Savings from the Elimination of Waste in  National Health Expenditures

 

United States national health expenditures increased from $27 billion, or 5% of GDP, in 1960[1] to $3 trillion, or 17.5% of GDP, in 2014.[2] Projections from CMS estimate an increase to over $5.7 trillion, or almost 20% of GDP, by 2026.[3]

 

When President Obama took office in January 2009 the United States was experiencing a time of precipitous fall in GDP and a rapid increase in gross federal debt from around $5.6 trillion in 2000 to $10 trillion in 2008,[4]  with projections that federal debt might increase to over $22.3 trillion by 2020.[5] The rate of unemployment increased from 4.7 percent in 2006 to almost 10 percent in 2010[6] (unemployment does not include the number of people who gave up searching for a job). During this period leading economists expressed fear that the 2008/2009 recession could spiral out of control and lead to damage to the economy like that experience in the 1930s Great Depression. In fact, the recession of 2008/2009, was the most severe damage to the economy since the Great Depression of the 1930s. 

 

Recognized healthcare leaders have evaluated the opportunity to reduce health spending between 30 to even 60 percent. In 2012, the Institute of Medicine (IOM), a division of the National Academies of Sciences, Engineering, and Medicine, produced their prescient report “Best Care at Lower Cost: The Path to Continuously Learning Health Care in America,” that estimated health expenditure “waste” was 30 percent of national health expenditures or around $750 billion in 2009 dollars. Healthcare waste is defined as health “spending that could be eliminated without harming consumers or reducing the quality of care that people receive.”[7] Dr. Donald Berwick, former President and CEO of the Institute for Healthcare Improvement (IHI) and former Administrator of the Centers for Medicare and Medicaid Services (CMS), noted “20 percent to 30 percent of all health spending — or more than $1 trillion a year — may be ‘waste’ that does nothing to help patients.”[8] 

 

Dr. Brent James, recently retired Chief Quality Officer and Executive Director at the Institute for Healthcare Leadership at Intermountain Healthcare, in 2017 was asked by an attendee of a talk he gave at the 7th China-US Health Summit (2017) in Boston: “Dr. Brent James you mentioned in your talk that you were of the opinion that 30% of national health expenditures were waste, did you really mean that?”

 

Dr. James paused for a minute, then thoughtfully replied: “Yes, and I’d double that number.” Dr. James went on to say that if health care was provided to patients cost-effectively and competently we could lower annual expenditures on health by as much as 60%.

 

Based on healthcare leaders and economists calculations of 30 percent waste, potential savings from the current $3 trillion in national health spending is around $1 trillion in one year. Potential savings from the forecasted $5.7 trillion national health expenditures in 2026 is over $1.7 trillion in one year. This, however, does NOT include the savings potential from lowering indirect costs, such as illness-related loss of labor force productivity. Indirect costs savings could double the United States annual savings from fixing the broken health system. 

 

The huge amount of wasted spending provides an opportunity to deliver higher quality healthcare while saving trillions of dollars over the next several decades by investing in innovations that are now happening in leading healthcare providers. 

 

For more information on the projection of savings over the next 30 years and the core innovations now happening that will make savings possible please contact me at whgruber@gmail.com.

[1] Table 102 (page 1 of 2). Gross domestic product, national health expenditures, per capita amounts, percent distribution and average annual percent change: United States, selected years 1960–2013, Centers for Disease Control, 2014. Accessed on October 19, 2015. Available at: http://www.cdc.gov/nchs/data/hus/2014/102.pdf

 

[2] Martin AB, Hartman M, Catlin A, and National Health Expenditure Accounts Team. "National Health Spending In 2014: Faster Growth Driven by Coverage Expansion And Prescription Drug Spending." Health Affairs, 35, no. 1, 2016; 150-160.

 

[3]  “NHE Fact Sheet, 2016” Centers for Medicare & Medicaid Services (CMS), updated February 14, 2018. https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html

 

[4] Fiscal Year 2014 Historical Tables: Budget of the U.S. Government. Office of Management and Budget Washington D.C. 2013. Accessed on October 19, 2015. Available at: http://www.gpo.gov/fdsys/pkg/BUDGET-2014-TAB/pdf/BUDGET-2014-TAB.pdf

 

[5] McCaughey B. A grim warning cry on soaring US debt New York Post January 29, 2015. Accessed on October 19, 2015. Available at:  http://nypost.com/2015/01/29/a-grim-warning-cry-on-soaring-us-debt/

 

[6] Labor Force Statistics from the Current Population Survey. Bureau of Labor Statistics, 2016. Accessed on February 14, 2016. Available at: http://data.bls.gov/timeseries/LNS14000000

 

[7] Lallemand NC. Reducing Waste in Health Care. A third or more of what the US spends annually may be wasteful. How much could be pared back—and how—is a key question. Health Affairs, December 13, 2012. Accessed on October 19, 2015. Available at: http://healthaffairs.org/healthpolicybriefs/brief_pdfs/healthpolicybrief_82.pdf

 

[8] Candid Advice From a Health Care Visionary. Editorial. New York Times, December 13, 2011. Accessed on October 19, 2015. Available at: http://www.nytimes.com/2011/12/14/opinion/advice-from-dr-berwick-a-health-care-visionary.html?_

© 2019 William H. Gruber

Tel: 617-620-5990

Email: whguber@gmail.com