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How to get rid of waste and fraud in U.S. health care

November 8, 2021, 12:52 PM UTC
Howard Dean thinks a population-based payments system can save U.S. health care—and taxpayer dollars.
Joe Raedle—Getty Images

The latest report of fraud in our health care system is shocking.

A new investigation from the Department of Health and Human Services found that in 2016, private insurance companies billed the federal government for $9.2 billion in questionable payments.

The companies involved, which provide health insurance to seniors under Medicare, did this by inflating the number and seriousness of patient diagnoses in order to get higher payments.

While these findings are disturbing, they’re not unusual. In 2015, a single insurer in Florida deceptively charged the government an extra $200 million by fudging the severity of patients’ conditions.

Unfortunately, this kind of behavior is just a symptom of a much larger problem in our health care system.

Today in the U.S., doctors and hospitals are typically paid a fee for each service provided. Every checkup, X-ray, and surgical procedure earns an additional buck. This means that provider paychecks are driven by quantity, not quality. Simply treating patients effectively is a secondary priority.

The result is that insurance companies overcharge patients and providers, and many prescribed procedures aren’t even necessary to begin with. I say this as a physician who’s seen the ills of our model firsthand.

In fact, fraud among Medicare insurers is just the tip of the iceberg. According to a recent report in the Journal of the American Medical Association (JAMA), total waste in the U.S. health care system could amount to a mind-boggling $935 billion a year. Overtreatment alone accounts for as much as 11% of that total, the report found.

At the same time, total health care spending is out of control. We pay more per capita for care—around $11,000 annually—than any other country. On average, other wealthy nations pay just half as much. They achieve these savings in part by avoiding our fee-for-service model. With provider compensation predetermined, there’s no incentive to exaggerate conditions or deploy unnecessary treatments.

There are ways we could fix our system.

For a start, until more comprehensive action is possible, one option would be to increase the use of bundled payments. Under this model, insurers and providers agree to compensation based on diagnosis, rather than service by service. For instance, a hospital earns a set fee for treating a patient with congestive heart failure, regardless of how many tests, drugs, and procedures are required. This incentivizes hospitals to deliver well-coordinated care that is based on patients’ needs and long-term outcomes.

In a review of 35 studies from around the world, the Commonwealth Fund found that most of the time, bundled payments either reduce spending growth or save money, while causing no diminishment in quality of care—and sometimes even improving it.

Last year, more than 1,000 hospitals participated in an optional bundled-payment program under Medicare. The Centers for Medicare and Medicaid Services has said it may adopt mandatory bundled payments in the near future.

These are good steps, but bundled payments should just be an interim measure. To achieve lasting change, we need to move toward a population-based or “capitated” payments system. In this type of system, providers are paid a fixed amount per person, per time period, during which they tend to all of that person’s health care needs. This unites medical and insurance functions under one roof, encouraging providers to eliminate waste.

At Intermountain Healthcare, a nonprofit that serves 2 million people, leaders were able to cut hundreds of millions of dollars in annual waste by adopting capitated payments. A nationwide shift in this direction can’t come soon enough.

The new investigation from Health and Human Services should serve as a wake-up call for political leaders. We need to get rid of the incentive system that contributes to so much waste. Besides saving billions of dollars, this would dramatically improve our health.

Howard Dean, a physician, served as governor of Vermont from 1991 to 2003 and chair of the Democratic National Committee from 2005 to 2009. He was a Democratic Party presidential candidate in 2004.

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