A new study found that nearly 25% of spending in healthcare can be characterized as waste, ranging between $760 billion and $935 billion annually. The study published in theJournal of the American Medical Association (JAMA), was conducted by researchers from Humana Inc. and the University of Pittsburgh School of Medicine.
According to the study, the U.S. spends more on healthcare than any other country, with costs approaching $3.6 trillion, or 18% of the gross domestic product (GDP), and spending at $10,000 per person. These findings highlight the sources of inefficiencies in the U.S. healthcare system, opportunities to address those inefficiencies, and underscore several key solutions to make healthcare more affordable for all Americans.
The goal of the new study was to estimate the levels of waste in the U.S. healthcare system in six previously developed domains and to report estimates of potential savings for each domain. The authors conducted a search of medical literature from January 2012 to May 2019 focused on the six waste domains identified by the Institute of Medicine:
Failure of care delivery
Failure of care coordination
Overtreatment or low-value care
Fraud and abuse, and
“This study highlights the opportunity to reduce waste in our current healthcare system,” said lead author William Shrank MD, Humana’s chief medical and corporate affairs officer. “By focusing on these opportunities, we could make healthcare substantially more affordable in this country. In the national debate about health reform, we do not need to start over. We can build on the strengths in today’s system to deliver higher quality care and reduce costs, while also producing the necessary savings to expand coverage to all Americans.”
For each domain, available estimates of waste-related costs and data from interventions shown to reduce waste-related costs were recorded, converted to annual estimates in 2019 dollars for national populations where necessary, and combined into ranges or summed as appropriate. The review yielded 71 estimates from 54 publications, government-based reports, and reports from the grey literature.
Computations yielded the following estimated ranges of total annual cost of waste and estimated annual savings from interventions:
*No studies were identified that focused on interventions targeting administrative complexity.
“This research is so important because our industry is wasting money that could be used to improve the care experience so people can lead healthier lives,” said Bruce D. Broussard, Humana’s president and chief executive officer. “Each of the domains studied may require a different kind of action, and the drive toward data interoperability and value-based care payment models can reduce this wasteful spending. But if we collaborate as health plans and providers, in conjunction with the government, we can deliver more effective care and improve health.”
The estimated total annual costs of waste and savings from interventions that address waste were $760 billion - $935 billion and $191 billion - $282 billion, respectively. These savings do not include interventions for the area identified as the largest waste area, administrative complexity.
Several key findings can be drawn from this study:
The greatest source of waste, at over a quarter trillion dollars annually, is administrative complexity. Some of this waste is due to a fragmented healthcare system. More seamless data interoperability, as is currently being driven by CMS, will produce new savings. The movement to value-based care – which focuses on alignment of incentives and increased collaboration between payor and provider – could meaningfully reduce this source of waste as many of the administrative tools used by payors to reduce waste (such as prior authorization) can be discontinued or delegated to the clinicians, reducing administrative complexity for all stakeholders.
Pricing inefficiency, in particular drug pricing, represents the second greatest source of waste. These inefficiencies have arisen in a highly regulated market-based system, and suggest that policies that systematically promote competition and price transparency should foster substantial savings.
Approximately $300B in waste results from failure of care delivery, failure of care coordination, and overtreatment. However, there is clear evidence that if proven, effective clinical strategies to improve care available today were scaled nationally, approximately 50% of that waste could be avoided.
"Specialty care will likely need a combination of a primary care-like chronic disease management track and add-on 'bundles' for procedures, with quality measures relevant to specialized care comprising the core of quality measurement," said former CMS head Mark McClellan and Karen Joynt Maddox of the Washington University School of Medicine in a JAMA Editorial. "Hospital care should be structured within such bundles where feasible, with clear quality measures around safety, and the move of accountable care organizations from fee-for-service-based models to organizations paid on a person level should continue."