Eliminating Waste and Inefficiency Can Do Little to Contain Costs

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Abstract
This study estimates potential savings from eliminating waste and inefficiency in the acute care sector (hospital, physician, and pharmaceutical). Our analysis indicates that in the unlikely event that all potential savings are achieved between 1994 and 2000, the rise in costs would be reduced by about 1.5 percentage points annually. This would slow the real rise in costs from a projected rate of 6.5 percent to 5 percent annually. Covering the uninsured would partially offset these savings and bring the rise in costs to more than 5.5 percent annually. If our estimate of potential efficiency savings is in error by plus or minus 50 percent, the projected rise in costs would be altered by about one percentage point. We conclude that savings from eliminating inefficiency are likely to fall far short of the Clinton administration's cost containment goals.