Waste, We Know You Are Out There

Henry J. Aaron
Henry J. Aaron The Bruce and Virginia MacLaury Chair, Senior Fellow Emeritus - Economic Studies

October 30, 2008

Both presidential candidates have put forward proposals for curtailing waste in the U.S. health care system. Behind these claims are estimates that various medical procedures are used inappropriately as much as one third of the time in the United States.

The director of the Congressional Budget Office, Peter Orszag, stated in August 2008 that “a variety of credible evidence suggests that health care contains the largest inefficiencies in our economy. As much as $700 billion a year in health care services are delivered in the United States that do not improve health outcomes.” Reports abound of needless or low-benefit procedures, some performed for fear of litigation, some out of venality, some demanded by importunate patients, and some representing the mindless repetition of established routine: “That’s the way we do things here.” As is often noted, other countries spend less per person than we do and achieve equal or superior outcomes. That a first-class health system can be run for less than the United States spends — or a better system for what we actually spend — is undeniable. But what, really, do we mean by waste? Do we have the means to curtail it? How fast can savings be realized?

Increased health care spending has not been wasteful on the average. The gains from improved health outcomes have equaled or exceeded the total value of all measured economic growth. Although not all these improvements can be attributed to health care, the combination of improvements in longevity that can be traced to medical care, combined with benefits from reduced pain and anxiety and increased personal functioning, can justify spending growth. Of course, no waste “on the average” in no way excludes considerable waste on the margin. And high historical returns do not guarantee high future returns.

What, exactly, is wasteful health care spending? Everyone would agree that a costly intervention that is always useless or that harms patients is wasteful. Even care that is expected to help but turns out to be ineffective may be judged to be wasteful — but only in the trivial sense that fire insurance on a house that never burns down is ex post facto wasteful, when one disregards the peace of mind fostered by protection against risk.

Read the full article»

Reprinted with permission from Henry Aaron, “Waste, We Know You Are Out There,” The New England Journal of Medicine, Volume 359:1865-1867 : October 30, 2008.