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ThomsonReuters on Saving Health Dollars

By June 18, 2010Commentary

A number of organizations and researchers have estimated that a very large percentage of total health care spending in any year goes for unnecessary or avoidable care, to administrative inefficiency or to outright fraud and abuse.  Eliminating this spending, according to the researchers, would allow the United States to either maintain spending at its current percent of GDP or perhaps even lower it.  Thomson Reuters put out another version of this research, finding that $3.6 trillion in wasteful spending could be saved over ten years.  (TR Report)

Thomson starts with the notion of maintaining the current level of  spending, 17% of GDP, as opposed to the projected growth to about 20% in ten years.  To do this, Thomson estimates that about ten percent of expenditures over that ten-year period would need to be avoided.  By Thomson’s reckoning, there is more than enough “waste” in the system to accomplish this.  Thomson identified six buckets of waste and five core strategies to reduce that waste, although not all strategies applied to each bucket of waste.  Thomson used a goal of 25% reduction in the waste in five years and 50% in ten.  For example, Thomson suggested that $53 billion could be saved out of total of $264 billion in administrative inefficiency by 2020; and that $139 billion out of $198 billion could be saved in regard to provider inefficiency and errors.  Other buckets included lack of care coordination, unnecessary care, preventable conditions and fraud and abuse.  Lack of care coordination accounted for the largest single area of savings.

We are often struck that if all the savings that have been proposed could be recognized, it might add up to more than 100% of current spending!  One major flaw in these estimates of savings is that it is also fairly well-accepted that there is a lot of necessary care which is not being delivered.  An optimal health system would ensure that everyone got the care they needed, as well as not getting unnecessary care.  We suspect the two may balance out.  In addition, the resistance to cutting health spending is often under-estimated.  Spending is revenue to some provider or product supplier, revenue that is their livelihood and revenue they will not give up easily.  Similarly, the savings from creating a more efficient administrative system are often over-estimated.  It has become apparent that full implementation and maintenance of information technology on the provider side will be very expensive and research suggests it may have direct and indirect costs that are more than the savings from any efficiencies that are created.  The areas identified in the Thomson research are the right areas to work on to ensure that we aren’t spending more than we have to; but we should be careful not to have high expectations that we really will reduce spending by a large amount.

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