New Report: Health Care Waste $750 Billion per Year

September 7th, 2012
in econ_news, syndication

healthcare-best-careSMALLEconintersect:  A new report from the Institute for Medicine castigates the medical profession and healthcare industry for failing to adopt systemic changes that would bring the provision of medicine up to the modern standards practiced in other industries.  Unfavorable comparisons are made to banking, manufacturing, air transportation, retailing, hospitality and even home building contractors.  The major failings of medicine include poor quality control, wasteful delivery costs, systemic inefficiency and failure to adapt to new technologies.  An info graphic follows later in this article.

Follow up:

The report made a comparison between banking and healthcare:  If banking had a system equivalent to healthcare an ATM transaction would take days.  And comparing to retail sales, healthcare is like shopping in a store with different prices for the same item depending on what isle you shopped in.

But perhaps the most astounding finding of this study was the documentation of $750 billion in healthcare expenses each year that do nothing to improve health.  In other words, nearly 1/3 of healthcare expense is wasted money.

What is $750 billion?

  • It is more than 10x the $716 billion that the two presidential candidates accuse each other of removing from Medicare over the next ten years;
  • If this money were not wasted the cost of healthcare would come down to less than 10% of GDP, closer to, but still greater than, what is spent in other developed countries;
  • Nearly the total involved in the TARP bailout financing bill;
  • Equivalent to the cost of providing nearl $2,400 of health care to every man, woman and child in the U.S.;
  • Equivalent to the cost of providing healthcare coverage worth $15,000 to every uninsured individual in the U.S.;

Healthcare is described as lacking an adaptive system to efficiently deal with processes that are "complex and constantly changing."   The report contains a table describing how the healthcare system can be improved through what is called a "continuously learning system":

Click on table for larger image.


The following info graphic is supplied by the Institute for Medicne, the issuer of the report:

Click on info graphic for access to larger image.


References for “What is Possible for Health Care” Infographic

  • Stremikis, K., C. Schoen, and A. K. Fryer. 2011. A call for change: The 2011 Commonwealth Fund survey of public views of the U.S. health system. New York: Commonwealth Fund.
  • Stremikis, K., C. Schoen, and A. K. Fryer. 2011. A call for change: The 2011 Commonwealth Fund survey of public views of the U.S. health system. New York: Commonwealth Fund.
  • Donchin, Y., D. Gopher, M. Olin, Y. Badihi, M. Biesky, C. L. Sprung, R. Pizov, and S. Cotev. 2003. A look into the nature and causes of human errors in the intensive care unit. Quality & Safety in Health Care 12(2):143-147.
  • Pham, H. H., A. S. O’Malley, P. B. Bach, C. Saiontz-Martinez, and D. Schrag. 2009. Primary care physicians’ links to other physicians through Medicare patients: The scope of care coordination. Annals of Internal Medicine 150(4):236-242.
  • Classen, D. C., R. Resar, F. Griffin, F. Federico, T. Frankel, N. Kimmel, J. C. Whittington, A. Frankel, A. Seger, and B. C. James. 2011. ‘Global trigger tool’ shows that adverse events in hospitals may be ten times greater than previously measured. Health Affairs (Millwood) 30(4):581-589; Landrigan, C. P., G. J. Parry, C. B. Bones, A. D. Hackbarth, D. A. Goldmann, and P. J. Sharek. 2010. Temporal trends in rates of patient harm resulting from medical care. New England Journal of Medicine 363(22):2124-2134; Levinson, D. R. 2010. Adverse events in hospitals: National incidence among Medicare beneficiaries. Washington, DC: U.S. Department of Health and Human Services, Office of Inspector General.
  • Jencks, S. F., M. V. Williams, and E. A. Coleman. 2009. Rehospitalizations among patients in the Medicare fee-for-service program. New England Journal of Medicine 360(14):1418-1428.
  • Goodman, J. C., 2006. Transparency in Health Care. Washington, DC: National Center for Policy Analysis.
  • Goodman, J. C., 2006. Transparency in Health Care. Washington, DC: National Center for Policy Analysis.
  • Stremikis, K., C. Schoen, and A. K. Fryer. 2011. A call for change: The 2011 Commonwealth Fund survey of public views of the U.S. health system. New York: Commonwealth Fund.
  • Stremikis, K., C. Schoen, and A. K. Fryer. 2011. A call for change: The 2011 Commonwealth Fund survey of public views of the U.S. health system. New York: Com

Here is the full press release from the Institute for Medicine:


Date: Sept. 6, 2012


Transformation of Health System Needed to Improve Care and Reduce Costs

WASHINGTON — America's health care system has become too complex and costly to continue business as usual, says a new report from the Institute of Medicine. Inefficiencies, an overwhelming amount of data, and other economic and quality barriers hinder progress in improving health and threaten the nation's economic stability and global competitiveness, the report says. However, the knowledge and tools exist to put the health system on the right course to achieve continuous improvement and better quality care at lower cost, added the committee that wrote the report.

The costs of the system's current inefficiency underscore the urgent need for a systemwide transformation. The committee calculated that about 30 percent of health spending in 2009 -- roughly $750 billion -- was wasted on unnecessary services, excessive administrative costs, fraud, and other problems. Moreover, inefficiencies cause needless suffering. By one estimate, roughly 75,000 deaths might have been averted in 2005 if every state had delivered care at the quality level of the best performing state.

Incremental upgrades and changes by individual hospitals or providers will not suffice, the committee said. Achieving higher quality care at lower cost will require an across-the-board commitment to transform the U.S. health system into a "learning" system that continuously improves by systematically capturing and broadly disseminating lessons from every care experience and new research discovery. It will necessitate embracing new technologies to collect and tap clinical data at the point of care, engaging patients and their families as partners, and establishing greater teamwork and transparency within health care organizations. Also, incentives and payment systems should emphasize the value and outcomes of care.

"The threats to Americans' health and economic security are clear and compelling, and it's time to get all hands on deck," said committee chair Mark D. Smith, president and CEO, California HealthCare Foundation, Oakland. "Our health care system lags in its ability to adapt, affordably meet patients' needs, and consistently achieve better outcomes. But we have the know-how and technology to make substantial improvement on costs and quality. Our report offers the vision and road map to create a learning health care system that will provide higher quality and greater value."

The ways that health care providers currently train, practice, and learn new information cannot keep pace with the flood of research discoveries and technological advances, the report says. How health care organizations approach care delivery and how providers are paid for their services also often lead to inefficiencies and lower effectiveness and may hinder improvement.

Better use of data is a critical element of a continuously improving health system, the report says. About 75 million Americans have more than one chronic condition, requiring coordination among multiple specialists and therapies, which can increase the potential for miscommunication, misdiagnosis, potentially conflicting interventions, and dangerous drug interactions. Health professionals and patients frequently lack relevant and useful information at the point of care where decisions are made. And it can take years for new breakthroughs to gain widespread adoption; for example, it took 13 years for the use of beta blockers to become standard practice after they were shown to improve survival rates for heart attack victims.

Mobile technologies and electronic health records offer significant potential to capture and share health data better. The National Coordinator for Health Information Technology, IT developers, and standard-setting organizations should ensure that these systems are robust and interoperable, the report says. Clinicians and care organizations should fully adopt these technologies, and patients should be encouraged to use tools, such as personal health information portals, to actively engage in their care.

Health care costs have increased at a greater rate than the economy as a whole for 31 of the past 40 years. Most payment systems emphasize volume over quality and value by reimbursing providers for individual procedures and tests rather than paying a flat rate or reimbursing based on patients' outcomes, the report notes. It calls on health economists, researchers, professional societies, and insurance providers to work together on ways to measure quality performance and design new payment models and incentives that reward high-value care.

Although engaging patients and their families in care decisions and management of their conditions leads to better outcomes and can reduce costs, such participation remains limited, the committee found. To facilitate these interactions, health care organizations should embrace new tools to gather and assess patients' perspectives and use the information to improve delivery of care. Health care product developers should create tools that assist people in managing their health and communicating with their providers.

Increased transparency about the costs and outcomes of care also boosts opportunities to learn and improve and should be a hallmark of institutions' organizational cultures, the committee said. Linking providers' performance to patient outcomes and measuring performance against internal and external benchmarks allows organizations to enhance their quality and become better stewards of limited resources, the report says. In addition, managers should ensure that their institutions foster teamwork, staff empowerment, and open communication.

The report was sponsored by the Blue Shield of California Foundation, Charina Endowment Fund, and Robert Wood Johnson Foundation. Established in 1970 under the charter of the National Academy of Sciences, the Institute of Medicine provides objective, evidence-based advice to policymakers, health professionals, the private sector, and the public. The Institute of Medicine, National Academy of Sciences, National Academy of Engineering, and National Research Council together make up the independent, nonprofit National Academies. For more information, visit or A committee roster follows.


Christine Stencel, Senior Media Relations Officer

Luwam Yeibio, Media Relations Assistant

Office of News and Public Information

202-334-2138; e-mail

Pre-publication copies of Best Care at Lower Cost: The Path to Continuously Learning Health Care in America are available from the National Academies Press; tel. 202-334-3313 or 1-800-624-6242 or on the Internet at Reporters may obtain a copy from the Office of News and Public Information (contacts listed above).

John Lounsbury


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1 comment

  1. I am delighted that this IOM report is causing such a huge amount of discussion about the runaway COSTS of healthcare. I am glad it also includes suggestions for how to improve the situation.

    One point that is rarely made in discussions about the spiraling cost of healthcare is the fact that there are, indeed, many treatments out there that are really effective AND inexpensive, in addition to having very few side effects. Yet, because these treatments are not yet the "standard of care," and more specifically, are not manufactured by large pharmaceutical companies, doctors don't routinely prescribe them. But thankfully, because of patient successes with these treatments, more and more doctors are beginning to prescribe them.

    I believe that these treatments could play a huge role in saving healthcare.

    In my book, HONEST MEDICINE: Effective, Time-Tested, Inexpensive Treatments for Life-Threatening Diseases, I highlight examples of treatments like these.

    One of the treatments I write about in my book is Low Dose Naltrexone (LDN), used off-label for 25 years by many doctors for autoimmune diseases, such as MS, Lupus, Rheumatoid arthritis, Crohn’s disease, etc. LDN costs $40 a month (maximum) through compounding pharmacies. (Naltrexone was approved in the mid-1980s by the FDA for another purpose—drug and alcohol addiction—at TEN TIMES THE DOSE that doctors are now using it off-label for autoimmune diseases.)

    On the other hand, the most commonly prescribed MS medications cost $2000-$4000 a month and have horrible side effects.

    I would like to see treatments like these (I call them “patient evidence-based” treatments) considered more often by doctors. In addition to helping thousands of patients who are not being helped now, they could save our healthcare system a huge amount of money.

    Thanks so much.
    Julia Schopick

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