As we approach health-care system reform, a breakdown of our biggest losses

Brian Fung

Every year, the United States spends eight times as much money on unnecessary health-care costs as the Pentagon spent for each year of its operations in Iraq.

The massive annual waste is the takeaway from a new report by the Institute of Medicine (IOM), which estimates that the country loses some $750 billion annually to medical fraud, inefficiencies, and other siphons in the health-care system. In comparison, the Defense Department budgeted $757.8 billion for the war in Iraq over the eight years it was there.

The IOM's analysis acknowledges a little bit of overlap among the categories, so it altogether adds up to slightly more than $750 billion:

More than 18 months in the making, the report identified six major areas of waste: unnecessary services ($210 billion annually); inefficient delivery of care ($130 billion); excess administrative costs ($190 billion); inflated prices ($105 billion); prevention failures ($55 billion), and fraud ($75 billion). Adjusting for some overlap among the categories, the panel settled on an estimate of $750 billion.

By far the biggest black hole when it comes to waste has to do with how we practice medicine -- over half of it is accounted for by unnecessary services, inefficient care, or the failure to prevent problems that require expensive intervention.