New study estimates U.S. healthcare waste costs nearly $1 trillion each year

October 9, 2019

JAMA study finds that nearly 25 percent of total healthcare spending is wasted

There’s no denying healthcare is big business in the United States, with costs approaching 18 percent of the country’s gross domestic product. But a new review of estimates published on the JAMA Network on October 7 found that nearly $1 trillion of annual spending can be considered wasted.

Specifically, the estimated waste lies between $760 billion and $935 billion-which comes to up about 25 percent of the $3.8 trillion in total U.S. spending on healthcare. The authors also found that the projected savings from reducing waste, excluding savings from administrative complexity, ranges from $191 billion and $282 billion, or about 25 percent of the spending on waste.

The review of 71 estimates from 54 separate peer-reviewed publications, government-based reports, and so-called “gray” publications from between January 2012 and May 2019 focused on six “waste domains” previously identified by the Institute of Medicine as well as previous study published in 2012.

These “waste domains” and amounts are, according to the study:

  • Administrative complexity ($265.6 billion)

  • Pricing failure ($230.7 billion to $240.5 billion)

  • Failure of care delivery ($102.4 billion to $165.7 billion)

  • Overtreatment or low-value care ($75.7 billion to $101.2 billion)

  • Fraud and abuse ($58.5 billion to $83.9 billion)

  • Failure of care coordination ($27.2 billion to $78.2)

The domains are then further broken down by the researchers into to specific cost components. The component which draws the most waste, according to the study, is billing and coding waste with $248 billion-considered part of the administrative complexity domain- followed by medication pricing failure at $169.7 billion, and lack of adoption of preventative care practices at $88.6 billion to $111.1 billion.

The authors also broke down what interventions the estimates show can remedy this waste in each domain, except for administrative complexity for which there were no generalized studies targeting it as a source of waste reduction.

The breakdown of savings is:

  • Pricing failure ($81.4 billion to $91.2 billion)

  • Failure of care delivery ($44.4 billion to $93.3 billion)

  • Failure of care coordination ($29.6 billion to $38.2 billion)

  • Fraud and Abuse ($22.8 billion to $30.8 billion)

  • Overtreatment/low-value care ($12.8 billion to 28.6 billion)

The most beneficial waste-cutting measure, according to the analysis, is integration of behavioral and physical health, estimated to save $31.5 billion to $58.1 billion. That’s followed by insurer-based pricing interventions, which are estimated to save between $31.4 billion to $41.2 billion, and legislative, administrative, and integrity strategies, estimated to save $20.6 billion to $25.6 billion.

While there were no studies on reducing the waste in administrative complexity, the authors noted that a cause of the complexity may be fragmentation in the healthcare system.

“Recent proposals by CMS and the Office of the National Coordinator of Health Information Technology to foster data interoperability and government initiatives such as Blue Button 2.0 will hopefully alleviate some burden as information flows more freely and billing and authorization processes become more automated,” the authors wrote. “The greater opportunity to reduce waste in this category should result from enhanced payer collaboration with health systems and clinicians in the form of value-based payment models.”