The price of excess: Identifying waste in healthcare spending

To appropriately address waste in health spending, health industry leaders, policymakers and consumers must work together on system-wide goals and incentives. In April 2008, PwC hosted the 180° Health Forum in Washington D.C., bringing together representatives of government, regulatory bodies and the nation’s largest hospitals and health systems, health insurers, pharmaceutical and life sciences companies to seek new, collaborative approaches to solving some of the health system’s most intractable problems.

These challenges — how to focus on prevention and wellness, how to drive greater quality and value into our healthcare system and how to ensure that our health system is resilient in the face of disaster — cut across traditional boundaries and requires that we think about our health system in new ways and consider innovative solutions.

As part of its preparation for the 180° Health Forum, PricewaterhouseCoopers’ Health Research Institute (HRI) interviewed more than 20 participants, reviewed more than 35 studies about waste and inefficiency in healthcare and surveyed 1,000 consumers to understand the public’s perception of waste and inefficiency in the system. From that research came The price of excess: Identifying waste in healthcare spending.

Key Findings

Our research found that wasteful spending in the health system has been calculated at up to $1.2 trillion of the $2.2 trillion spent in the United States, more than half of all health spending. Defensive medicine, such as redundant, inappropriate or unnecessary tests and procedures, was identified as the biggest area of excess, followed by inefficient healthcare administration and the cost of care necessitated by conditions such as obesity, which can be considered preventable by lifestyle changes. PwC's paper classified health system inefficiencies into three “wastebaskets” that are driving up costs:

  • Behavioral where individual behaviors are shown to lead to health problems, and have potential opportunities for earlier, non-medical interventions.
  • Clinical where medical care itself is considered inappropriate, entailing overuse, misuse or under-use of particular interventions, missed opportunities for earlier interventions, and overt errors leading to quality problems for the patient, plus cost and rework.
  • Operational where administrative or other business processes appear to add costs without creating value.

When added together, the opportunities for eliminating wasteful spending add up to as much as $1.2 trillion. The impact of issues such as non-adherence to medical advice and prescriptions, alcohol abuse, smoking and obesity are exponential, and fall into all three baskets.

The price of excess: Identifying waste in healthcare spending

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