white paper where can $700 billion in waste be cut...

WHITE PAPER

WHERE CAN $700 BILLION IN WASTE BE CUT ANNUALLY FROM THE U.S. HEALTHCARE SYSTEM?

RobeRt KelleyVice PResident,HealtHcaRe analyticstHomson ReuteRs

octobeR 2009

Where can $700 billion in waste be cut annually? 3

• “Estimatessuggestthatasmuchas$700billionayearinhealthcarecostsdonotimprovehealthoutcomes.Theyoccurbecausewepayformorecareratherthanbettercare.Weneedtobemovingtowardsasysteminwhichdoctorsandhospitalshaveincentivestoprovidethecarethatmakesyoubetter,ratherthanthecarethatjustresultsinmoretestsandmoredaysin[the]hospital.”—PeterOrszag,directoroftheWhiteHouseOfficeofManagementandBudget,May2009interviewwithNPR.

• JackWennbergofDartmouth’sCenterfortheEvaluativeClinicalSciencesisoftenquotedashavingsaid:“…uptoone-thirdoftheover$2trillionthatwenowspendannuallyonhealthcareissquanderedonunnecessaryhospitalizations;unneededandoftenredundanttests;unproventreatments;over-priced,cutting-edgedrugs;devicesnobetterthantheless-expensiveproductstheyreplaced;andend-of-lifecarethatbringsneithercomfortcarenorcure.”1

• TheMcKinseyGlobalInstitute,ina2006study,comparedUnitedStates(U.S.)healthcarecoststothoseofotherpeerOrganizationforEconomicCooperationandDevelopment(OECD)countriesandfoundthattheU.S.spentnearly$650billionmoreonhealthcare.11

INTRODUCTION

How america will pay for healthcare is a subject on the mind of virtually every american today. as congress determines who will pick up the tab for this important and growing expense, it is worthwhile to take a close look at the cost of healthcare itself. are there areas where expenses can be cut without undermining the quality of care provided? How prevalent are misuse, overuse, and fraud? this paper tackles the tangled issue of healthcare waste and arrives at some interesting, and perhaps even surprising, conclusions: america’s healthcare system is, indeed, hemorrhaging billions of dollars, and the opportunities to slow the fiscal bleeding are substantial.

4 Where can $700 billion in waste be cut annually?

Inthiswhitepaper,wepresentevidencethatsupportsthereasonablenessoftheseclaims.Thisevidencehasbeengatheredfrompublishedresearchstudies,expertopinion,andfindingsfromourownThomsonReutersanalysesofourlargehealthcaredatabases.Wedescribethetypesofwastethatarerecognizedbymostexpertsalongwithestimatesofthemagnitudeofthatwaste.Inmostcases,eachreferencedresearchstudyfocusesonaspecifictypeorinstanceofwaste.Wesuggestthatdifferentiatingandcharacterizingthetypesofwastefacilitatesthesearchforandtheeliminationofspecificwastebyhealthcareprovidersandthoseorganizationsthatareresponsibleforpayingfortheseservices.Theeffortstomeasurewastearebasedonthepremisethatitmaybeprematuretodescribeahighlyefficienthealthcaresystem,buttheevidenceforwasteisabundant.

WHY IDENTIFY “WASTE” IN THE U.S. HEALTHCARE SYSTEM?

ItisacommonperceptionthathealthcarecostsintheUnitedStatesare“toohigh.”Whencomparedtohealthcarespendingbyotherdevelopedcountries,it’seasytoseewhatisdrivingthisperception.TheU.S.spendsmorepercapita,andthehighestpercentageofGDP,onhealthcarethananyotherOECDcountryasreportedintheMarch2009,“TrendsinHealthcareCostsandSpending”byKaiserFamilyFoundation:3Theyalsoreportedthat:

“TheUnitedStatesdevotesconsiderablymoreofitseconomytohealthcarethanotherdevelopedcountries.”

0

5

10

15

20

United States

15.3%

10.0%11.0% 10.6%

8.1%8.4%

11.3%

CanadaFrance Germany Japan United Kingdom

Switzerland

HealthcareSpendingShareofGDPin2006

source: Kaiser Family Foundation, trends in Healthcare costs and spending, march 2009.


TheFoundationfurtherreported,“(U.S.)healthcarespendinghasrisenabout2.4percentagepointsfasterthanGDPsince1970.”

NotonlydoescurrentspendingonhealthcareconsumeahighpercentageofGDP,butthepercentageisexpectedtocontinuerising.Continuinggrowthingovernmentspendingforhealthcareisexpectedtoleadtoprogramcosts,suchasthecosttorunMedicare,thatexceedthenation’scapacitytopay.

Thegovernmentisnottheonlyentitydealingwiththehighcostofhealthcare.ItcostsU.S.employerssubstantiallymoretoprovidehealthcareforemployees,theirfamilies,andretireesthantheirforeigncompetitors.GeneralMotors,forexample,spent$5.2billionin2004onhealthcare.Thisissignificantlymorethantheyspentforsteelandaccountedfor$1,525ofthepriceofeachnewcaritproduced.4Toremaincompetitive,employersarepassingashareoftheburdentoemployees,makingconsumersalsofeeladirectimpactoftheincreasingcostofhealthcare—atrendthatisexpectedtocontinue.

So,whatisareasonablecostforhealthcare?

Unlikeconsumermarketsforgoodssuchasautomobilesorpersonalelectronics,wheremarketsupplyanddemanddeterminethe“right”price,thecomplicatedmarketforhealthcaredoesn’tfitnicelywithinthesenaturalmarketregulators.Inadditiontotheunusualrelationshipsinhealthcarebetweenconsumers,payers,andproviders,theethicalimplicationsinvolvedinhealthcaredecisionsmakeitnearlyimpossibletodefinethe“right”amounttospendonhealthcare.

Asthegovernment,employers,andindividualcitizensdebatewhatisanappropriateamounttospendonhealthcare,thereismuchthatcanbedonetoreducehealthcarecostsbyeliminatingwasteandunnecessaryexpenditurescausedby:• Medicalerrors• Fraudandabuse• Paymentsforserviceswithnoevidencethattheycontributetobetterhealthoutcomes• Inefficienciesintheproductionofhealthcaregoodsandservices,includingthecostof

excessiveerrors


HEALTHCARE WASTE DEFINED

Beforeundertakingadiscussionofhealthcarecostsandtheopportunitiestocontrolthembetter,itisimportanttounderstandafewtermsinthecontextofthediscussion:

• Cost containment:Thistermtypicallyreferstoeffortstocontrolthehighrateofincreaseintotalcostsor“bendingthecurve.”Althoughmostoftheeffortsareconsistentwithagoalofeliminatingwaste,asimpleobjectivetocutorcontaincostscouldresultinconstrainingpatientaccesstovaluableservices.Itisthisconcernthatleadssomepeopletolinkcostcontainmentwiththemorecontroversialterm“rationing.”

• Rationing:Whentheneedforhealthcareservicesexceedsafixedlevelofavailableresources,decisionsmustbemadeontherelativemeritofspecificpatientneed.Theresultisthatsomepatientswillnotreceivesomeservices.Theconceptofrationingraisessignificantconcernsthatafixedlevelofresourceswillbearbitrarilydeterminedatalevelwellbelowwhatistrulyneededforhighquality,accessiblehealthcare.Amoreextremeconcernisthatdeterminationsofrelativeneedwillbemadebasedonspecificpatientcharacteristics,suchasage.

• Misuse, Overuse, and Underuse:Thesetermsrefertopatternsofmedicalpracticeandservicesusethatdirectlyorindirectlyaddtohealthcarecosts.Thecostofaserviceusedinappropriately(misuse)anduseofaservicewhere,thoughappropriateinsomesituationsisnotexpectedtoprovidevalueforaspecificpatient(overuse),addbothdirectcostsandpotentialcostsassociatedwithacomplicationoftheprocedure.Thefailuretodiagnoseaconditioninanearlystageortopreventanexistingconditionfrombecomingmoresevereordevelopingcomplicationscanresultfromafailuretoprovidepreventiveandmaintenancecare(underuse).Inthiscase,providingtheserviceswouldaddtotheshort-termcostsbutcouldpreventthesignificantlong-termcostsoftreatingamoreseverecondition.Underusehasbeenobservedinunderservedareaswherelackofaccesstocareresultsinunnecessarycomplicationsorpooroutcomes.

The New England Healthcare Institute (NEHI) has defined waste in healthcare as “Healthcare spending that can be eliminated without reducing the quality of care.”


• Unwarranted or unexplained variation in care:Thistermreferstotheobservedvariationacrossgeographicregionsintheuseofspecificproceduresthatresultinnodiscernibledifferencesinhealthoutcomes.Althoughitisnotpossibletodetermineanappropriateratefortheseprocedures,itisinferredthatbecausetheevidenceontheactualeffectivenessoftheseproceduresisambiguous,thoseregionswithhighuseratesare“over-utilizing”theprocedureandaddingunnecessarycosts.

• Fraud and abuse:Asituationinwhichhealthcareispaidfor,butnotprovided,orasituationinwhichreimbursementclaimsaremadetothirdpartyinsurancecompaniesorfederalprogramssuchasMedicareorMedicaid,andnosuchserviceswererendered.Fraudandabusearealsodefinedashealthcareprovidersreceivingkickbacks,patientsseekingtreatmentsthatarepotentiallyharmfultothem(suchasseekingdrugstosatisfyaddictions),andtheprescriptionofservicesknowntobeunnecessary.

ThedefinitionweuseforthispaperisfromTheNewEnglandHealthcareInstitute(NEHI)whichhasdefinedwasteinhealthcareas“Healthcare spending that can be eliminated without reducing the quality of care.”5Itisimportanttonotethatmostofthewastenotonlyrepresentsanunnecessarycost,butcanalsoresultinanincreasedriskofphysicalsufferingorharm(e.g.,unnecessarysurgicalprocedure,withriskofcomplicationsordeath).

Thisdefinitionincludeswastedefinedasmisuse,overuse,andunderuseandwasteresultingfromunwarrantedvariation.Wastedefinedinthiswayprovidesatargetforcostcontainmenteffortsbutdoesnotinvolveanylevelofrationing,sinceitonlyaddressesservicesthatarenotconsiderednecessaryforqualitypatientcareanddonotcontributetooveralloutcomesofcare.

Therefore,anexpenditureclassifiedaswasteaccordingtothisdefinitiondoesnotcontributeto:• Thequalityofhealthcareservices• Theoutcomesofcare• Thehealthstatusofthepopulation


HOW MUCH WASTE IS THERE IN HEALTHCARE?

Toorganizetheevidencesupportingclaimsforthemagnitudeofwasteinthehealthcaresystem,wefirstsuggestasetofcategoriesofwaste.Foreachcategory,thereisasimpledefinition,abriefdescriptionoftheexamples,andreferencesthatallowustomakeareasonableassessmentoftotalannualwasteforeachcategory.Categoryresultsarethenaggregatedtoestimateareasonablerangefortotalannualhealthcaresystemwaste.

CATEgORIES OF HEALTHCARE WASTE

Bentley,etal17discussthreetypesofwaste:administrative,operational,andclinical.Theyalsoconsiderspecificexamplesofwasteineachcategoryandtheestimatedvalueofthatwaste.Basedonourownresearch,inadditiontoareviewofotherpublishedliterature,wefeelitismoreusefultoreviewwasteinsixcategories.

Foreachofourcategoriesofwaste—AdministrativeSystemInefficiencies,ProviderInefficiencyandErrors,LackofCareCoordination,UnwarrantedUse,PreventableConditionsandAvoidableCare,andFraudandAbuse—wereviewedfindingsfromourownanalysesofourproprietaryhealthcaredatabases,andsynthesizedtheresultsofrecentpublishedstudiesandexpertopinion.Theresultisanestimatedrangeforthetotalvalueofpossiblewasteinthatcategory.Anunderstandingofthegeneralmagnitudeofthevarioustypesofwasteshouldhelptoprioritizeandfocuseffortstoimprovesystemefficiency.

WewouldliketoacknowledgetheworkoftheNewEnglandHealthcareInstitute,presentedin“WasteandEfficiencyintheU.S.HealthcareSystem”5asprovidingvaluableinsightonseveralofthecategories.Citationsforallquotedreferences,includingthisdocument,areincludedinthereferences.


Evidence supporting the existence of administrative system inefficiencies is extensive:

• “TheaverageU.S.hospitalspendsone-quarterofitsbudgetonbillingandadministration,nearlytwicetheaverageinCanada.Americanphysiciansspendnearlyeighthoursperweekonpaperworkandemploy1.66clericalworkersperdoctor,farmorethaninCanada.”7

• “In1999,healthadministrationcoststotaledatleast$294.3billionintheUnitedStates,or$1,059percapita,ascomparedwith$307percapitainCanada.Afterexclusions,administrationaccountedfor31percentofhealthcareexpendituresintheUnitedStatesand16.7percentofhealthcareexpendituresinCanada.”7

Note:Areductionfrom31to25percentwouldsave$126 billionannually.

• “Thisissuebriefexaminesthesourcesofadministrativecostsanddescribeshowaprivate-publicapproachtohealthcarereform—withthecentralfeatureofanationalinsuranceexchange(largelyreplacingthepresentindividualandsmall-groupmarkets)—couldsubstantiallylowersuchcosts.Inthreevariationsonthatapproach,estimatedadministrativecostswouldfallfrom12.7percentofclaimstoanaverageof9.4percent.Savings—asmuchas$265 billion over 2010–2020—wouldberealizedthroughlessmarketingandunderwriting,reducedcostsofclaimsadministration,lesstimespentnegotiatingproviderpaymentrates,andfewerorstandardizedcommissionstoinsurancebrokers.”8

• ThePricewaterhouseCoopers’HealthResearchInstituteestimatedoperationwastetobe$126 to $315 billionperyear,withwasteintheclaimsprocessingaloneat$21to$210billion.9

• “Whentimeisconvertedtodollars,weestimatethatthenationaltimecosttopracticesofinteractionswithplansisatleast$23 billion to $31 billioneachyear.”10

• “Healthadministrationcostsrepresent$91 billion,or14percentoftotalspendingaboveexpected,duepartlytothesystemstructure,butalsoonaccountofinefficienciesandredundanciesthatexistwithinthesystem.”11

AdmInIsTRATIvE sysTEm InEffIcIEncIEsReasonable Range for Annual Waste: $100–$150 Billion

Allorganizations,acrossallindustries,haveinefficientadministrativeprocesses.However,inhealthcare,theseriousfragmentationofproviders,thelargenumberofpayers,andresultingdisparatesystemsandproceduressignificantlyaddtoproviderandpayeradministrativecosts.Healthcareprovidersmustdealwithdozensofhealthandbenefitplanstobillsuccessfullyforservicesrendered.Healthplansmustsupportsystemsforunderwriting,claimsadministration,providernetworkcontracting,andbrokernetworkmanagement.AccordingtoapositionpaperbytheMedicalGroupManagementAssociation,“Simplifyingourhealthcaresystem’sadministrationcouldreduceannualhealthcarecostsbyalmost$300billion.”2


PRovIdER InEffIcIEncy And ERRoRs Reasonable Range for Annual Waste: $75–$100 Billion

Inefficienciesinthecaredeliveryprocessesofindividualprovidersresultinsignificantwaste.Manyproviderprocessinefficienciesaresimilartothoseexperiencedinothertypesoforganizations,suchasresourcescheduling;appropriatemixofgenerallower-costandspecializedhigher-costresources;facilityorequipmentutilizationorthroughput;andtimingandcoordinationofmultipleproceduresforasinglepatienttominimizedowntime.Documentedexamplesofthesetypesofinefficienciesinclude:

• Inefficientuseofprofessionalstaffextenderssuchasnursepractitionersandphysicianassistants

• Inefficientuseoffacilitiesandequipment,suchaslowutilizationofexpensiveimagingequipmentandinefficientschedulingofoperatingroomsandteams

• Unnecessaryone-dayhospitaladmissions(e.g.,forobservationorroutinetesting)andextendedstays

• Over-utilizationoftesting(e.g.,lab,imaging)forhospitalizedpatients• Over-utilizationofintensivecareunits

ASeptember2009ThomsonReutersResearchBriefreports,“Thereareenormousdifferencesbetweenthebenchmarkandtheworsthospitalsonoperationalefficiencymeasures.”12Thereportcompareshospitalsonmeasuresofbothoperationalefficiencyandclinicalqualityandconcludesthatachievingbenchmarkoperationalperformancedoesnotthreatenclinicalquality.Effortstoimproveoperationalefficiencyinvolveimprovingprocesses,notmerelycostcutting.Thereportoffersthat“Efficientlydesignedworkflow,hand-offs,andotherprocedurescanenhanceoperationswhilesimultaneouslyimprovingclinicalquality.”

A special type of provider inefficiency is avoidable errors.Mostorganizationsrecognizeavoidableerrorsaswasteandattempttominimizethem.Inhealthcare,theimpactoferrorsgoesfarbeyondfinancialimplications,witherrorsresultingincomplications,readmissions,additionalpainfulprocedures,disability—orevendeath.Forthisreason,theconvincingevidenceforunacceptablyhighratesoferrorpresentedintheliteratureisamajorconcern.Inadditiontorecognizingthehumancostsoftheseerrors,theliteraturealsoattemptstodescribeandestimatethefinancialcostofrelatedexcessmedicalservices.Severaltypesofdocumentedcostsinclude:• Extendedhospitalstaytotreatavoidablecomplicationsorprocedure-relatedinjuries• Readmissiontothehospitalshortlyfollowingdischargetorespondtoanavoidableescalation

ofaconditionorcomplication• Acutecarerequiredtotreatacomplicationresultingfromerrorsmadeduringan

outpatientprocedure• Treatmentforadversedrugeffects,includingdrug-druginteractionsand

avoidablereactions


Considerable evidence supports the extent of waste from provider inefficiency and errors in healthcare, including the following:

• ThomsonReutershascompletedtwostudiesestimatingthepotentialsavingsfromimprovementinhospitaloperatingefficiency.BothstudiescomparednationalhospitalperformancetoasetofhighperforminghospitalbenchmarksavailableinourACTIONO-I®and100TopHospitals®data.

• Inthefirststudy,ifallhospitalsexperiencedthelowerrateofexpenseinflationexperiencedbytheThomson Reuters 100 Top Hospitals,nationalhospitaloperatingexpenseswouldbereducedby$32 billionperyearafterthreeyears.

• Inthesecondstudy,ifallhospitalsreducedtheiraveragecosttotheaveragecostofthemostefficient10percentofhospitals,operatingexpenseswouldbereducedby$73 billionperyear.

Thesetwostudiesprovideaconsistentestimateofthemagnitudeofthiswasteduetooperationalinefficiency.

• Ananalysisofthecostassociatedwith20adversesafetyeventsintheThomsonReutersProjectedInpatientDatabase(PIDB)suggeststhatthetotalnationalcostfortheseeventsis$5.4billion.

• “TheimplementationofalaboratorytestsandchestradiographsprescriptionprotocolwithinourICUinducedanimportantcostsaving.”

• “…reductionofroutinelaboratorytestsperformancewasobservedperpatient-ICU-day,rangingfrom38to71.5percentdependingonthetypeoftest.”

• “Forchestradiographs,a41percentrelativereductionwasobserved...”8

• Allthefollowingquotationstakenfrom“WasteandInefficiencyintheU.S.HealthcareSystem,ClinicalCare:AComprehensiveAnalysisinSupportofSystem-wideImprovements,”NewEnglandHealthcareInstitute,February2008:9

• “Takentogether,avoidableadversetreatmenteventsandhospitalacquiredinfectionsconservativelyresultinaminimumof$52.2 billionthatarewastedeachyear,nottomentionthehumantolloftheseavoidableevents.”

• “Adversetreatmenteventsarewelldocumentedsourcesofwaste.StudiesfromHarvardMedicalSchoolsuggestthatadverseeventsconservativelyaccountfor5percentoftotalhealthcarespending,or $100 billionperyear(2006dollars),andthatalmost half of all adverse events (46.5 percent) are avoidable.”

• “Betweenfiveandtenpercentofallpatientsadmittedtoacutecarehospitalsacquireoneormoreinfections,resultinginanestimated90,000deathseachyearandannualwastetotalinganestimated$4.5 to $5.7 billion per year.”

• “In2004,hospitalsinPennsylvaniareported11,668hospitalacquiredinfections;ofthese,15.4percentofthepatientswhoacquiredtheinfectiondied.ThedirectmedicalcostassociatedwiththoseinfectionsinPennsylvaniawas$2 billion.”

• “Beyondtheircostinhumanlives,preventablemedicalerrorsexactothersignificanttolls.Theyhavebeenestimatedtoresultintotalcosts(includingtheexpenseofadditionalcarenecessitatedbytheerrors,lostincome,andhouseholdproductivity,anddisability)ofbetween$17 billion and $29 billionperyearinhospitalsnationwide.”10


How prevalent is lack of care coordination? The evidence reveals extensive waste:

• Roughly530,000medicationerrorsoccuramongMedicarerecipientsinoutpatientclinics....>500kpreventableADEinjuriesanddeathsinoutpatient/year.”13

• “OurestimatessuggestthateliminatingavoidableED[EmergencyDepartment]usecouldsaveatleast$21.4 billionperyearonanationalbasis;itcouldalsofreeupemergencydepartmentstotakecareoftrueemergencies…”9

• Costfor“avoidablehospitalizationsofnursing-homepatients”is$7.5 billionannually.52

• “OnestudyfoundthateachpreventableADEthattookplaceinahospitaladdedabout$8,750tothecostofthehospitalstay.Assuming400,000oftheseeventseachyear—aconservativeestimate—thetotalannualcostwouldbe$3.5 billioninthisonegroup.”11

• “Potentiallyinappropriatemedication(PIM)utilizationisasignificantpredictorforhigherhealthcareexpenditures.AconservativeestimateoftheincrementalhealthcareexpendituresrelatedtoPIMuseinthecommunity-dwellingelderlypopulationwouldbe$7.2 billionintheUnitedStatesin2001.”12

• “Forexample,medicalerrors—whichcanindicateinefficientprocesses—areestimatedtocostbetween$17 billion and $29 billionannuallyintheUnitedStates…”52

LAck of cARE cooRdInATIonReasonable Range for Annual Waste: $25–$50 Billion

Whencareprovidersdonotcoordinatetheservicestheyprovide,severaltypesofinefficienciesoccurthatarebothcostlyandpotentiallyharmfultopatients.Forinstance,itiswastewhencaregiversduplicatetestsbecauseresultsrecordedinapatient’srecordwithoneproviderarenotavailabletoanotherorwhenmedicalstaffprovidesinappropriatetreatmentbecauserelevanthistoryofprevioustreatmentcannotbeaccessed.Itisalsowastefulwhenpatientsareforcedtousetheemergencyroomfornon-emergentconditionsbecauseprimarycareservicesareunavailable.Justasunnecessaryisorderingavoidablehospitalizationsfornursinghomepatients.Finally,bothwastefulandpotentiallydangerousareadversedrugreactionsthatoccurwhenarecordofapatient’scurrentmedicationsisunavailable.


UnWARRAnTEd UsEReasonable Range for Annual Waste: $250–$325 Billion

Nearlyallexpertsagreethatasignificantamountofdirectcareprovidesnooronlymarginalvaluetoeitherthediagnosisofapatient’sconditionoreffectivetreatmentofadiagnosedcondition.Suchcostsareunnecessarytohighquality,effectiveclinicalcare.Dartmouth’sCenterfortheEvaluativeClinicalSciencesdefinestwospecificcategoriesofunnecessarycare:“preference-sensitive”careand“supply-sensitive”care.TheprevalenceandmagnitudeofeachofthesecategoriesofunnecessarycareisdemonstratedbymeasuringthesignificantvariationintheuseofspecificprocedureswithMedicarepatientsindifferentgeographicregionsandhospitalareas.Thedifferencesinusearenotexplainedbydifferencesinthedemographicsorriskprofilesofthepopulationsservedanddonotresultinanymeasurabledifferencesinclinicaloutcomes.19Otherinvestigatorsattempttomeasuretheimpactofexcessiveexposuretomedicalliabilityclaimsasacauseofoveruseofservices.Thispracticeisreferredtoas“defensivemedicine.”

Examplesofthisunwarranteduseofservicesinclude:• Diagnosticlaborimagingtestsperformedtoprotectagainstmalpracticeexposure• Asurgicalprocedurewithapatient-preferredmedicaltreatmentalternative

(Dartmouth’s“preference-sensitivecare”)• Ahigh-costdiagnosticprocedureusedforpatientsatlowriskforthecondition• Adiagnostictestwithnoexpectedimpactonthecourseoftreatment• Theinappropriateuseofanantibioticforanupperrespiratoryviralinfection• Intensivenon-palliativeend-of-lifetreatment(Dartmouth’s“supply-sensitivecare”)• Brandnamedrugprescribedwhengenericortherapeuticalternativesareavailable• Failuretofollowconservativetreatmentprotocolorfollowarecommendedcourseof

successivetreatmentescalation

The Thomson Reuters MarketScan Database provides significant evidence in this category of healthcare waste.TheThomsonReuters2008MarketScancommercialdatabaseincludesclaimsdataforalmost18millionpeople.ThedataisparticularlyrepresentativeofthehealthcareexperiencesofemployeesofthelargestU.S.employers.ThomsonReuterscalculatedthecostsofproviding12surgicalproceduresthatarefrequentlyincludedinlistsofpotentiallyoverusedproceduresincluding:coronaryarterybypassgraft,percutaneouscoronaryintervention,hipandkneereplacement,Cesareansection,hysterectomy,transurethralresectionoftheprostate,disksurgeryandspinalfusion,andimplantabledefibrillators.Wethenappliedthisresulttoestimatethecostfortheseproceduresfortheentirecommerciallyinsuredpopulation.Usingthisapproach,weestimatethatapproximately$30billionisspentannuallybycommercialhealthplansfortheseprocedures.Ifevenathirdoftheseproceduresisunnecessary,thiswouldsuggestwasteof$10 billion.

Asimilaranalysisofseveralclassesofpotentiallyover-usedprescriptiondrugssuggestedatotalU.S.costof$13billion,athirdofwhichwouldindicatewasteofover$4 billion.


The evidence of waste from unwarranted use of healthcare services comes from a number of sources:

• “…costsofvariationbetweenhighandlowutilizingregionsapproaches30percentoftotalhealthcarespending.”9

• “Morethan95millionhigh-techscansaredoneeachyear,andmedicalimaging,includingCT,MRI,andPETscans,hasballoonedintoa$100billionayearindustryintheUnitedStates,withMedicarepayingfor$14billionofthat.Butrecentstudiesshowthatasmanyas20percentto50percentoftheproceduresshouldneverhavebeendonebecausetheirresultsdidnothelpdiagnoseailmentsortreatpatients.”15

• “Atotalof824physicians(65percent)completedthesurvey.Nearlyall(93percent)reportedpracticingdefensivemedicine.‘Assurancebehavior’suchasorderingtests,performingdiagnosticprocedures,andreferringpatientsforconsultation,wasverycommon(92percent).Amongpractitionersofdefensivemedicinewhodetailedtheirmostrecentdefensiveact,43percentreportedusingimagingtechnologyinclinicallyunnecessarycircumstances.”16

• “Ouranalysisofpeer-reviewedliteratureshowedthatthereisstrongevidencethatmostoftheantibioticsprescribedforthetreatmentoftheseinfections(earinfections,sorethroat,upperrespiratoryinfections)areunnecessary,asthesecommoninfectionsarelargelyduetovirusesthatarenotsusceptibletoantibiotics.Thedatasuggeststhatupto55percentofantibioticprescriptionsaremedicallyunnecessaryandcouldbeavoided,resultinginannualsavingsof$1.1 billion.”s

• “Takentogether,theirreports(DartmouthMedicalSchool)regardingvariationintheintensityofabroadrangeofclinicalservicesleadustobelievethatthecostofpotentiallyavoidableclinicalcareapproximates30percentoftotalhealthcarespending.Ifthisestimateiscorrect, $600 billion(2006dollars)couldbesavedeachyearbyunderstandingandpreventingunexplainedvariationsincarepatterns.”9

• “AccordingtoarecentstudybytheMcKinseyGlobalInstitute,diagnosticimagingfromcomputedtomography(CT)andmagneticresonanceimaging(MRI)scanscontribute$26.5 billioninunnecessaryuseofhealthservices.”55

• “Manyhypertensivepatientscouldbetreatedwithinexpensivegenericmedications,suchasdiureticsandfirstgenerationbeta-blockers,ratherthanmoreexpensivebrandedantihypertensivesthataretypicallyprescribed.”Ouranalysesoftheevidencesuggestthatatleast$3 billioncouldbesavedeachyearbysimplymakinglessexpensivebutequallyeffectiveandsafemedicationchoices.”9


• “Laboratorytestsandproceduresnotrecommended(Dranking)includedurinalysis(UAs);interventionsnotrecommendedincludedelectrocardiograms(EKGs)andX-rays.RESULTS:Thefrequencyoforderinganyofthethreediagnosticinterventionsrangedfrom5percentto37percent,andatleastoneoftheinterventionswasordered43percentofthetime.Annualdirectcostsforthethreeinterventionsrangefrom$47 million to $194 million.”17

• “A2005surveyintheJournal of the American Medical Associationrelatedthat93percentofhigh-riskspecialistsinPennsylvaniaadmittedtothepractice,and83percentofMassachusettsphysiciansdidthesameina2008survey.ThesameMassachusettssurveyshowedthat25percentofallimagingtestswereorderedfordefensivepurposes,and28percentand38percent,respectively,ofthosesurveyedadmittedreducingthenumberofhigh-riskpatientstheysawandlimitingthenumberofhigh-riskproceduresorservicestheyperformed.Defensivemedicineisnotoriouslyhardtoquantify,butsomeestimatesplacetheannualcostat$100 billion to $200 billionormore.”18

• “Theyfoundthatliabilityreformscouldreducedefensivemedicinepractices,leadingtoa5percentto9percentreductioninmedicalexpenditureswithoutanyeffectonmortalityormedicalcomplications.IftheKesslerandMcClellanestimateswereappliedtototalU.S.healthcarespendingin2005,thedefensivemedicinecostswouldtotalbetween$100 billion and $178 billionperyear.”19

• “Estimatesfromthesemodelssuggestthatlawslimitingmalpracticepaymentslowerstatehealthcareexpendituresbybetween 3 percent and 4 percent.”20

• “Ourrecentstudyofthe226largestCaliforniahospitals(thosewithsufficientnumbersofpatientstoallowaccuratemeasurementofresourceuse)showedthatMedicarespendingperpatientinthelasttwoyearsofliferangedfrom$24,722to$106,254.Thepotentialsavingsareenormous.Forexample,overthefive-yearperiodofthisstudy(1999-2003),Medicarecouldhavesaved$1.7 billion in the Los Angeles marketaloneifcarepatternsinLosAngelesmirroredthoseofSacramento.”21


PREvEnTABLE condITIons And AvoIdABLE cAREReasonable Range for Annual Waste: $25–$50 Billion

Timelyaccesstoqualityoutpatientcarecanpreventtheneedforhospitalizationorotheracutecare(e.g.,emergencyroomcare).Inanefforttoreducewasteinthisarea,theAgencyforHealthcareResearchandQuality(AHRQ)hasdefinedasetofmeasuresofpreventableutilizationbasedonidentifying“AmbulatoryCareSensitiveConditions”(ACSC).28Thisguidelineisagoodplacetobeginanexplorationofpreventableconditionsandavoidablecareaimedatreducingwaste.

How widespread is waste from preventable conditions and avoidable care? The evidence reveals some interesting statistics:

• “Forexample,researchshowsthat7.2hospitaladmissionsperevery10,000peopleaged18to64intheUnitedStatesareforuncontrolleddiabetes.AgoalofHealthyPeople2010,theDepartmentofHealthandHumanServices’(HHS)roadmapforimprovingAmericans’health,istoreducehospitalizationratesforuncontrolleddiabetesforpersonsinthisagebracketto5.4per10,000people,whichhealthexpertsagreecanbeaccomplishedbyimprovingthequalityofoutpatientdiabetescareandaccesstosuchservices.”22

• “Thenumberofhospitalizationsforpotentiallyavoidableconditionsincreasedfrom3.1millionin1990to3.6millionin1997.Thiswas13percentofallhospitalizationsin1990(excludingwomenwithdeliveries,newborninfants,andpsychiatricadmissions),but15percentin1997.”23

• “Totalnationalcostsassociatedwithpotentiallyavoidablehospitalizations,2005valueof$29.6 billion.”24

• “In2006,hospitalcostsforpotentialpreventableconditionstotalednearly$30.8 billion—oneinevery10dollarsoftotalhospitalexpenditure.Oneinfive(18percent)Medicareadmissionswasforapotentiallypreventablecondition.”25

• “Anaveragehospitalstaycosts$5,300peradmission,andevenafivepercentdecreaseinhospitalizationsforACSCswouldsavemorethan$1.3 billioninannualinpatientcosts.”26

• “Forexample,ifthenumberofpreventablehospitalizationsfortheconditionsstudiedweretodecreasebyjust10percent,thesavingsinhospitalchargeswouldbemorethan$280 million.”27

• “…inappropriatemanagementofhypertensioncontributessubstantiallytohealthcareresourceutilizationandassociatedcostsintheUnitedStates.Theoverallprevalenceofhypertensionwasestimatedat19.7percent,with36percentofidentifiedpatientstreatedinappropriately.Theper-personcostforinappropriatetreatmentwas$234.60,andthetotalnationalcostwasapproximately $13 billion.”28


• “Regularuseofinhaledsteroidswouldreducehospitalizationsby25percentandcouldavoiddirectmedicalcoststotaling$2.5 billioneachyear.”9

• “Anestimated$9.5 billioninchargesincurredinruralhospitalsnationwidein2002wasfoundtobeassociatedwithhospitalizationsduetoACSCs.Ourfindingssuggestthatthesmalleraruralhospital,thegreatertheportionofitsfinancialresourcesusedtotreatpatientswithACSC.”29

• “TheproportionofAHCsassessedasavoidable varies from 13 percent to 46 percent,dependingonthesource.Adolescents,childrenwithasthma,childrenfromworking-poorfamilies,anduninsuredchildrenareatgreatestriskforavoidablehospitalizations.Manypediatrichospitalizationsmightbeavoidedifparentsandchildrenwerebettereducatedaboutthechild’scondition,medications,theneedforfollow-upcare,andtheimportanceofavoidingknowndiseasetriggers.”30

• “Theeconomicburdenassociatedwithavoidablehospitalizationsduetodehydrationinelderlypatientswassubstantial.In1999,thepotentialnationalsavingfromavoidablehospitalizationsinthesepatientscouldhavebeenasmuchas$1.14 billion.”31

• “…wefoundthatinflation-adjustedspendingonnursinghomehospitalizationsincreased29percentfrom1999through2004.By2004,aggregatespendingtotaledroughly$972 million,ofwhich23percentwasattributabletoambulatorycare-sensitiveconditions.”32

• “EffortstoreducethenumberofMedicarebeneficiarieswhoexperienceapreventablehospitalizationmaybecost-effectiveasthesebeneficiariesmayaccountforupto 17.4 percent of Medicare’s reimbursementforinpatient,outpatient,andphysicianservicesinourdataset.”33

• “Thetotalestimatedcostofdiabetesin2007is$174billion,including$116billioninexcessmedicalexpendituresand$58billioninreducednationalproductivity.Medicalcostsattributedtodiabetesinclude$27billionforcaretodirectlytreatdiabetes,$58billiontotreattheportionofdiabetes-relatedchroniccomplicationsthatareattributedtodiabetes,and$31 billoninexcessgeneralmedicalcosts.”34

• “…totalestimatednationwidecostsfor2004short-termcomplicationsanduncontrolleddiabeteshospitalizationstotaledover$1.3 billion.”35

Timely access to quality outpatient care can prevent the need for hospitalization or other acute care.


fRAUd And ABUsE Reasonable Range for Annual Waste: $125–$175 Billion

“TheFederalBureauofInvestigation(FBI)estimatesthatfraudulentbillingstopublicandprivatehealthcareprogramsare3-10percentoftotalhealthspending,or$75–$250billioninfiscalyear2009.”43“Fraudandabuse”occupiestheextremeendofthecontinuumofappropriatenessofuseandpotentialwaste.Whileargumentscanbemadeabouttheappropriatenessofsomeofthecaredescribedintheprevioussection,and,therefore,itsclassificationaswaste,noreasonableargumentcanbemadeforthecontributionoffraudandabusetoqualityofcareoroutcomes.Theyarecasesofintentionalmisrepresentationresultinginexcesspayment,includingbillingforservicesneverrenderedandtheknowingprovisionofunnecessarycare.Mostfraudulentandabusivepracticessimplyaddcostwithnovalue,butothersactuallyexposepatientstotheriskassociatedwithunnecessaryprocedures.Practicesleadingtowasteinclude:• Theintentionalprovisionofunnecessaryorinappropriateservices• Billingforservicesneverprovided,oftenwithpatients’participationinthefraud,oftenfor

deceasedpatients• Misrepresentationofthecostofcarebyinsurerstogroupplansponsors• Kickbacksforreferralsforunnecessaryservices• Misbrandingofadrugbyapharmaceuticalcompany• Abuseofthehealthcaresystembypatientstoreceiveharmfulservices,suchasMedicaid

recipientswithdrugaddictionsenrollinginmultiplestates

Most fraudulent and abusive practices simply add cost with no value, but others actually expose patients to the risk associated with unnecessary procedures.


Evidence of fraud and abuse reveals an area where waste could definitely be reduced, saving money and ultimately providing better care and service to patients:

• “…in2007,whentheU.S.spentnearly$2.3trilliononhealthcareandbothpublicandprivateinsurersprocessedmorethan4billionhealthinsuranceclaims,fraudwasestimatedtoreachasmuchas10percentofannualhealthcarespending.Withthisrate,thelossesin2007wouldhavebeenmorethan$220 billion—orenoughtocovertheuninsured—ifestimatesfromgovernmentandlawenforcementareused.”36

• “TheNationalHealthcareAnti-FraudAssociation,anorganizationofabout100privateinsurersandpublicagencies,estimatesthatsome$60 billion(about3percentoftotalannualhealthcarespending)islosttofraudeveryyear,butthatfigureisconsideredconservative.In2008,government-wide“improperpayments”costtheU.S.Treasury$72 billion,orabout4percent,oftotaloutlaysfortherelatedprograms.”37


SHOULD THESE BE CONSIDERED WASTE?

Althoughrepresentingsignificantcosts,twocategoriesofpotentialexcesshealthcareexpensehavebeentreateddifferentlyinmostdiscussionsabouthealthcaresystemwaste.Bothareoftenconsideredasopportunitiestoreducehealthcarespendingwithouthavinganegativeimpactonourpopulation’shealth.Neither,however,representsanopportunityimmediatelytoreducecostsbyeitherapplyingresourcesmoreefficientlyordiscontinuingunnecessaryservicesandpayments.Bothhavesignificantculturalcharacteristicsorprecedents.

First,theliteraturereportsextensiveevidencethatseveralbehaviors,commoninthepopulation,addsignificantcosttohealthcare.Theseincludealcoholism,substanceabuse,useoftobacco,andlackofexerciseandovereating,withresultingobesity.

Second,formanyyears,economistshavesuggestedthatthemostsignificantdifferenceinexpendituresonhealthcarebetweentheU.S.andotherdevelopedcountriesistherelativelyhighpriceofservicesintheU.S..SomeevenarguethatuseofservicesisactuallylowerintheU.S.andpricealoneisthecause.

IncREAsEd dIsEAsE dUE To modIfIABLE BEHAvIoRs

Itseemsreasonabletoconsiderthecostsoftreatingapreventableconditionaswaste.Expertsagreethatmanyconditionscouldbeavoidedbyengaginginahealthierlifestyle.However,mostestimatesofhealthcaresystemwastedonotincludethiscategory,sincetheimpactofthesebehaviorsisconsideredoutsideofthedirectcontrolandresponsibilityofthehealthcaresystem.Theliteraturedoesdemonstratethehigherlifetimecostsofhealthcareforpersonswhomaintainunhealthylifestyles.Manyhealthplansandplansponsorshaverecognizedtheopportunitytoreducetheircosts,bothinmedicalcareandinemployment-relatedcostssuchasabsenteeismanddisability,byencouragingandsupportingmemberlifestylechanges.

Itisdifficulttotreatsuchcostsseparatelyfromexpensesdescribedintheothercategories,sincesimplyreducingtheprevalenceoftheseconditionswouldeliminatemuchofthatwaste.Forexample,theexistingwasteintreatingcoronaryarterydisease(e.g.,inefficientproviders,unnecessaryprocedures,avoidablecomplications)wouldbereducedsimplybyreducingtheincidenceoftheconditionthroughbetterlifestyle.

Ifthispaperwereidentifyingandquantifyingopportunitiestoreducehealthcaresystemcostsratherthanthelevelofsystemwasteintreatingexistinghealthconditions,thiscostwouldbeincludedintheestimate.However,wewillsatisfyourselvesherebysimplyidentifyingthisasasignificantopportunityforreducingcostsbyreducingtherealneedforhealthcare.Thoughthisareaofwasteisnotincludedamongoursixcategories,itpresentsanopportunityforannualavoidable costs of between $150-$200 billion.


Increased disease due to modifiable behaviors take a toll on health in the United States. The evidence confirms the high cost of poor choices:

• ObesityandPhysicalInactivity“Weestimatethatpermanent100-kcalreductionsindailyintakewouldeliminateapproximately71.2millioncasesofoverweight/obesityandsave$58billionannually.Modesttoaggressivechangesindietcanimprovehealthandreduceannualnationalmedicalexpendituresby$60 billion to $120 billion.”38

“Wefoundthattheincreasedprevalenceofobesityisresponsibleforalmost$40billionofincreasedmedicalspendingthrough2006,including$7 billioninMedicareprescriptiondrugcosts.Weestimatethatthemedicalcostsofobesitycouldhaverisento$147 billion per year by 2008.”39

“Physicalinactivity,overweight,andobesitywereassociatedwith23percent(95-percentconfidenceinterval[CI],10percent–34percent)ofhealthplanhealthcarechargesand27 percent(95–percentCI,10percent–37percent)ofnationalhealthcarecharges.”43

Thedirectcostsoflackofphysicalactivity,definedconservativelyasabsenceofleisure-timephysicalactivity,areapproximately24billiondollarsor2.4percentoftheU.S.healthcareexpenditures.Directcostsforobesitydefinedasbodymassindexgreaterthan30,in1995dollars,total70 billion dollars.Thesecostsareindependentofthoseresultingfromlackofactivity.”45

“ThetotalmedicalexpenditureofpersonswithcardiovasculardiseasewasU.S.41.3billiondollars,ofwhichU.S.5.4 billion dollars(13.1percent)wasassociatedwithinactivity.”46

• Smoking“Smokingcoststhenation$150billioneachyearinhealthcostsandlostproductivity.Economiccostsduringthesameperiodwere$81.9billioninproductivitylossesfromdeaths(averagefor1995–1999)and$75.5 billioninexcessmedicalexpendituresin1998,foratotalofmorethan$150billion,accordingtothereport.Thereportedmedicalandproductivitylosseswerelargerthanpreviousestimatesof$53billionand$43billion,respectively.”40

“Thesmoking-attributablefractionforallstateswas11percent(95-percentconfidenceinterval,0.4percent–17percent).Medicaidsmoking-attributableexpendituresrangedfrom$40million(Wyoming)to$3.3billion(NewYork)in2004andtotaled$22 billionnationwide.”41


• AlcoholConsumption“AlcoholconsumptioninCalifornialedtoanestimated9,439deathsand921,929alcohol-relatedproblems,suchascrimeandinjury,in2005.Theeconomiccostoftheseproblemsisestimatedatbetween$35.4billionand$42.2billion.Ourmainestimateis$38.5billion,ofwhich$5.4 billionwasformedicalandmentalhealthspending,$25.3billioninworklosses,and$7.8billionincriminaljusticespending,propertydamage,andpublicprogramcosts.”42

• LackofExcercise“Nearly12percentofdepressionandanxietyand31percentofcoloncancer,heartdisease,osteoporosis,andstrokecaseswereattributabletophysicalinactivity.Heartdiseasewasthemostexpensiveoutcomeofphysicalinactivitywithinthehealthplanpopulation(1.5millionhealthplanmembers),costingU.S.dollar35.3millionin2000.TotalhealthplanexpendituresattributabletophysicalinactivitywereU.S.dollar83.6 million,orU.S.dollar56permember.”44

HIgH PRICE OF MEDICAL SERvICES

ManyexpertsbelieveoneoftheprimaryreasonshealthcarecostsmoreintheU.S.thaninothercountriesisthatmedicalservicesaresimplypricedhigherintheU.S.Theyarguethatthepublic’slackofmarketpower—theabilitytodrivepricebasedonsupplyanddemand,aswithmostotherproductsandservices—isthecauseofhighpricesinphysicianservices,hospitalservices,andprescriptiondrugs.

Manyexpertscomparetheinflatedpricesforspecialist-performedprocedurestotheundervaluedcognitiveservicesofprimarycarephysiciansandsuggestthatnotonlydothesepricesaddcost,buttheyencourageoveruseoftheseservicesasdescribedinapreviouswastecategory.

Someofthehighpricesmaybeduetosysteminefficienciesdiscussedinapreviouscategory(e.g.,hospitaloperationalinefficiencies,administrativeinefficiencies).ManyexpertsfocusonthehighpricesofprescriptiondrugsintheU.S.comparedtoothercountries.Somecounterthathigherpricesencourageandfundimportantresearchanddevelopmentofnew,valuabledrugs.Others,however,claimthatmuchdevelopmentsimplyresultsinnew“metoo”brand-namedrugsthataddlittleclinicaladvantageoverexistingdrugs,butincreasepharmaceuticalprofitsthroughaggressivemarketingtophysiciansandthepublic.

A Thomson Reuters study oftheeffectsofcompetitiononhospitalprices,publishedbytheHealthcareFinancialManagementAssociation,foundthathospitalservicesshowwiderangesinpricewithinaspecificgeography.“Itisnotunusualforthevariationinhospitalpricestoreach100percentormore.Forexample,thepricesofbrainMRIsinAtlantavary107percentaroundamedianof$1,856.Ifgasolinepricesshowedasimilaramountofvariation,priceswouldrangefrom$2to$5whenthemedianisat$3pergallon!”.54


The following evidence indicates that medical services and pharmaceuticals are overpriced in the United States

• “TheratiooftheaverageincomeofU.S.physicianstoaverageemployeecompensationfortheUnitedStatesasawholewasabout5.5.Germany’swasthenexthighest,atonly3.4;Canada,3.2;Australia,2.2;Switzerland,2.1;France,1.9;Sweden,1.5;andtheUnitedKingdom,1.4.”47

• “ThedatashowthattheUnitedStatesspendsmoreonhealthcarethananyothercountry.However,onmostmeasuresofhealthservicesuse,theUnitedStatesisbelowtheOECDmedian.ThesefactssuggestthatthedifferenceinspendingiscausedmostlybyhigherpricesforhealthcaregoodsandservicesintheUnitedStates.”48

• “TheresearchersestimatedthatAmericanspaid40percentmorepercapitathanGermansdidbutreceived15percentfewerrealhealthcareresources.AsimilarcomparisonrevealedthattheU.S.systemusedabout30percentmoreinputspercapitathanwasusedintheBritishsystemandspentabout75percentmorepercapitaonhigherprices.”48

• “…FuchsandHahnfoundthat“U.S.feesforproceduresaremorethanthreetimesashighasCanadianfees[and]thedifferenceinfeesforevaluationandmanagementservicesisabout80percent.”48

• “Bythesemostcomprehensiveindexes,Japan’sdrugpricesarehighest,followedbyU.S.prices.Canada’spricesarelowest:33percentlowerthanU.S.pricesnetofdiscounts,and40percentlowerignoringdiscounts.PricesinGermany,Italy,andtheUnitedKingdomarelessthan15percentlowerthanU.S.prices,netofdiscounts,whereaspricesinFranceare30percentlower.”49

UsingtheThomson Reuters marketscandatabase,asimplecomparisonacrossgeographicregionsofthedifferenceinaveragepriceforthesameservicebetweenhospitaloutpatientdepartmentsandfreestandingfacilitiessuggeststhatthehospitalpriceadvantageincreaseswithariseinthemarketdominanceofhospitals.Thisfindingmaybeanexampleofthelackofeffectivepricecompetitionresultingfromstructuralcharacteristicsofhealthcaremarkets.


CONCLUSIONSOurobjectivewastocombineThomsonReutersresearchwithevidencefrompublishedresearchandexpertopiniontosupportameaningfulandcredibleestimatefortheamountofwasteinthehealthcaresystem.Wefeelthatanestimateof $700 billioniswellsupportedbytheavailablefactsandresearch.Thefirststepwastobreakdowntotalwasteintoindependentcomponentcategories.Thesecategoriescanbeclearlydescribedanddifferentiated,andresearchandotherevidenceprovideareasonablerangeofrelatedwaste.Thelevelorprecisionneedsonlybesufficienttosupportthepurposeoftestingthereasonablenessofthetotalestimatedfigure.Therefore,reasonablerangescanberelativelylarge.Wehaveassumedthatthecategoriesareindependentandhave,therefore,simplyaddedthecomponentstocalculatethereasonablerangefortotalwaste.Thisassumptionisappropriatetothelevelofprecisionrequiredbytheobjective.

Theresultingreasonablerangefortotalhealthcaresystemwasteis$600-$850 billion annually.Therefore,weconcludethatdesignatinganestimated$700billionorone-thirdofannualhealthcareexpendituresaswasteisreasonableandmaybeevenconservative.

component Ranges

The six component ranges (in billions of dollars) included in the total are:

1. AdministrativeSystemInefficiencies $100-150

2. ProviderInefficiencyandErrors $75-100

3. LackofCareCoordination $25-50

4. UnwarrantedUse $250-325

5. PreventableConditionsandAvoidableCare $25-50

6. FraudandAbuse $125-175


Werecognizethatthefigureof$700billionhasoftenbeenquotedwithoutspecificreferencetothetypesofwasteincluded.Forexample,somehaveprobablynotintendedtoincludewastefromadministrativesysteminefficiencies,andothershavenotintendedtoincludefraudandabuse.Somehaveonlyintendedwastetoincludeunwarranteduse,avoidablecareandmedicalerrorsintheirestimatesofwaste.

Ourconsiderationoftheevidencesuggeststhat,regardlessofthecomponentsincludedinadefinitionofwaste,thetotalcostofwasteisindeedaverylargefigure.Itiscertainlylargeenoughtomeritasignificantinvestmentinanongoingefforttosearchforspecificwaste,todesignandimplementprogramstoreducewaste,andtoevaluateandreportonthesuccessoftheseprograms.At40%,unwarranteduserepresentsthelargestshareofwaste,butopportunitiesexisttoreducewasteineachcategory.Itisevenpossiblethatsomestrategiestoreducewastecouldsucceedinreductionsinmorethanonecategory.

Itisalsoimportanttonotethat,althoughnotincludedinourestimateofatotalrange,thewasteassociatedwithtreatingalevelofdiseaseprevalencethatcouldbesignificantlyreducedthroughmodifiedindividualbehavior,issignificant.Althoughtheresponsibilityforpursuingahealthierlifestyleisultimatelyapersonalone,thehealthcaresystemhasanopportunitytoencouragebetterindividualchoices.

Unwarranted Use40%

Fraud and Abuse19%

Administrative System Inefficiencies17%

Lack of Care Coordination 6%

Preventable Conditions and Avoidable Care 6%

Provider Inefficiency and Errors 12%

PercentageofHealthcareWastebyCategoryTotaling$700Billion


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