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Opinion

EDITORIAL

Elusive Waste
The Fermi Paradox in US Health Care
Donald M. Berwick, MD, MPP

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
Editorial
are conservative, are similar to
other major reports of the past
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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
health care expenditures, but they explicitly did not include some
extrapolations from Medicare data to the population at large. The
authors further reviewed the literature on efforts to reduce waste,
which, they claim, suggests that about 25% of that amount—
approximately 5% of total health care spending—could be reduced
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
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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
long would it be before entrepreneurs would make efforts to eliminate that waste and return the money to their customers or to their
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 surprisingly slow to diffuse. The viscosity comes from legacy investments
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, to reduce waste. And fourth, maybe politics paralyzes change.
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
(Reprinted) JAMA Published online October 7, 2019

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resource use among small geographic areas with no relationship whatsoever with metrics of quality outcomes.5 The estimates also find roots in studies of supply-driven demand, famously “Roemer’s law,” that a built hospital bed will be a filled
hospital bed. Supply, not need, drives demand.6 It is indeed remarkable that efforts at comprehensive estimation of waste levels have repeatedly come up with similar numbers—25% to 35%—
from different sources using different methods of assessment.7
As for the second potential explanation, is it possible that
the waste cannot be extracted without damage to the core of
care? Is waste marbled so thoroughly into health care processes and structures that no scalpel is fine enough to work it
free? The report by Shrank et al suggests the opposite. It finds
numerous studies of effective cost reduction for some types of
waste (failures in care delivery, coordination failures, and overtreatment), at least in research contexts, albeit not at large scale.
Beyond that, some categories of waste are so glaring that,
prima facie, they can be removed with enough will. Consider,
for example, the administrative waste that comes with cumbersome and inconsistent coding and billing practices. “Cannot remove” is just implausible compared with “will not remove.” Similarly, widespread overuse of ineffective drugs, tests, and
procedures is difficult to justify by some vague claim of complexity. If a clinical intervention does not work, why shouldn’t
physicians just stop using it? Equally obvious is the effect of greed
on prices, such as when manufacturers raise the cost to consumers and insurers for insulin, new biologics, and equipment8
absurdly just because they can and no one stops them.
What about the third hypothesis: that waste reduction is
just not interesting or a priority to the people and organizations that can, technically, achieve it? This is a far more plausible explanation. A telltale line from the article by Shrank et al
is this one: “The administrative complexity category was associated with the greatest contribution to waste, yet there were
no generalizable studies that had targeted administrative complexity as a source for waste reduction.” In other words, no one
has seemed interested enough in this high-potential change
to do something about it.
Many health services research studies have shown that, under the payment systems currently in charge, some of the very
methods for waste reduction that Shrank et al cite would reduce profit for the health care organizations that use them.9 The

ARTICLE INFORMATION
Author Affiliation: Institute for Healthcare
Improvement (IHI), Boston, Massachusetts.
Corresponding Author: Donald M. Berwick, MD,
MPP, Institute for Healthcare Improvement (IHI),
Editorial Affairs, 53 State St, 19th Floor, Boston, MA
02109 (donberwick@gmail.com).
Published Online: October 7, 2019.
doi:10.1001/jama.2019.14610
Conflict of Interest Disclosures: None reported.
REFERENCES
1. Shrank WH, Rogstad TL, Parekh N. Waste in the
US health care system: estimated costs and
potential for savings [published October 7, 2019].
JAMA. doi:10.1001/jama.2019.13978

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much-touted switch from “volume” to “value” in health care
payment that many policy experts push for has so far been rather
timid and incomplete. And a critical review of evidence to date
must conclude that this approach is of unproven worth.
The fourth explanation, politics, is the most plausible explanation of all. What Shrank and colleagues and their predecessors
call “waste,” others call “income.” People and organizations (forprofit and not-for-profit) making big incomes under current delivery models include very powerful corporations and guilds in
a nation that tolerates strong influences on elections by big donors. Those donors now include corporations whose “right” to
“free speech” as “persons” has been certified by the US Supreme
Court, conferring on them an unlimited license to support political candidates financially. When big money in the status quo
makes the rules, removing waste translates into losing elections.
The hesitation is bipartisan. For officeholders and office seekers
in any party, it is simply not worth the political risk to try to dislodge even a substantial percentage of the $1 trillion of opportunity for reinvestment that lies captive in the health care of today,
even though the nation’s schools, small businesses, road builders, bridge builders, scientists, individuals with low income,
middle-class people, would-be entrepreneurs, and communities
as a whole could make much, much better use of that money.
Some of this physicians cannot change, but much they can.
Indeed, the localized successes reviewed by Shrank et al, such
as reducing overtreatment, improving coordination, and making care safer, prove that aims like those are all within the reach
of physician leaders who commit to waste reduction. Those
successes should spread. The American Board of Internal Medicine’s Choosing Wisely campaign10 could be much bolder in
its next iteration. In local markets, physicians can champion
changing payment from fee-for-service to shared risk and forms
of global payment that encourage everyone to end wasteful
care. In the end, physicians can and should act with strong
voices and political courage to openly oppose greed and deception in pricing policies wherever they arise.
In large measure, the challenge of removing waste from
US health care and reinvesting that harvest where it could do
much more good is not a technical one. It is a political one. In
short, removing waste from US health care will require both
awakening a sleepy status quo and shifting power to wrest it
from the grip of greed.

2. Berwick DM, Hackbarth AD. Eliminating waste in
US health care. JAMA. 2012;307(14):1513-1516. doi:10.
1001/jama.2012.362

Clinical Practice. https://www.dartmouthatlas.org/
keyissues/issue.aspx?con=1338. 2010. Accessed
September 17, 2019.

3. Institute of Medicine. Best Care at Lower Cost: The
Path to Continuously Learning Health Care in America.
Washington, DC: National Academies Press;2012.

8. Parker-Pope T, Peachman RR. EpiPen price rise
sparks concern for allergy sufferers. New York
Times. https://well.blogs.nytimes.com/2016/08/
22/epipen-price-rise-sparks-concern-for-allergysufferers/. August 22, 2016.

4. Womack JP, Jones DT. Lean Thinking: Banish
Waste and Create Wealth in Your Corporation.
New York, NY: Simon & Schuster; 1996.
5. Wennberg JE. Tracking Care: A Researcher’s
Quest to Understand Health Care. New York, NY:
Oxford University Press; 2010.
6. Shain M, Roemer MI. Hospital costs relate to the
supply of beds. Mod Hosp. 1959;92(4):71-73.
7. Skinner J, Fisher ES. Reflections on geographic
variations in US health care. Dartmouth Atlas
Project, Dartmouth Institute for Health Policy &

9. James BC, Savitz LA. How Intermountain trimmed
health care costs through robust quality improvement
efforts. Health Affairs. https://www.healthaffairs.org/
doi/10.1377/hlthaff.2011.0358. Published June 2011.
Accessed September 5, 2019.
10. Chernew ME, Wolfson DB. Professionalism and
choosing wisely. Health Affairs Blog.
https://www.healthaffairs.org/do/10.1377/
hblog20171024.907844/full/. October 24, 2017.
Accessed September 11, 2019.

JAMA Published online October 7, 2019 (Reprinted)

© 2019 American Medical Association. All rights reserved.

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