Institute of Medicine blasts $750 billion of annual medical waste

Monday, September 10th, 2012 By

The Pentagon

The Institute of Medicine estimates $750 billion, more than the budget at The Pentagon, is lost to medical waste such as useless procedures and admin costs. Image from Wikimedia Commons.

The Institute of Medicine, part of the National Academy of the Sciences, has released a report damning the American medical industry. The IOM blasts the titanic amount of waste and fraud, as medical waste is accounting for $750 billion being added to the annual medical bill for the nation.

Medical waste amounts to more than military budget

Waste and inefficiency plague every industry, as no business is close to the “ideal machine” in physics, a machine that makes no mistakes, wastes nothing and output is equal to input. The same is true for the medical infrastructure in the U.S.; the medical industry makes mistakes.

Health care itself is one of the biggest industries in the nation as, according to the Washington Post, an estimated $2.6 trillion was spent on health care last year, one of every six dollars spent on basically everything. Of that, one-third is lost to fraud and medical waste.

A report by the Institute of Medicine, medical arm the National Academy of the Sciences, examined how well the medical system operates and found it is crippled with waste and inefficiency, wasting $750 billion per year, more than is spent on defense.

Unnecessary treatments, bureaucracy crippling medical infrastructure

The IOM doesn’t recommend much in the way of legislation or policy, according to the Christian Science Monitor; rather it merely identifies the problems and makes suggestions as to how to improve. The largest problems identified in the IOM’s report were narrowed down to six categories.

Of those, fraud was the second-smallest category, which the IOM, according to the Washington Post, comprised $75 billion of the funds lost to medical waste, roughly 10 percent of the total.

The other five are, from largest to smallest, unnecessary services, at $210 billion, excess administration costs at $190 billion, inefficiently-delivered services, at $130 billion, over-inflated prices, at $105 billion, fraud and lastly, missed opportunities for preventative treatments, at $55 billion.

What to do

The IOM singles out the current compensation model for doctors as one of the largest sources of waste. Doctors are on a fee-for-service basis in most hospitals, or are paid according to procedure, instead of being salaried. Ergo, doctors have an incentive to perform unnecessary procedures which can drastically inflate a bill and send a patient running for installment loans after being discharged.

The agency also recommends, according to the Daily Mail, better coordination between service providers, updating data technology and improving access and sharing of digital medical records, building on current technologies to improve patient outcomes and for patients to better educate themselves about the choices they can make regarding their care.

Sources

Washington Post

Christian Science Monitor

Daily Mail

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