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Four Categories of Unnecessary Services

The question that faces us is how to reduce health care spending in the context of medicine as it is practiced in the United States without cutting fees and with improved quality.  The key is to eliminate unnecessary services.

Excess health care spending is found in two places: 1) Price increases that exceed the rate of inflation and 2) Unnecessary utilization of medical services.  Medical price increases that are higher than inflation accounted for about one-quarter of health care cost escalation from 2000-2003, and increased per capita use of health care services accounted for about half. The remainder of the increase was from the effects of economy-wide inflation.(1)

The key way to reduce health care cost escalation is to reduce unnecessary use of health care services rather than to cut prices.  About $2 trillion was spent on health care in the United States in 2007. Conservatively, unnecessary medical services accounted for 30 percent of that spending--$700 billion.  The uninsured could be covered seven times for this much money. Unnecessary services come in four categories:

  • The first and largest source is the poor management of chronic diseases. In high-cost areas, specialists frequently hospitalize and order excess tests and minor procedures. In low-cost, high-quality areas, primary care doctors manage patients more judiciously. The cost of caring for a patient with the same diagnosis varies by two-fold among regions. If doctors in regions where spending for Medicare patients is high, were to treat patients like doctors in areas where Medicare spending is low, Medicare cost could be decreased by almost 30 percent—with decreased mortality. (2)
  • A second source of waste is inefficient hospital processes.  The complication rates of major procedures vary by 4 fold among hospitals. A patient is at more risk of being the subject of a medical error in a hospital than having his baggage misplaced by an airline.(3)(4)
  • The third source of waste is the over-performance of major procedures such as back fusions and coronary catheter procedures, beneficial in many groups of patients who undergo them, but by no means all.  According to my calculations, major procedures of doubtful or unproven indications account for a minimum of 6 percent of hospital spending. (5)
  • The fourth source of waste is unnecessary imaging, Medicare’s fastest growing cost. No one knows how many images are unneeded; no one questions that many are. (6) The first three categories are mutually exclusive but imaging costs are imbedded to one degree or another in all of them.
  1. Building the Foundation: Health Care Costs, Presentation to the Citizen’s Health Care Working Group, May 13, 2005, Richard S. Foster and Stephen Heffler Office of the Actuary, CMS
  2. John E. Wennberg, Elliott S. Fisher, and Jonathan S. Skinner, “Geography and the Debate Over Medicare Reform,” Health Affairs Web Exclusive, February 13, 2002.
  3. Jonathan Mummolo, Del Quentin Wilber, “Now Arriving at Carousel 1, Far Fewer of Your Bags,” Washingtonpost.com, October 1, 2007. Accessed online 2007:
  4. Linda T. Kohn, Janet M. Corrigan, and Molla S. Donaldson, eds., To Err is Human: Building a Safer Health System (Washington, D.C.: National Academies Press, 2000).
  5. Guy L. Clifton, “The Cost of Unnecessary Surgery”, Health Affairs, in review June, 2008.
  6. 6A Data Book: Healthcare Spending and the Medicare Program, June 2007, Medicare Payment Advisory Commission (MedPAC). Accessed online 2007: http://www.medpac.gov/documents/Jun07DataBook_Entire_report.pdf.