Journalism in the Public Interest

A Costly Equation: Medical Dollars Wasted Are Greater Than the U.S. Defense Budget

New report analyzes the cost of medical waste in America.


(Flickr, Images_of_Money)

This post is part of our ongoing look at patient safety.

I’ve heard a lot of reports about the staggering amount of fraud, overtreatment and unnecessary health care in the United States. But the recent “Best Care at Lower Cost” report by the Institute of Medicine included this stunner: In 2009, the health care system wasted an estimated $765 billion– more than the entire budget of the Department of Defense.

I’ve got to hand it to the IOM committee for finding an interesting way to give those numbers a punch.

The report outlined the varieties of waste: Care is provided that’s not based on evidence; discretionary care is used too much; high cost options are chosen rather than avoided; care is fragmented; insurance administration and paperwork are inefficient; and fraud is at every level. The estimates of money poorly spent included:

  • $210 billion on overuse and unnecessary care.
  • $130 billion in inefficiency, including mistakes and harm.
  • $190 billion in excess administrative costs.

The $765 billion total estimate is about $100 billion more than the Defense Department budget for the same year. That’s a maddening amount of money to blow.

Whose money is being wasted? Yours and mine. Medical inflation increases health insurance premiums. In 2010, Medicare spent an estimated $48 billion– our tax dollars – on overpayment and waste. But the most tragic victims are people who need medical care but don’t have the money to pay for it. The cost of care is a major barrierto many patients, and its driven higher by waste.   

Who’s profiting from the status quo? Members of the health care industry – though certainly not everyone is feeding at the trough. When I wrote recentlyabout unnecessary stents, Dr. David Brown, an interventional cardiologist and professor of medicine at SUNY-Stony Brook School of Medicine, told me unnecessary treatment persists because “the medical system is addicted to the revenues that it generates.”

And here’s the kicker: The debates about health care reform might be moot if we eliminated the waste. The net cost of healthcare reform (i.e., President Obama’s Affordable Care Act) is estimated to be $1.1 trillion over a 10 year period. That’s less than two years of the estimated waste in health care.

So what do you think? The system is hemorrhaging money. What can be done to stop it? Have you had experiences with any medical facilities working in innovative ways to cut costs?

Aren’t there search engine type sites, similar to the “find your best mortgage rate” types; where a pwrsopn can plug in a billing code and zip code, and out comes a translation of the procedure with comparable costs from surrounding facilities?
Sorry for the run-on sentence, but….?

A single payer system would vastly reduce the amount of money providers spend just to get paid.  An entire industry—known as clearinghouses—exists because it is too complex for most doctors and other providers to submit claims directly to the insurance companies.  They change rules constantly to avoid paying claims.  Attempts have been made to simplify the process, but to no avail.  Clearinghouses and insurance companies do nothing to make people more healthy. 

Doctors should be paid for being doctors, not for performing procedures.  It is too tempting to go ahead with a stint or other costly procedure because it might help, probably won’t hurt and will bring in a lot of cash.

Howard Rosenfeld

Sep. 23, 2012, 10:20 p.m.

Group Health Cooperative in Seattle, WA is doing very innovative work; they are a delivery system and an insurance company - a non-profit that was founded in 1947 as a community coalition dedicated to making quality health care available and affordable.  One recent example of their innovation is their development and use of shared decision-making aids - these decision-making provide patients with balanced sources of information that clearly present the evidence-based pros and cons of treatment options for a health condition.  Check out a write-up of the study here:

[DISCLAIMER: I work for GHC]

It’s time to phase out FFS - that’s 1/2 the problem.  The other 1/2 is that doctors don’t communicate effectively with patients.

This article is part of an ongoing investigation:
Patient Safety

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