Please ensure Javascript is enabled for purposes of website accessibility

Could This Idea Cut $35 Billion from Health Care Costs?

By Keith Speights - Apr 8, 2013 at 1:54PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

$1 out of every $3 spent on health care is wasted. Can "talkative" medical devices help solve the problem?

Take $1 out of every $3 spent on health care, throw it in the garbage can -- and pretty soon those dollars add up to a big amount. The National Academy of Sciences' Institute of Medicine says that around one-third of total U.S. health care spending is wasteful. That totals around $750 billion every year. 

A new study from the West Health Institute, or WHI, says that $35 billion of that waste could be eliminated by focusing on one area: medical device interoperability. That's the term used to describe what basically translates to making the devices and equipment seen in hospitals talk to each other and to other health systems. In a recent report, WHI identified four ways that this idea could achieve huge savings. 

Reducing adverse events
According to WHI, $2 billion is thrown down the tubes every year due to adverse events that could have been avoided with solid medical device interoperability. This number doesn't seem unreasonable when we consider that an estimated 3 million preventable adverse events occur every year in the U.S. due to medical errors. Some researchers think that as many as 98,000 Americans die each year due to these errors.

WHI argues that connecting medical devices to the clinical systems used by medical staff would help tremendously. As an example, the organization points to a hypothetical scenario where wrong numbers are programmed into an infusion pump, resulting in the death of a cancer patient. Had the infusion pump been tied in with the patient's electronic chart containing the physician's order with the correct dosage, the horrible outcome and associated costs could have been averted.

Reducing redundant testing
A 2009 study reported in Health Affairs concluded that more than $8 billion is wasted each year because of redundant lab and radiology testing. WHI thinks that at least $3 billion of that total could be prevented by connecting medical devices and clinical systems.

Let's say you go to an outpatient center and have lab tests run. Your doctor determines that you need to be admitted to the hospital. After arriving at the hospital, the same tests are run again. Why? It could be that the original results were never sent. Possibly the results were faxed but misplaced. Either way, duplicate costs are incurred.

Now suppose the lab equipment talked to the electronic health record, or EHR, system at the outpatient center and automatically sent the results to the hospital's EHR when you were sent on for admission. No more tests -- and no more dollars spent.

Reducing manual entry
Even bigger savings, according to WHI, would come from cutting out the time spent by nurses and other medical staff manually entering information. The organization estimates that more than $12 billion could be freed up if medical device interoperability eliminated most of this manual effort.

Just think about how things typically work now. A nurse goes into a patient's room to check vital signs such as blood pressure, temperature, and pulse rate. The nurse jots the information down on paper but later must type the information into the patient's electronic chart. Studies have found that as much as 35% of a nurse's time is spent on this type of documentation. Automating the process would save money -- and allow nurses to spend more time providing care.

Reducing length of stay
What is the biggest way that "talkative" medical devices could save money? WHI suggests that the answer lies in reducing patient's length of stay in the hospital. The organization calculates that nearly $18 billion could be obtained by doing so.

The trick in shortening the length of stay, according to WHI, is in speeding up the process for getting test results to physicians. Reducing just one-tenth of a day from the test results process could generate nearly $8 billion in in-patient savings. Almost $10 billion could be saved yearly by significantly streamlining the lab results process in emergency rooms.

Some progress
WHI's $35 billion savings estimate actually could be on the conservative side. They only looked at hospitals, but medical device interoperability should greatly benefit other care settings, particularly long-term and post-acute care. 

Some progress is being made. For instance, Medtronic (MDT 1.28%) and St. Jude Medical (STJ) both support interoperability with their cardiac devices. Abbott Labs (ABT -1.09%) enables uploading of data from some of its point-of-care blood testing devices directly to EHR systems. GE Healthcare (GE -1.25%) and EHR vendor Cerner (CERN 0.36%) were among several organizations that pledged earlier this year to make their devices and systems interoperable.

Companies like these could profit as interoperability becomes more widespread. There's still a long way to go, though. And the trashcans are continuing to overflow with those wasted dollars.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
$74.52 (-1.25%) $0.94
Abbott Laboratories Stock Quote
Abbott Laboratories
$113.77 (-1.09%) $-1.26
St. Jude Medical, Inc. Stock Quote
St. Jude Medical, Inc.
Medtronic plc Stock Quote
Medtronic plc
$105.59 (1.28%) $1.33
Cerner Corporation Stock Quote
Cerner Corporation
$94.44 (0.36%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.