A new Health Policy Brief from Health Affairs and the Robert Wood Johnson Foundation examines waste in US health care. Estimates are that more than a third of annual US health spending may be wasteful. A September 2012 Institute of Medicine report estimated that $765 billion a year was wasted through provision of unnecessary services, inefficiently delivered services, excessive prices and administrative costs, and missed prevention opportunities and fraud and abuse.

This policy brief discusses these and other types of waste in health care, ideas for eliminating waste, and the considerable hurdles that must be overcome to do so. It is the companion to a July 2012 Health Policy Brief, “Eliminating Fraud and Abuse.”

Topics covered in the new brief on waste in health care include the following:

Causes of waste. Categories of waste discussed in the brief are, among others, avoidable medical errors and other failures of care delivery; overtreatment for various reasons, including fee-for-service payment and avoidance of medical liability; and failures of care coordination, such as avoidable hospital readmissions.

What are the issues? Although there is general agreement about the types and level of waste in the US health care system, there are significant challenges involved in reducing it. The brief discusses recommendations from the above-mentioned Institute of Medicine report, including increased provider use of digital data to improve care coordination and delivery, and heightened transparency in all aspects of provider performance–quality, costs, and outcomes.

Another issue involves reducing health care spending when the benefits are relatively small, especially in comparison to cost. But many Americans are fearful that a focus on cost-effectiveness could lead to “rationing” in health care. Although the Affordable Care Act bars Medicare from engaging in certain types of these evaluations, the law is silent on how this issue affects health care outside of Medicare.

What’s next? Efforts to remove waste from the health care system are expected to continue through a range of federal government and private-sector initiatives, including adoption of health information technology, pay-for-performance systems, payment and delivery reforms, comparative effectiveness research, and competitive bidding. Similar programs are also underway at state Medicaid agencies and by private insurance companies and providers.

About Health Policy Briefs. The Briefs are aimed at policy makers, congressional staffers, and others who need short, jargon-free explanations of health policy basics. The Briefs, which are reviewed by experts in the field, include competing arguments on policy proposals and the relevant research supporting each perspective

Previous policy briefs have addressed:

  • Basic Health Program. The Affordable Care Act offers states another option besides Medicaid and the exchanges for health coverage for low-income residents.
  • Nurse Practitioners And Primary Care. Federal and state laws and other policies limit how these professionals can help meet the growing need for primary care.
  • Pay for Performance: New payment systems reward doctors and hospitals for improving the quality of care, but studies to date show mixed results.

You can sign up for e-mail alerts about upcoming briefs. The briefs are also available from RWJF’s Web site. Please feel free to forward to any of your colleagues who are tracking health issues. And after you’ve taken a look, we would welcome your feedback at hpbrief@healthaffairs.org.