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U.S. squanders a staggering $750 billion each year on health care

U.S. health-care waste comes in many forms: unnecessary services, excess administrative costs, inefficiently delivered services, inflated prices, fraud and missed prevention opportunities.

"If airline travel were like health care, each pilot would be free to design his or her own preflight safety check, or not to perform one at all."
REUTERS/Lucy Nicholson

The amount of money that is wasted each year on unnecessary health care in the United States is nothing short of staggering.

In 2009, we squandered an estimated $750 billion — about 30 percent of total U.S. health-care costs — according to an Institute of Medicine (IOM) report released last Thursday.

That’s a figure we’ve heard before, of course. But what’s so helpful about this report (which got buried in all the political news last week) is how it puts the number into perspective.

As the report points out, $750 billion is equal to 1.5 times the total amount the U.S. spent on infrastructure investment in 2004, “including roads, railroads, aviation, drinking water, telecommunications, and other structures.” It’s also $100 billion more than the entire Department of Defense budget for 2009.

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And here’s the number in a health-care context: $750 billion is enough to pay the salaries for all of the country’s firefighters, police officers, emergency medical technicians and other first responders for 12 years. It’s also enough — and this is the comparison I find most stunning — to provide annual health insurance (both the employee and employer contributions) for 150 million working Americans. That’s more workers than were in the entire civilian labor force in 2009, the IOM report points out.

Currently, an estimated 50 million Americans are uninsured, and at least another 25 million are underinsured.

Biggest waste: unnecessary treatment

U.S. health-care waste comes in a variety of forms: unnecessary services ($210 billion in 2009), excess administrative costs ($190 billion), inefficiently delivered services ($130 billion), inflated prices ($105 billion), fraud ($75 billion), and missed prevention opportunities ($55 billion). (These categories add up to $765 billion, but recognizing that some of them overlap, the IOM lowered the waste estimate to $750 billion.)

Note how “unnecessary services” leads the list. That’s also the category for which health-care consumers as well as the medical community need to take responsibility.

Both patients and physicians must “consider each health care decision and not always assume that ‘more care is better care,’ which has been the health care mantra for many years,” wrote Dr. Rita Redberg, a cardiologist at the University of California, San Francisco, in an Archives of Internal Medicine editorial about the IOM report.

“We must remember that a number of what were thought to be advances turned out to not be beneficial, or even to be harmful, such as prostate-specific antigen (PSA) screening or some breast cancer treatments,” she added. “… It took many years for our system to get to its current complex and dysfunctional state and will clearly take some years to make real improvements. In some ways, we are the victims of our success because these problems come from the many more technologies, procedures, and treatments that are now available as well as the many different financing schemes. While we have been aware of undertreatment in our system for some time, it is only more recently that we are realizing how many people are also being harmed by overtreatment.”

If health care were like other industries

The IOM report drives home its point about health-care waste and inefficiency by asking us to “consider the impact on American services if other industries routinely operated in the same manner as many aspects of health care”:

  • If banking were like health care, automated teller machines (ATM) transactions would take not seconds but perhaps days or longer as a result of unavailable or misplaced records.
  • If home building were like health care, carpenters, electricians, and plumbers each would work with different blueprints, with very little coordination.
  • If shopping were like health care, product prices would not be posted, and the price charged would vary widely within the same store, depending on the source of payment.
  • If automobile manufacturing were like health care, warranties for cars that require manufacturers to pay for defects would not exist. As a result, few factories would seek to monitor and improve production line performance and product quality.
  • If airline travel were like health care, each pilot would be free to design his or her own preflight safety check, or not to perform one at all.

Major barrier: an unwillingness to change

The report offers a list of recommendations for instigating a much less wasteful “continuous learning” system of health care. Those recommendations include empowering health-care consumers, speeding up the integration of evidence-based care into medical practice, and changing the payment structure for how medical services are delivered (including the controversial proposal of rewarding physicians and hospitals for reducing unnecessary treatments and procedures).

The time for implementing these changes, the report also stresses, is now.

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Much, much easier said than done, as Eugene Litvak, a co-author of the report and head of the Institute for Healthcare Optimization in Boston, acknowledged in an interview with Kaiser Health News reporter Ankita Rao. The problem with our health-care system is “not a shortage of resources,” he said. “It’s the shortage of leadership and willingness to change.”

The IOM is an independent, nonprofit organization that advises the federal government on matters related to health care. You can read this latest 382-page report, which has the unexciting title “Best Care At Lower Cost: The Path to Continuously Learning Health Care In America,” at the IOM’s website.