25% of healthcare spending is waste

The U.S. spends more on healthcare than any other country in the world, but a big chunk of that spending can be considered waste, according to new research published in JAMA. In fact, a whopping 25% of spending in the U.S. healthcare system is waste, coming in at a range from $760 billion to $935 billion

Reducing that waste could save between $191 billion and $282 billion, according to the study, which was led by Humana CMO William Shrank, MD. For 2019, U.S. healthcare expenditures are expected to reach $3.82 trillion. The findings are below the 30% estimation of waste spending by the Institute of Medicine.

Shrank and colleagues searched peer-reviewed and “gray” literature between 2012 and May 2019 and focused on six previously-established areas of waste: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse and administrative complexity.

  • Failure of care delivery had annual waste ranging from $102.4 billion to $165.7 billion. Potential savings interventions in this area could yield between $44.4 billion to $93.3 billion in savings.
  • Failure of care coordination wasted between $27.2 billion and $78.2 billion, with interventions potentially saving $29.6 billion to $38.2 billion.
  • Low-value care had an estimated total cost of waste from $75.7 billion to $101.2 billion. Savings in this area could range from $12.8 billion to $28.6 billion.
  • Pricing failure has a huge waste cost between $230.7 billion and $240.5 billion. Total savings from interventions ranged from $81.4 billion to $91.2 billion.
  • Fraud and abuse waste estimates ranged from $58.5 billion to $83.9 billion, with potential savings between $22.8 billion and $30.8 billion from interventions.
  • Administrative complexity had the most amount of spending on waste of $265.6 billion.

Despite the high amounts of waste, interventions could only account for some potential savings, according to the estimates.

Administrative complexity was the area with the highest amount of waste, some of which could be chalked up to a fragmented healthcare system. Some proposals to improve interoperability across the healthcare system could reduce waste spending, but “the greater opportunity” for savings is through enhanced payer collaboration with health systems and clinicians through value-based payments, Shrank et al. wrote.

“In value-based models, in particular those in which clinicians take on financial risk for the total cost of care of the populations they serve, many of the administrative tools used by payers to reduce waste (such as prior authorization) can be discontinued or delegated to the clinicians, reducing complexity for clinicians and aligning incentives for them to reduce waste and improve value in their clinical decision-making,” Shrank and colleagues wrote.

However, value-based models won’t fix all waste, as the complexity of the healthcare system is still an issue.

“Administrative complexity is the greatest source of waste in the United States today and can be a result of payers’ efforts to reduce waste by reducing overtreatment and low-value care,” Shrank et al. wrote.