In my previous post, I discussed the first three categories of waste in the US healthcare system as identified by a new study: administrative system inefficiencies; provider inefficiency and errors; and lack of care coordination. In this post, I will examine the three other categories: unwarranted use; preventable conditions and avoidable care; and fraud and abuse.

Unwarranted use refers to patient care that provides little to no value to the diagnoses of a patient’s condition or the effective treatment of a diagnosed condition. These practices are related to a patient’s preference, a provider’s preference, or defensive medicine. Examples include diagnostic procedures used for patients at low risk for a certain condition, inappropriate use of antibiotics, and intensive end-of-life treatments. Unwarranted use represents the largest category of waste at $250-$325 billion per year.

When patients receive timely access to their primary care physicians, the need for Emergency Room visits and hospitalizations is greatly reduced. This is what is meant by preventable conditions and avoidable care. For example, for children with asthma, many hospitalizations can be prevented if parents and children were better educated by their pediatrician about the condition, medications, follow-up care, and known disease-triggers. Preventable conditions and avoidable care are responsible for $25-50 billion in annual waste.

Fraud and abuse includes mostly fraudulent billings to public and private insurance plans. The main difference between this and the other categories of waste is that it represents an intentional misrepresentation resulting in excess payment. For example, some providers bill for services that were never rendered, while others knowingly provide unnecessary care so they can get paid for it. But abuse is not just limited to providers. For example, some drug addicts enroll in Medicaid programs in multiple states so they can get access to drugs. Fraud and abuse is estimated to cost the healthcare system some $125-$175 billion per year.

Cutting the fat in the healthcare system by reducing unnecessary waste can save the system around $700 billion per year — roughly one third of all healthcare costs. This should be a high priority for healthcare reform.