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April 10, 2012

Berwick: Cut these six forms of waste to rein in costs

Daily Briefing

    In a new JAMA essay, former CMS Administrator Don Berwick and RAND researcher Andrew Hackbarth recommend cutting six major categories of health care waste to address growing health care expenditures.  

    Berwick's crusade against wasteful spending
    Berwick—now a senior fellow at the Center for American Progress—has long spoken out about the need to control health care costs. In a December interview with Kaiser Health News, Berwick said that that the U.S. health care delivery system is to blame for inefficiencies and wasteful spending—not Medicare and Medicaid. 

    According to Berwick, "health care is broken. We have set up a delivery system that is fragmented, unsafe, not patient-centered, full of waste, and unreliable." He also stressed that the Affordable Care Act would benefit the nation's health system by changing how physicians and hospitals are paid and by encouraging cooperation between health care providers, through initiatives such as ACOs.

    Looking at causes of waste
    Writing in JAMA, Berwick and Hackbarth contend that the following forms of waste account for at least 21% of U.S. health care spending:

    • Failures of care delivery, which the authors say cost $102 billion to $154 billion in 2011;
    • Failures of coordinated care, which cost $25 billion to $45 billion in 2011;
    • Overtreatment, which cost $158 billion to $226 billion in 2011;
    • Administrative complexity, which cost $107 billion to $389 billion in 2011;
    • Pricing failures, which cost $84 billion to $178 billion in 2011; and
    • Fraud and abuse, which cost $82 billion to $272 billion in 2011.

    To address growing health care costs, Berwick and Hackbarth recommend reducing waste across the six categories rather than implementing "draconian proposed shifts of Medicare costs to beneficiaries and reductions in payments to physicians and hospitals."

    For example, they write that stakeholders could adopt waste-reduction goals created by the National Quality Forum to reduce unnecessary spending caused by overtreatment.

    Altogether, systemwide waste reduction could generate $3 trillion in savings for CMS and $11 trillion in savings for all payers from 2011 to 2019. In comparison, the CMS Office of the Actuary estimates that the federal health reform law—which includes some waste-reduction efforts—will save an estimated $675 billion over the same period.

    "Reducing waste is by far the largest, most humane, and smartest opportunity for evolving an affordable health care system," Berwick and Hackbarth write, noting that "the opportunity is so enormous that achieving even a fraction of [the possible] amount in the short run could help health care turn the corner toward sustainability without harming patients" (Berwick/Hackbarth, JAMA, 4/10 [subscription required]; McKinney, Modern Healthcare, 4/10 [subscription required]).

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