Waste in Health Care: Does Wastefulness Contribute to Excess Cost and Poor Quality?

Peter Freska, CEBS
Benefits Advisor
The LBL Group, A UBA Partner Firmhealth care costs

Waste in health care has been a discussion for many years. With the passing, and now implementation, of the Patient Protection and Affordable Care Act (PPACA), waste in health care is again at the forefront of health care delivery. According to reports, it is estimated that one-third of all health care spending in the United States is wasteful. The most prominent issue is how to reduce health care costs without compromising the quality of care received. Included in what most determine to be waste are services that are not evidenced to produce better health outcomes. Additionally, inefficiencies in how health care is provided, and costs for treatments, are included in the cycle of waste in health care.

The cost of health care waste in the United States is huge. According to McKinsey Global, the United States spends $650 billion more than other developing countries do on health care (Accounting for the cost of US Health Care – Mcinsey & Company). Generally, it is found that this spending is generated by providers’ capacity for outpatient services, innovations in technology, and demand responding to the increased availability of services. A more current study from 2012 found that up to $750 billion total United States health care spending – including Medicare and Medicaid, state and federal costs – was wasteful spending (The Committee on Energy and Commerce – Memorandum). Wasteful spending included unnecessary services, excessive administrative costs, fraud, and more. The cost of waste is outlined as part of Medicare and Medicaid costs as well as part of the total United States health care spending and at the highest, waste accounts for 37% of total United States health care spending. Working to reduce waste clearly has a compelling argument, at least from a cost savings perspective.

Based on the evidence presented and other studies, wastefulness does contribute to excess cost and at least a reduction in quality. Generally, with this comes a desire to engage in quality and performance improvements. In most situations that have waste, people and organizations tend to strive for more efficiency. Reasonably stated, people do not work out ways to add another unnecessary step to process or treatment. Reasonable people work toward more efficiency and effectiveness. Hence, they work to extract waste from the health care system.

From a quality improvement perspective, people and organizations will focus on processes that work to bring services to the next level. This likely includes the aim of improving the overall health of the community services. From the performance improvement perspective, people and organizations work to achieve strategic goals through improved effectiveness, empowerment, and leaning out the decision making process.

The desire to reduce waste is compelling to engage in these improvement strategies. The Centers for Disease Control and Prevention (CDC) have even dedicated a portion of their website to these topics (CDC – Performance Management and Quality Improvement). Waste in the health care system from failures of care delivery, coordination of care, overtreatment and administrative complexities, pricing issues, fraud, and abuse amounts to billions of dollars annually that could be saved or redirected to better causes. Ultimately, if the United States health care system is to increase performance and quality, then change is needed.