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Americans spend a mind-boggling $2.6-trillion a year on health care. According to a report from the Institute of Medicine, that includes $750-billion that is squandered on over-treatment, byzantine paperwork, fraud and other wasteful habits.

In essence, 30 per cent of health-care dollars are frittered away.

Unnecessary care, $210-billion: Over-treatment has reached epidemic proportions in the profit-driven U.S. system; there is much truth to the stereotype that patients with a headache and good insurance get MRIs.

Excessive administration, $190-billion: Cataloguing expenses and multiple insurance plans makes lots of paperwork.

Inefficient delivery of care, $130-billion: Administration is not centralized, so patients get shuffled among specialists and facilities, with much overlap.

Inflated prices, $105-billion: An appendectomy can cost $1,529 to $182,955, depending on where it is performed. Unlike other countries that depend on private providers and insurance, the U.S. has very little price regulation.

Fraud, $75-billion: Health care involves so much money that it attracts crime; common fraudulent practices include providers that double-bill, suppliers that don't deliver and patients who cheat on their insurance.

Prevention failures, $55-billion: A common example is diabetics who have to have limbs amputated because they couldn't afford medication.

(The total does not equal $750-billion because some categories overlap.)

And that's just the money.

The IOM estimates that poor-quality care – specifically the lack of standards that leads to huge variations in treatment –causes about 75,000 premature deaths a year.

Canada has had no similar analysis. We could certainly use a reality check.

We like to pretend that in our "socialist" medicare system everything is done for the greater good, so over-treatment, inefficiency, price inflation and fraud are non-existent. That's a costly delusion.

Yes, the U.S. system encourages over-treatment.

The only area where Canada's medicare system is clearly better is administrative costs. Officially, our administrative costs are 3.5 per cent of health spending, compared to about 30 per cent in the United States, but most are hidden in other categories and, if anything, our system is under-managed. So Canada, like the United States, has few checks and balances and tends to reward volume rather than innovation and results. That's why many costly inefficiencies are ingrained.

The IOM has put the failures into context through some easy-to-understand analogies. To wit:

If banking were like health care, automated transactions would take days rather than seconds because of unavailable or misplaced records.

If home building were like health care, carpenters, electricians and plumbers would work from different blueprints, with very little co-ordination.

If shopping were like health-care, prices would not be posted and would vary widely within the same store.

If automobile manufacturing were like health care, there would be no warranties for cars and therefore no incentive to monitor and improve performance and product quality.

If airline travel were like health care, each pilot would be free to design his or her own pre-flight safety check, or not perform one.

What is noteworthy is these analogies apply to Canada, too.

So too do the basic messages, which are ultimately more important than the dollar figures.

The IOM notes that the past half century has had dramatic biomedical advances, from drug therapies to surgical procedures, and many diagnoses that were once a death sentence (like cancer) are now chronic health problems, with both the benefits and challenges that entails.

The paradox is that comparable progress has not come on the management side and "health care is falling short on basic dimensions of quality, outcomes, cost and equity."

The report is a not-so-subtle plea to get back to basics, to dispense with the wasteful and counterproductive attitude that, in medicine, more is better, and to remember the ultimate purpose of a health-care system – to help people stay well and give them care when it's needed, with the goal of improving the health of the population and, ultimately, the economy. Health care should not be an economic drain.

Ultimately, the IOM's message is hopeful because it reminds us that we can have both better and cheaper care.

Yet, doing what is best – for patients, for the health system, for the taxpayer – is not going to be easy because many vested interests profit handsomely from the status quo.

As the IOM report concludes, we know what needs to be done to rein in health spending and improve the quality of health care, and we can do it; however, the actions required "will be notable, substantial, sometimes disruptive – and absolutely necessary."

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