Healthcare System Waste

Healthcare System Wasted $750 Billion in 2009, IOM Says

Robert Lowes

September 6, 2012 — An inefficient, extraordinarily complex, and slow-to-change US healthcare system wasted more than $750 billion in 2009, according to a new studyfrom the Institute of Medicine (IOM) that calls for a drastic overhaul.

Excessive administrative costs on the part of insurers explain some of those squandered dollars, but unnecessary and inefficiently delivered services on the part of physicians, hospitals, and other providers account for the lion's share of the $750 billion, said the report, which was released online today.

This attention-grabbing statistic is reminiscent of the oft-quoted figure for deaths attributable to medical error — up to 98,000 each year — found in a 1999 IOM report titledTo Err Is Human: Building a Safer Health System. That report helped spark an ongoing campaign for patient safety. The new IOM report, titled Best Care at Lower Cost: The Path to Continuously Learning Health Care in America, aims to build on the 1999 study and other blueprints for progress from the IOM.

For all the dramatic advances in biomedical knowledge, drugs, and procedures, the healthcare industry lags behind other industries in terms of operating smarts, the new IOM report says. "If banking were like healthcare, automated teller machine (ATM) transactions would not take seconds but perhaps days or longer as a result of unavailable or misplaced records." In the same vein, airline pilots would be free to dispense with preflight safety checks and retail stores would not display product prices in the aisles. Hospitals, physicians, and insurers, the report said, have much to learn from the best practices in other fields.

The healthcare system also suffers from informational logjams. "The sheer volume of new discoveries stresses the capabilities of the system to effectively generate and manage knowledge and apply it to regular care," the report states. Case in point: It took 13 years for most experts to recommend the use of thrombolytic drugs to treat heart attacks after the therapy proved itself to be effective.

In the healthcare system envisioned by the IOM, electronic health records (EHRs) would bring the research contained in more than 750,000 journal articles published each year to the point of care, and quickly. In addition, researchers would mine EHRs for useful data generated in everyday patient care.

A continuously learning healthcare system has other characteristics:

• Patients and clinicians are partners.
• Healthcare providers are rewarded for reducing waste, rendering high-value care, and improving their performance.
• Transparency reigns. System vital signs for safety, clinical outcomes, costs, and the like are available to both clinicians and patients.
• The system is committed to a culture of teamwork, collaboration, and adaptability.
• The system strives for continual improvement through methods such as Six Sigma, Lean, and Total Quality Management.

The IOM report warns, however, that implementing this brave new healthcare system will not be easy, especially in the exam room. Clinicians are already stressed out by patient care and administrative burdens and swamped by piecemeal healthcare reform initiatives.

"Given such real-world impediments, initiatives that focus merely on incremental improvements and add to a clinician's daily workload are unlikely to succeed," the report says. Instead, the entire infrastructure and culture of healthcare must be reconfigured for significant change to occur.

Wasted Healthcare Dollars in 2009
Unnecessary Services		$210 billion
Inefficiently delivered services	Includes mistakes and unnecessary use of higher-cost providers	$130 billion
Excess administrative costs	Includes inefficiencies resulting form care-documentation requirements	$190 billion
Too-high prices		$105 billion
Missed prevention opportunities		$55 billion
Fraud	Committed by patients, providers, and payers	$75 billion

Source: Best Care at Lower Cost: The Path to Continuously Learning Health Care in America, Institute of Medicine.

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