One-Quarter of all US Health Care Spending is a Waste of Money, says JAMA study

Though the US spends more on health care than any other country, a new JAMA study estimates about one-quarter of total health care spending in the United States is wasted. The wasteful spending price tag is hefty, from $760 billion to $935 billion. Worse yet, one-quarter of this wasteful spending is on administrative costs. The concern is that wasteful spending is just that much less money spent on direct patient care.

For this analysis, the authors identified government-based reports, articles and peer-reviewed publications from 2012 to 2019 that focused on estimates of costs or savings related to six areas of waste. The authors also searched the published literature to find estimates of the potential to reduce waste in each of the categories listed by scaling proven strategies.

Projected potential savings from efforts to reduce waste ranged from $191 billion to $282 billion, a potential 25% reduction in the total cost of waste. The authors highlight the opportunity to reduce waste through insurer-clinician collaboration and data interoperability.

The study authors are not using this study to only raise awareness. They say there are solutions to get this waste out of the system. If these saving were implemented nationally the saving would be enormously beneficial As you will see in the video below, if the solution were simple, these savings alone could help every American be adequately insured. But it’s a complex solution to move that money around.

Study authors say that administrative costs, namely from the complexity of administrative procedures, are the biggest cost wasters. Unnecessary administrative costs account for $265.6 billion from billing and coding waste to physician time spent reporting on quality measures.

How can this be fixed? There are no data studies or models showing how to wisely trim this type of excessive expense. And, with a pay-for-service model, there are no effective incentives to systematically rid the entire medical system of these costs. In some cases, this wasteful spending actually makes money for certain stakeholders.

The solution they say is for individual hospitals and clinics to find ways to streamline their respective systems, especially of excess administrative costs. If an administrative cost, such as billing and coding, is not directly associated with access-to-care and patient-care outcomes, it should be carefully evaluated and cut from the budget. As is suggested, reward good quality and penalize poor quality. A challenge is what is good quality? Cherry-picking quality measures to suit one’s needs doesn’t help the situation.

That said there are proven measures that could be taken to repair the system now. And while the economy is healthy, it is important to address these issues now. The study authors say there is enough cushion right now in our economy for local national and elected leader decision-makers to take action.

Watch the video below for a summary explanation and follow this link to the entire JAMA podcast interview here.

Video: One in Every Four Healthcare Dollars Spent is Wasted

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Medical waste cost summary

• The study included 71 estimates from 54 publications and those estimates were combined into ranges or totaled, and included:
• The estimated annual cost of waste was $265.6 billion for administrative complexity (billing and coding waste, physician time spent reporting on quality measures);
• The range of $230.7 billion to $240.5 billion for pricing failure (prices increase far from those expected in a well-functioning market);
• Failure of care delivery is $102.4 billion to $165.7 billion (poor execution or lack of widespread adoption of best-care processes);
• Overtreatment or low-value care is $75.7 billion to $101.2 billion for;
• Fraud and abuse is $58.5 billion to $83.9 billion;
• and $27.2 billion to $78.2 billion is for the failure of care coordination (unnecessary admissions or avoidable complications and readmissions).

Waste Domains and Interventions

The following two tables outline the type of spending waste and targeted interventions to overcome the excess expenditures.

Cost of Estimates by Domain

Conclusion / Implementing effective measures to decrease waste is a chance to reduce continued increases in U.S. health care costs. Above all, they say that these excess expenditures do nothing to improve patient care and should be carefully evaluated in each medical setting.

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Source: Shrank WH, Rogstad TL, Parekh N. Waste in the US Health Care System: Estimated Costs and Potential for Savings. JAMA. Published online October 07, 2019322(15):1501–1509. doi:10.1001/jama.2019.13978