Elusive Waste: The Fermi Paradox in US Health Care.

Abstract

In 1950, at lunch with 3 colleagues, the great physicist Enrico Fermi is alleged to have blurted out a question that became known as “the Fermi paradox.” He asked, “Where is everybody?” referring to calculations suggesting that extraterrestrial life forms are abundant in the universe, certainly abundant enough that many of them should have by then visited our solar system and Earth. But, apparently, none had. Health care in the United States has its own version of the Fermi paradox. It involves the strong evidence of massive waste that is updated in the Special Communication by Shrank and colleagues in this issue of JAMA.1 The authors recalculate the proportion of US health care expenditures that is waste. Their estimates, which they suggest are conservative, are similar to other major reports of the past decade, which came up with median estimates of waste amounting to 30% to 35% of total health expenditures.2,3 Shrank and colleagues estimated that waste represents 20% to 25% of US healthcareexpenditures,buttheyexplicitlydidnotincludesome extrapolations from Medicare data to the population at large. The authorsfurtherreviewedtheliteratureoneffortstoreducewaste, which, they claim, suggests that about 25% of that amount— approximately5%oftotalhealthcarespending—couldbereduced with implementation of well-documented, current programs. These are massive numbers. With US health care expenditures exceeding $3.5 trillion annually, 25% of the total would amount to more than $800 billion per year of waste (more than the entire 2019 federal defense budget, and as much as all of Medicare and Medicaid combined). Even 5% of the total cost is more than $150 billion per year (almost 3 times the budget of the US Department of Education). That is worth repeating: by many pedigreed estimates, annual waste in US health care equals or exceeds the entire annual cost of Medicare plus Medicaid. But, to paraphrase Fermi, “Where is it?” Shrank and colleagues, like the prior studies they channel, examined 6 categories of waste: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity; they estimated the amount of each. In one sense, “There it is!” But that is not the proper analogy to Fermi’s paradox. The paradox is that, in an era of health care when no dimension of performance is more onerous than high cost, when many hospitals and clinicians complain that they are losing money, when individuals in the United States are experiencing financial shock at absorbing more and more out-of-pocket costs for their care, and when governments at all levels find that health care essentially confiscates the money they need to repair infrastructures, strengthen public education, build houses, and upgrade transportation—in short, in an era when health care expenses are harming everyone—as much as $800 billion in waste (give or take a few hundred billion) sits untapped as a reservoir for relief. Why? Imagine a breakthrough in any other sector of commerce— cars or plane travel or computers—in which some spotlight suddenly revealed 30% of production costs to be pure waste. How longwoulditbebeforeentrepreneurswouldmakeeffortstoeliminatethatwasteandreturnthemoneytotheircustomersortotheir stockholders? In an effective competitive market, that should not take long at all. Slow responders might not survive; quick ones would likely thrive and make a lot more money. Actually, that is not quite what happens. Even in highly competitive industries, the methods of “lean thinking”4 and other approaches to uncovering and removing waste have been surprisinglyslowtodiffuse.Theviscositycomesfromlegacyinvestments in capital structures, legacy workforce habits and configurations, and legacy thinking, blinding even smart executives and boards of directors to the need to change. Nonetheless, the tectonics of waste reduction in other industries are strong, and eventually waste is eliminated, or at least minimized. Computers get faster and less expensive. Household appliances get better and (absent tariff wars) less costly. Productivity rises more or less steadily. Meanwhile, health care costs more and more and more, with expenditures relentlessly increasing at a multiple of the general rate of inflation. Incredibly, even health care economists purvey a kind of double-speak; they score a slowing of the rate of rise of costs as a cost reduction. That deceptive language would not last long when it came to cars or computers. So, where is this waste? Why, with 25% or 30% of all costs not helping achieve health or relieve disease, has not a single hospital or clinic or integrated health system drawn on that “waste account” to reduce its costs thrillingly? Not even one? There are at least 4 plausible explanations. First, maybe the waste is not really there. Second, maybe the waste cannot, technically, be extracted. Third, maybe it is not interesting enough, yet,toreducewaste.Andfourth,maybepoliticsparalyzeschange. The first explanation—that waste is not present—is not tenable. The current estimates by Shrank and colleagues are just the latest in a long line of studies of non–value-added processes in US health care. The lineage of these reports goes back to the pathfinding studies of variation in health care costs by Wennberg and colleagues, which repeatedly found several-fold differences in Editorial