New evidence indicates that an incredible 30 percent or more of all U.S. health care spending is wasted and unnecessary.  Since health care is the single largest sector of the American economy, this drain has devastating effects on the nation’s economic well-being.

On average, the cost for American companies that provide health care is now between 12 and 15 percent of payroll, up from eight percent only five years ago.  This is forcing them to forego wage increases in favor of retaining beneits, require larger co-pays from employees or, in some cases, abandon health care coverage entirely.

“The escalating cost of health care undermines middle class life in America, which was built on the strength of union labor and collective bargaining,” says LIUNA General Secretary Treasurer and LHSFNA Labor Co-Chairman Armand E. Sabitoni.  “Together with our signatory employers, LIUNA is doing everything it can to control these costs.”

Referring to the new data, Sabitoni adds, “It is now clear that a big part of our battle is with the doctors and hospitals that are promoting costly and unnecessary procedures while passing the cost of ineffective service onto our health and welfare funds.  If we’re going to improve our competitive position relative to the non-union sector, we must insist on quality care and full accountability from all of our health care providers.”

Consider these facts:

  • The cost of treatment complications – some due to medical errors and others rising from the inherent risks of medical procedures – is $19 billion annually and affects 914,000 patients.
  • Every year, 2.4 million unnecessary operations – most commonly, heart by-passes, hysterectomies, pace-maker insertions and tonsillectomies – are performed at a cost of $3.9 billion and result in 11,900 unnecessary deaths.
  • About half of all antibiotic prescriptions are written for viral infections on which they have no effect.

“An analysis by the Midwest Business Group on Health,” says Mary Jane MacArthur, LHSFNA Health Promotion Division Director, “indicates that as much as $390 billion per year is spent on the inefficient or overuse of medical care.  That’s one-third of the entire nation’s health care expense.  Clearly, if we can limit this waste, we can make progress in containing the cost of health care.”

MacArthur works with the Health Care Advisory Committee (HCAC), an ad hoc group of LIUNA health and welfare fund administrators and consultants who are searching for ways to save money and improve care for the funds and, ultimately, for signatory employers and LIUNA members.

“Our emphasis is shifting,” says MacArthur.  “Eighteen months ago, our main focus was on health care coalitions (see “Health Care Coalitions Offer Means to Fight Higher Costs,” LIFELINES, Winter, 2004) as a means to increase the buying power and leverage for our health and welfare funds.  In doing that, we also saw how some coalitions were able to use their leverage to demand better performance from certain hospitals.  Apparently, we weren’t alone.  Over the last year, a number of studies have zeroed in on wasteful, inefficient and ineffective treatment from doctors and hospitals.  We’re all looking for ways to tackle this issue.”

One such study was released by the Pennsylvania Health Care Cost Containment Council on July 12.  It showed that nearly 12,000 hospital patients in the state contracted an infection during their hospital stay in 2004.  These infections raised the cost of their care by $2 billion and resulted in 1,500 preventable deaths.  Extrapolating from Pennsylvania’s four percent of the total American population and the state’s 1,500 deaths, Marc P. Volavka, the Council’s executive director, said, “You may have an additional 100 people dying per day” nationwide due to hospital-acquired infections.

However, Volavka said that the numbers in the report would have been much worse except for significant underreporting by the hospitals.  Pennsylvania is the first state to require hospitals to report the number of infections contracted at the facilities.  Because the law is new, many hospitals did not fully comply with the requirements, and these initial results will almost certainly rise in years to come. Instead of 12,000, the report said, the actual number of hospital-acquired infections may be as high as 115,000 based on billing claims submitted by the hospitals to insurers.

Other states have recently enacted or are considering enacting legislation to require similar reporting.  Without the data from mandatory reporting, the Centers for Disease Control had previously estimated that hospital-acquired infections caused about 90,000 deaths per year.  It now appears that that figure may be as high as 360,000.

Aside from unnecessary suffering and death, hospital-acquired infections produce a substantial increase in treatment expense.  In Pennsylvania, the average medical cost for a patient who developed an infection was $29,000, compared to $8,300 for one who did not.  Extrapolated nationally that means, at the high end, $59.5 billion in extra cost due to hospital-acquired infections.

Moreover, infections are just one part of the problem.  Unnecessary operations, inappropriate prescriptions and excessive testing are other significant examples of a health care system with little means of effective accountability.

The devil is in the details.  “Each health and welfare fund administrator must scrutinize its data to see which doctors and hospitals are out-of-line in their prescriptions written or their services provided,” says MacArthur.  “The claims records of each fund contain the evidence necessary to ferret out irresponsible providers.”

However, sorting through a fund’s data can be a long, pain-staking task.  That is why the adoption of reporting requirements, such as those in Pennsylvania, is an important priority.  When the aggregate data from a whole state is gathered and assessed, problem areas become clearer, and it is far easier for individual administrators to focus their own investigations.

Further, when administrators do find problem providers or identify good ones, it is important to share this information.  Already experience shows that for some high cost procedures, it can be cheaper to pay the expense of flying a patient and his or her spouse to a center of excellence in another city, put the spouse up in a hotel for a couple nights and fly them back home afterwards, than to pay a local but inefficient provider.

The HCAC has five active subcommittees:  member education, trustee education, prescription drug costs, prevention/wellness benefits and merger/cooperative purchase arrangements.  “We will be sharing the committee’s insights and suggestions for action with all LIUNA health and welfare funds,” MacArthur says.  “We will also search for effective ways for more funds and more administrators to participate directly in the HCAC’s work.  The Fund has also hired a consultant who specializes in health care issues to assist the committee and focus on other solutions.”

For more information about the HCAC or what your fund can do to help fight escalating health care costs, contact the Health Promotion Division.