Heath Care Math: How Much Could We Save?

So the U.S. spends about $2 trillion a year on health care. We here have been trying to tally up how much of that people think is wasted, how much you could bring that down without reducing the quality of care. Where could we save money? Drug company profits? Unnecessary procedures? Fraud?

I had this little fantasy today that if I added up all the possibly exaggerated claims we'd end up with over 100 percent.

That doesn't seem to be the case, though the numbers are hard to find. Let us know if you see estimates out there. Here are a few (and a correction from our recent podcast.)

1) Unnecessary Procedures:

On our Friday podcast we talked to Deborah Kimbell from the Dartmouth Institute for Health Policy. She told us about how you can have two hospitals — same city, same kind of patients, where the patients do just as well and yet hospital A will spend much more than hospital B just down the street. She said this is because hospital A is doing too much, ordering too many tests, doing too many procedures.

Here's the correction: We said the project had estimated that if we could just make hospitals A's be more like hospital B's, we could save 20 percent of what we're spending now on health care. Deborah writes this clarification:

The Dartmouth Atlas Project studied the records of millions of Medicare enrollees who died from 2001 to 2005 and had at least one of nine severe chronic illnesses. Between 2001 and 2005, Medicare spending in the last two years of life was $289 billion. If the spending per patient everywhere mirrored that in Grand Junction, Medicare could have saved $64.6 billion or around 22 percent in spending on these patients alone.

So it's a little unclear how much we would save in the big picture. But this seems like a decent order of magnitude. Let's call it 20 percent.

2) Fraud

I've sometimes read that health care fraud could be as high as $250 billion a year. I have no idea where this number comes from. If it's true, that would be 12 percent of our total health care expenditures.

3) Profits

It's possible to look at the profits of drug companies and insurance companies and see that as evidence that the market isn't working. But even if somehow you see this all as ill-gotten gains, eliminating them doesn't help much. It would only save us about 2 percent.

So if you add those three things together you get something over 30 percent.

What else are we leaving out?

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