About 25% of U.S. healthcare spending — between $760 billion and $935 billion annually — is wasted, according to a new report published today.
Researchers from Humana (NYSE:HUM) and the University of Pittsburgh School of Medicine searched medical literature from January 2012 to May 2019, looking for waste and savings opportunities in six domains of healthcare.
The findings highlight the sources of inefficiencies in the U.S. health care system and opportunities to address those inefficiencies, and underscore several key solutions to make healthcare more affordable for all Americans, according to the authors. Key findings include:
- Administrative complexity, partially due to a fragmented healthcare system, produced the most waste, an estimated $256.6 billion annually. Efforts at seamless data interoperability driven by the Centers for Medicare & Medicaid Services (CMS) will produce new savings, as will the movement toward value-based care.
- Pricing inefficiency, particularly drug pricing, represents the second greatest source of waste. These inefficiencies have arisen in a highly regulated market-based system, suggesting that policies that systematically promote competition and price transparency should foster substantial savings.
- Failures of care delivery and coordination as well as overtreatment accounted for approximately $300 billion in waste. Half of that waste could be avoided if currently available, proven and effective clinical strategies were scaled nationally.
The results were reported by the Journal of the American Medical Association (JAMA). The study is a follow up to a 2012 JAMA study, “Eliminating Waste in US Health Care,” by Dr. Donald M. Berwick and Andrew D. Hackbarth.
“This study highlights the opportunity to reduce waste in our current health care system,” said lead author Dr. William Shrank, Humana’s chief medical and corporate affairs officer in a news release. “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.”
The U.S. spends more on healthcare than any other country, with costs approaching $3.6 trillion, or 18% of the gross domestic product. The estimated total annual costs of healthcare waste and savings from interventions to address it were $760 billion – $935 billion and $191 – $282 billion, respectively. These savings do not include interventions for the area identified as the largest waste area, administrative complexity. Here’s a breakdown:
For each domain, available estimates of waste-related costs and data from interventions shown to reduce them 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. No studies were identified that focused on interventions targeting administrative complexity.</span>
“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 Humana president & CEO Bruce Broussard. “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 full study is available here.