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October 9, 2019

Charted: America's $935B in 'wasteful' health spending each year

Daily Briefing

    About 25% of U.S. health care spending annually is wasteful, according to a study published Monday in JAMA.

    The study built on previous research that has estimated between 30% and 34% of U.S. health care spending is wasteful. For example, the Institute of Medicine (IOM) in a widely cited report in 2012 estimated 30% of U.S. health care spending is wasteful. The researchers behind the latest study said their estimates are lower than those of previous studies because, unlike those previous studies, they did not extrapolate Medicare-only data to the broader population.

    Study details

    For the latest study, researchers from Humana and the University of Pittsburgh School of Medicine reviewed 54 reports published since 2012 from peer-reviewed publications, the government, and other organizations that calculated the potential waste and/or savings from changes in policy or practices. Based on the reports, the researchers estimated total annual health care costs in six domains previously identified as wasteful by IOM. The six domains were:

    • Administrative complexity;
    • Failure of care coordination;
    • Failure of care delivery;
    • Fraud and abuse;
    • Overtreatment or low-value care; and
    • Pricing failure.

    The researchers also estimated potential savings from possible interventions to reduce waste-related health care spending, organized by which of the six domains those possible interventions would address. For instance, the researchers categorized potential savings from efforts to address adverse hospital events and hospital-acquired infections as interventions to address failure of care delivery, while the potential savings from initiatives to optimize medication use and prior-authorization procedures were categorized as interventions to address overtreatment or low-value care. The researchers did not identify any interventions aimed at addressing administrative complexity.


    Overall, the researchers estimated between $760 billion to $935 billion of annual U.S. health care spending is wasteful. When broken down by each of the six domains, wasteful spending ranged from an estimated $27.2 billion to $78.2 billion for costs related to care coordination failures to $265.6 billion for costs related to administration complexity:

    The researchers projected the U.S. health care system could save about 25%, or between $191 billion to $282 billion annually, from interventions to reduce waste. When the researchers broke down those potential saving based on which of the five domains—other than administrative complexity—they applied to, they found the savings would range from $20.6 billion for interventions related to fraud and abuse to $93 billion for interventions related to care delivery failures:  

    According to the researchers, the findings suggest the U.S. health care system could generate significant savings from a move toward value-based health care. The researchers wrote, "In value-based arrangements, improvements could be expected to reduce waste.

    For example, they wrote that a value-based agreement between a payer and health system "to improve care coordination and transitions in care could be expected to improve safety and reduce failures in care delivery." They added that a "greater alignment between payers and clinicians should assist in efforts to reduce fraud and abuse, while simultaneously reducing low-value care."


    However, a number of observers pushed back on the researchers' conclusion.

    Former CMS Administrator Don Berwick, a senior fellow at the Institute for Healthcare Improvement, said value-based payments, including bundled payments and accountable care organizations, have generated 1% to 3% in cost savings, which is much less than the researchers estimated in the latest study. "I tend to be an optimist and I'm grateful for the progress," he said, "but I suspect we're going to need bolder approaches to changing the financing of healthcare than we have accepted so far."

    Berwick suggested that the solution will likely need to be political, saying that unless people mobilize to say they are "not going to put up with this kind of administrative waste" and "obscene pricing," he's not sure "how these circumstances can be changed."

    Separately, Ashish Jha, professor of health policy in the Harvard T.H. Chan School of Public Health, similarly pointed out that almost none of the value-based programs have led to substantial improvements. "I've got literally dozens of studies I can point to that show it's having little to no impact," he said. "This is not one where people just get to have differing opinions. You've got to bring some evidence to bear for why it's going to be useful, because all the data so far show things heading in one direction." Jha said he believes efforts to regulate health care monopolies and address irrational pricing in health care could help lower wasteful spending (Japsen, Forbes, 10/7; Owens, "Vitals," Axios, 10/8; Bannow, Modern Healthcare, 10/7; Shrank et al., JAMA, 10/7; Frakt, "The Upshot," New York Times, 10/7).

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