NCPA - National Center for Policy Analysis

Health Care System Wastes $750 Billion a Year

September 11, 2012

The U.S. health care system squanders $750 billion a year, roughly 30 cents of every medical dollar, through unneeded care, byzantine paperwork, fraud and other waste according to a report by the Institute of Medicine, says CBS News.

The report highlights inefficiencies in the current health care system and the need to quickly address them.

  • $210 billion goes toward unnecessary services
  • $130 billion goes toward inefficient delivery of care.
  • $190 billion goes toward excessive administrative costs.
  • $105 billion goes toward inflated prices.
  • Prevention failures make up $55 billion.
  • And finally, fraud accounts for $75 billion.
  • To put this in perspective, eliminating the $750 billion in inefficiencies is equivalent to more than 10 years of Medicare cuts in Obama's health care law.

Both presidential candidates agree that something needs to be done about the rising health care costs. Obama's plan would rely on a board to cut payments to service providers. In addition, he would reward payments to doctors based on results and not volume. Romney, on the other hand, would limit the amount of money future retirees can get from the government medical insurance, allowing the private market to find efficient solutions.

The report made 10 recommendations that policymakers should examine in an effort to eliminate inefficiencies in the nation's health care system. Some of recommendations include:

  • Payment reforms to reward quality instead of reimbursing after each procedure.
  • Improving coordination among different service providers.
  • Using technology to reinforce clinical decisions and educate patients to become better consumers.

The most important message from the report was to accelerate payment reforms, which would increase accountability from hospitals and other medical groups. This would also allow doctors to collaborate with peers about the best way to provide care.

Source: "Report: Health Care System Wastes $750B a Year," CBS News, September 6, 2012. "Transformation of Health System Needed to Improve Care and Reduce Costs," Institute of Medicine, September 6, 2012.


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