Twenty-five percent of medical spending in America is wasted, study says

Approximately 25% of the $3.8 trillion spent annually in the U.S. on healthcare can be characterized as waste, according to an analysis recently published in the Journal of the American Medical Association.

Researchers from Humana and the University of Pittsburgh School of Medicine conducted a comprehensive literature review of U.S. reports and articles published between January 1, 2012, and May 15, 2019, that focused on costs or savings related to the following six waste domains previously identified by the Institute of Medicine and other researchers:

• Administrative complexity: billing and coding waste; physician time spent reporting on quality measures
• Failure of care coordination: unnecessary admissions and avoidable complications; readmissions
• Failure of care delivery: hospital-acquired conditions and adverse events; clinician-related inefficiency; lack of adoption of preventative care services
• Fraud and abuse: fraud and abuse in Medicare
• Overtreatment or low-value care: low-value medication use, low value screening, testing, or procedures; overuse of end-of-life care 
• Pricing failure: medication pricing failure; payer-based health services pricing failure; laboratory and ambulatory pricing

They categorized articles and reports according to the six domains and whether they assessed cost of waste, savings from interventions that address waste, or both. They then translated costs and savings from included studies into national costs and savings and converted these values to 2019 dollars using the Bureau of Labor Statistics Medical Services consumer price index. All component estimates were summed to determine total costs and ranges and total potential savings and ranges for each waste domain. 

The chart below details their estimates for the total annual cost of waste and annual savings from measures to eliminate waste for each domain:

Waste domain	Estimated annual cost of waste	Estimated annual savings from measures to eliminate waste
Administrative complexity	$265.6 billion	N/A
Failure of care coordination	$27.2 billion to $78.2 billion	$29.6 billion to $38.2 billion
Failure of care delivery	$102.4 billion to $165.7 billion	$44.4 billion to $93.3 billion
Fraud and abuse	$58.5 billion to $83.9 billion	$22.8 billion to $30.8 billion
Overtreatment or low-value care	$75.7 billion to $101.2 billion	$12.8 billion to $28.6 billion
Pricing failure	$230.7 billion to $240.5 billion	$81.4 billion to $91.2 billion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Based on their findings, researchers estimate that the total cost of waste in the U.S. healthcare system ranges from $760 billion to $935 billion and accounts for 25% of total healthcare spending. They estimate that interventions to reduce waste could save anywhere from $191 billion to $282 billion.

Notably, the administrative complexity category was associated with the greatest contribution to waste; however, researchers were unable to find generalizable studies that had targeted administrative complexity as a source for waste reduction. Researchers suggested that enhanced collaboration between payers and clinicians around valued-based payment models may be one of the biggest opportunities to reduce waste in this category.