HEALTH CARE: More Evidence about the $700 Billion Waste

We've often cited estimates from the Dartmouth Atlas and others that about one out of every three dollars we spend on health care (which adds up to about $700 billion) adds no value whatsoever to our health. Zilch. Now a paper from Healthcare Analytics at Thomson Reuters confirms that figure, estimating that we waste between $600 and $850 billion a year:

In this white paper, we present evidence that supports the reasonableness of these claims. This evidence has been gathered from published research studies, expert opinion, and findings from our own Thomson Reuters analyses of our large healthcare databases. We describe the types of waste that are recognized by most experts along with estimates of the magnitude of that waste.

Robert Kelley, vice president of healthcare analytics at Thomson Reuters and author of the white paper said, "By attacking waste, healthcare costs can be reduced without adversely affecting the quality of care or access to care." (A copy of the full report is attached below. Here's a summary)

Here are some of the study's key findings and how they categorize the waste:

• Unnecessary Care (40% of healthcare waste): Unwarranted treatment, such as the over-use of antibiotics, unnecessary imaging and the use of diagnostic lab tests to protect against malpractice exposure, accounts for $250 billion to $325 billion in annual healthcare spending.
• Fraud (19% of healthcare waste): Healthcare fraud costs $125 billion to $175 billion each year, manifesting itself in everything from fraudulent Medicare claims to kickbacks for referrals for unnecessary services. Sometimes patients are complicit; sometimes providers bill for services for patients who have already died.
• Administrative Inefficiency (17% of healthcare waste): The large volume of redundant paperwork in the U.S healthcare system accounts for $100 billion to $150 billion in spending annually.
• Healthcare Provider Inefficiency and Errors (12% of healthcare waste): This counts for $75 billion to $100 billion in unnecessary spending each year. It ranges from outright medical errors to overutilization of ICUs to inefficient OR scheduling.
• Preventable Conditions (6% of healthcare waste): Approximately $25 billion to $50 billion is spent annually on hospitalizations addressing conditions, such as uncontrolled diabetes, that are significantly less costly to treat when individuals receive timely and effective outpatient care.
• Lack of Care Coordination (6% of healthcare waste): Inefficient communication between providers, including lack of access to medical records when specialists intervene, leads to the duplication of tests, inappropriate treatments or treatment in inappropriate settings. This costs the system $25 billion to $50 billion annually. Avoidable hospitalization for nursing home patients, and wasteful and potentially dangerous drug interations fall in this category. The author cited studies showing more than a half million medication errors among the elderly in outpatient settings alone.

The paper doesn't address too many specific solutions, but here's the bottom line: We're wasting a ton of money. (Probably several tons but we really aren't sure how you would weigh $700 billion). We can fix it. Health reform will address it. Saving money does not mean "rationing."