A quarter of total U.S. health spending estimated to be waste

Waste in healthcare is an ongoing issue, and perhaps an inevitability. But the sheer amount of it is imposing. About one-quarter of total healthcare spending in the U.S. is waste, with a price tag ranging from $760 billion to $935 billion, according to new analysis.

Published in JAMA, the study's authors report total estimated annual cost of waste was $265.6 billion for administrative complexity alone, including billing and coding waste, and physician time spent reporting on quality measures.

Administrative complexity accounted for the most waste, estimated at $256.6 billion; $230.7 billion to $240.5 billion of the waste was for pricing failure, with price increases far from those expected in a well-functioning market.

$102.4 billion to $165.7 billion was for failure of care delivery, meaning poor execution or lack of widespread adoption of best care processes. $75.7 billion to $101.2 billion was comprised of overtreatment or low-value care; $58.5 billion to $83.9 billion for fraud and abuse; and $27.2 billion to $78.2 billion for failure of care coordination (unnecessary admissions or avoidable complications and readmissions).

For the 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. There were 71 estimates from 54 publications, and those estimates were combined into ranges or totaled.

WHAT'S THE IMPACT

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.

Mitigating waste was found to be trickiest in the area of pricing failure, largely because of the rising price of pharmaceuticals. New, high-cost specialty drugs are projected to exceed 50% of all pharmaceutical spending. Effective strategies to ease this cost pressure, the authors said, include increasing market competition, reforming price transparency and importing drugs from countries with lower drug prices.

Administrative complexity, representing the most waste of any category, can be addressed through the development and implementation of value-based payment models, the authors said.

This analysis has limitations, including that the studies used may not represent all costs and savings in each area of waste, and that data from some of the studies may not be generalizable to the U.S. population.

THE LARGER TREND

Every year the healthcare industry wastes an estimated $750 billion, and while employers overwhelmingly perceive this to be a problem, about 60 percent are not actively managing the issue, a 2018 analysis found.

Employers perceive healthcare waste to be a problem, with 57 percent saying that up to 25 percent of treatments their employees and dependents receive are wasteful. Yet most employers, 59 percent, don't collect or analyze data to track waste, and those that do rely on their vendors.

MRIs and X-rays were cited as the largest contributors to waste.

Twitter: @JELagasse

Email the writer: jeff.lagasse@himssmedia.com