system is most efficient or provides the highest quality care, there is no debate that a single public payer would drive costs down even further by setting spending caps and wringing corporate profits out of the equation (for good background, check out this helpful – albeit biased – post). Moreover, it’s likely that the American privatized system actually lends itself to more waste: frivolous lawsuits, fraudulent reimbursement for services that were either not given or paid for, ability to go straight to expensive specialists as opposed to allowing primary care physicians to coordinate the action, etc. The catch is that shifting to a single payer or hybrid approach would potentially stifle innovation by squeezing financial motivations for biopharma, medical device, and health care service providers…all of which makes the prospect very un-American and troubling. No need to get into this debate because chances are you’ll fall down on one side or the other given your political leanings and not much else.
Either way, there is a lot of waste in our system. The good news is that a lot of this waste can be demolished with simple shifts in coordinating healthcare, per the points Arnst outlines. But there still has to be opportunity here for startups to get in on the action and save payers a great deal of this wasted spending (exhibit A: $700 BILLION!). Why aren’t we focused on addressing that spending as we move to cover health costs for uninsured Americans? Surely eliminating just a fraction of this waste would pay for that coverage, and ensure the system is far more sustainable going forward. Congress isn’t proposing anything to force cost-saving policies or services into place. As a taxpayer, this is frustrating; but as a VC, I see a lot of opportunity for innovative entrepreneurs to bust on the scene with creative solutions no one sees coming. What do you guys think? And please keep the business concepts/ plans coming.
