NCPA - National Center for Policy Analysis

Reducing Waste in Health Care

December 18, 2012

A key feature of new efforts by policymakers to curb health spending is to eliminate waste. This would focus on finding less-expensive alternatives, eliminating inefficiencies in the provision of health care, or eliminating fraud and abuse, says Nicole Cafarella Lallemand, a research associate at the Urban Institute.

The United States spent nearly $650 billion more than other developed countries in 2006. However, this was not due to the population being sicker, but rather factors such as growth in provider capacity for outpatient services, technological innovation, and growth in demand in response to greater availability of those services.

  • Another $91 billion was due to inefficient and redundant health administration practices.
  • Moreover, 30 percent of all Medicare clinical care spending could be avoided without worsening health outcomes.
  • Similarly, given categories of waste consumed $476 billion to $992 billion, or 18 percent to 37 percent of the $2.6 trillion annual health spending.

Researchers have studied the categories of waste and their estimated costs in 2011.

  • Failure of care delivery: $102 billion to $154 billion.
  • Failure of care coordination: $25 billion to $45 billion.
  • Overtreatment: $158 billion and $226 billion.
  • Administrative complexity: $107 billion to $389 billion.
  • Pricing failures: $84 billion to $178 billion.
  • Fraud and abuse: $82 billion to $272 billion.

Many people fear that eliminating waste in health care would enable a rationing of care. For example, a treatment for cancer may cost tens of thousands but extend life by only a couple of weeks. The fear is that the government would make decisions about whether people can receive the treatment to prolong their lives.

Source: Nicole Cafarella Lallemand, "Reducing Waste in Health Care," Health Affairs, December 2012.


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