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Why healthcare wastes $750 billion every year: Few organizations analyze data to stop it

New report suggests basic tactics for eliminating system waste.

Jeff Lagasse, Associate Editor

Every year the healthcare industry wastes an estimated $750 billion, and while employers overwhelmingly perceive this to be a problem, about 60 percent are not actively managing the issue.

This is among the findings of a survey to identify employers' perceptions and actions related to waste in the healthcare system released by National Alliance of Healthcare Purchaser Coalitions and Benfield, a part of the Gallagher Human Resources and Compensation Consulting Practice.


Employers perceive healthcare waste to be a problem, with 57 percent saying that up to 25 percent of treatments their employees and dependents receive are wasteful. Yet most employers, 59 percent, don't collect or analyze data to track waste, and those that do rely on their vendors.

MRIs and X-rays were cited as the largest contributors to waste.

Even when an employer attempts to manage waste, their efforts have only been somewhat effective -- 25 percent see success when it comes to medical imaging, only 12 percent for physician referrals.

While more strategic/activated benefit designs are on respondents' radar, most don't have plans in place, even though many indicate they would like to do so within the next five years


The authors delineated a few strategies for driving value and eliminating system waste.

Suggestions include: Ask vendors to share information on healthcare waste and report on their efforts to address overuse (e.g. imaging tests); consider value-based benefit design strategies that encourage reduced utilization of low-value services (increasing copays, prior authorization, provider steerage); and move toward alternative payment mechanisms that do not reward waste or unnecessary services (e.g. bundled payments).


Waste is a common issue in healthcare, and while employers have a role to play, much of what is needed to address waste needs to happen internally. Case in point is medical supply surpluses, which can add up to about $765 billion per year.

Employers can always do more, though, and in fact a recent survey from Willis Towers Watson shed light on some of these strategies, finding that 85 percent of the 687 employers surveyed plan to focus on clinical conditions, improving health and reducing costs for key clinical areas such as cancer, diabetes, maternity, mental health and musculoskeletal disease.

Twitter: @JELagasse
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