A Six Sigma Approach to Health Care Reform

Imagine for a moment what the balance sheets of S&P 500 companies would look like if they spent billions of dollars each year delivering unnecessary services or reproducing redundant paperwork. In the health care business, this has become the norm. Yet none of the health care reform bills being discussed in Washington, D.C., specifically addresses the most important types and causes of waste.

Regardless of what happens in health care debates on Capitol Hill, one issue transcends the rhetoric: The amount of money wasted each year on systemic inefficiency is greater than the cost of providing premium health care to each of America’s 46 million uninsured.

So, how do we begin to fix health care? As any six sigma management theorist will tell you, the first step to removing inefficiencies is to identify and quantify them. In our analysis, we began that process by defining the six major categories of waste: unnecessary care, fraud, administrative inefficiency, provider errors, preventable conditions and lack of care coordination.

Unnecessary Care (40 Percent of Health Care Waste)

Unwarranted treatment such as the overuse of prescription antibiotics and diagnostic lab tests performed to protect against malpractice exposure accounts for $250 billion to $325 billion in annual health care spending. For real-world evidence of this practice, consider the explosion of the diagnostic imaging industry. Commenting on published research, the New York Times reported in March 2009: “More than 95 million high-tech scans are done each year, and medical imaging, including CT, MRI and PET scans has ballooned into a $100 billion a year industry, with Medicare paying for $14 billion of that. But recent studies show that as many as 20 percent to 50 percent of the procedures should never have been done because their results did not help diagnose ailments or treat patients.”

Fraud (19 Percent)

Health care fraud accounts for about $125 billion to $175 billion in annual health care spending, manifesting itself in everything from fraudulent Medicare claims to kickbacks for referrals for unnecessary services. The scale of fraud in the U.S. health care system is staggering. In 2007, when the U.S. spent roughly $2.3 trillion on health care, fraud was estimated to account for as much as 10 percent of annual health care spending, according to a report published by the George Washington University School of Public Health and Health Services.