One-Quarter of U.S. Health Care Spending Seen as Waste

Study lists steps that could save close to $300 billion a year

One in four dollars spent on U.S. health care can be characterized as waste—between $760 billion and $935 billion annually, according to a study published in the Journal of the American Medical Association.

The U.S. spends more on health care than any other country—nearly $3.6 trillion, or 18% of the gross domestic product. Researchers from Humana Inc. and the University of Pittsburgh School of Medicine set out to estimate U.S. health care waste in six areas previously identified by the Institute of Medicine: failure of care delivery; failure of care coordination; overtreatment or low-value care; pricing failure; fraud and abuse; and administrative complexity. They searched the medical literature for cost estimates and found published interventions that could help reduce waste by $191–$282 billion a year.

The estimated total annual cost of waste in failure of care delivery was $102.4–$165.7 billion, but suggested interventions could save $44.4–$93.3 billion. Such interventions could include reducing hospital adverse events and undertaking initiatives to address diabetes, obesity, smoking, and cancer.

Waste in failure of care coordination was assessed at $27.2–$78.2 billion, but potential interventions could save $29.6–$38.2 billion. Strategies might include coordination in accountable care organizations, transitional care programs, and emergency department–based approaches.

In overtreatment or low-value care, waste was $75.7–$101.2 billion, but $12.8–$28.6 billion could be eliminated through tactics such as optimizing medication use and sharing decision-making to reduce unnecessary procedures.

For pricing failure, waste of $230.7–$240.5 billion could be offset by $81.4–$91.2 billion in potential savings based on drug-pricing interventions, payer-focused interventions, and pricing transparency strategies.

The $58.5–$83.9 billion in waste from fraud and abuse could be lowered by $22.8–$30.8 billion with interventions based on recovering money from convictions and fraud settlements and through legislative, administrative, and integrity strategies.

The authors could not identify any published studies on interventions to help lower the $265.6 billion wasted in administrative complexity. However, the authors blamed some of this waste on a fragmented health care system, and they said more seamless data interoperability and value-based care could lower the cost.

Sources: Humana, October 7, 2019; JAMA, October 7, 2019