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WHERE CAN $700 BILLION IN WASTE BE CUT ANNUALLY FROM THE U.S. HEALTHCARE SYSTEM?
ROBERT KELLEY VICE PRESIDENT, HEALTHCARE ANALYTICS THOMSON REUTERS OCTOBER 2009

INTRODUCTION
How America will pay for healthcare is a subject on the mind of virtually every American today. As Congress determines who will pick up the tab for this important and growing expense, it is worthwhile to take a close look at the cost of healthcare itself. Are there areas where expenses can be cut without undermining the quality of care provided? How prevalent are misuse, overuse, and fraud? This paper tackles the tangled issue of healthcare waste and arrives at some interesting, and perhaps even surprising, conclusions: America’s healthcare system is, indeed, hemorrhaging billions of dollars, and the opportunities to slow the fiscal bleeding are substantial.

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Where can $700 billion in waste be cut annually? 3

WHY IDENTIFY “WASTE” IN THE U.S. HEALTHCARE SYSTEM?

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20
15.3%

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11.3% 11.0% 10.6%

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10.0% 8.4% 8.1%

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0

United States Switzerland

France

Germany

Canada

United Kingdom

Japan

Source: Kaiser Family Foundation, Trends in Healthcare Costs and Spending, March 2009.

4 Where can $700 billion in waste be cut annually?

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Where can $700 billion in waste be cut annually? 5

The New England Healthcare Institute (NEHI) has defined waste in healthcare as “Healthcare spending that can be eliminated without reducing the quality of care.”
HEALTHCARE WASTE DEFINED

Cost containment:

Rationing:

Misuse, Overuse, and Underuse:

6 Where can $700 billion in waste be cut annually?

Unwarranted or unexplained variation in care:

Fraud and abuse:

“Healthcare spending that can be eliminated without reducing the quality of care.”
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Where can $700 billion in waste be cut annually? 7

HOW MUCH WASTE IS THERE IN HEALTHCARE?

CATEGORIES OF HEALTHCARE WASTE
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8 Where can $700 billion in waste be cut annually?

ADMINISTRATIVE SYSTEM INEFFICIENCIES Reasonable Range For Annual Waste: $100–$150 Billion

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Evidence supporting the existence of administrative system inefficiencies is extensive:

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$126 billion

$265 billion over 2010–2020

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$126 to $315 billion
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$23 billion to $31 billion $91 billion
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Where can $700 billion in waste be cut annually? 9

PROVIDER INEFFICIENCY AND ERRORS Reasonable Range for Annual Waste: $75–$100 Billion

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A special type of provider inefficiency is avoidable errors

10 Where can $700 billion in waste be cut annually?

Considerable evidence supports the extent of waste from provider inefficiency and errors in healthcare, including the following:

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Thomson Reuters 100 Top Hospitals $32 billion

$73 billion

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$52.2 billion

$100 billion almost half of all adverse events (46.5 percent) are avoidable.

$4.5 to $5.7 billion per year

$2 billion

$17 billion and $29 billion

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Where can $700 billion in waste be cut annually? 11

$3.5 billion

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$7.2 billion

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$17 billion and $29 billion

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LACK OF CARE COORDINATION Reasonable Range for Annual Waste: $25–$50 Billion

How prevalent is lack of care coordination? The evidence reveals extensive waste:
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$21.4 billion
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$7.5 billion

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12 Where can $700 billion in waste be cut annually?

UNWARRANTED USE Reasonable Range For Annual Waste: $250–$325 Billion

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The Thomson Reuters MarketScan Database provides significant evidence in this category of healthcare waste.

$10 billion

$4 billion

Where can $700 billion in waste be cut annually? 13

The evidence of waste from unwarranted use of healthcare services comes from a number of sources:
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$1.1 billion.

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$600 billion
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$26.5 billion

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$3 billion
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14 Where can $700 billion in waste be cut annually?

$47 million to $194 million
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Journal of the