Wasteful Spending In American Healthcare

54 published studies and reports that estimated waste or savings from practice and policy were analyzed. 18% of the economy and over $10,000 per person a year is spent annually in America. Following the evidence about $200 billion could be saved per year. 

Currently America spends more on health than any other country, but 1 out of every 4 dollars that is being spent on healthcare is wasted; annually the report suggests America spends up to $935 billion on waste, which is “comparable to government spending on Medicare and exceeds national military spending, as well as total primary and secondary education spending.”

The drivers of this waste according to the report are failure of care delivery, failure of care coordination, overtreatment of low value care, pricing failures, fraud, abuse, and administrative complexity; the three greatest sources of wasteful spending that are primed for eliminating waste and cutting costs were identified as being 1) $266 billion in administrative inefficiencies in the current fee for service healthcare system; 2) $205 billion in lack of effective preventive care; and 3) $231-$241 billion in overpriced prescription medication. If waste was tackled in these key areas not only would patients and physicians save money it would also improve national health. 

The fee for service system might be better served to transition into a form of value based or single payer or bundle payment system approach or combination in which doctors are paid to improve health outcomes, not by just the services they provide. This shift from the traditional fee for service approach to a model that is focused on value will reward providers for delivering quality care. Value based care is already being implemented in some areas and is making a difference when it comes to reducing costs and improving value, as a result, wasteful spending is being reduced. This report suggests that patients being cared for by doctors who are participating in value based care arrangements spent 15.6% less on medical costs compared to those in traditional fee for service care. 

“What stands in the way of reducing waste — especially administrative waste and out-of-control prices — is much more a lack of political will than a lack of ideas about how to do it.”

Ashish Jha of the Harvard Global Health Institute and the Harvard T.H. Chan School of Public Health, said: “It’s perfectly possible to reduce administrative waste in a system with private insurance. In fact, Switzerland, the Netherlands and other countries with private payers have much lower administrative costs than we do. We should focus our energies on administrative simplification, not whether it’s in a single-payer system or not.”

Failure to identify, prevent, or treat chronic conditions leads to increased healthcare costs and wasteful spending. These conditions left untreated will become expensive and lead to more costly procedures and hospital stays, with 3 in 4 people aged 65+ living with multiple chronic conditions there is plenty of room in this area to prevent wasteful spending. More people are being diagnosed with chronic conditions in the aging population, as this increases the cost of care will also continue to increase. 

An estimated 55 million people are expected to be diagnosed with diabetes by 2030, this will require constant management and monitoring that takes a toll on the patient, their quality of life, and their expenses. Low severity diabetes costs $600 a month and high severity costs $4,500 a month for a Medicare beneficiary. Using patient data to identify those who are risk for health issues and intervene with preventive care before it worsens could save a lot of time and money. A patient suffering with obesity for example is at risk for other chronic diseases such as diabetic foot that over a 5 year period has a mortality rate of 77%, but connecting this person with a care manager who can direct him to a podiatrist and with regular long term testing could help this person avoid amputation. 

Preventive care could lower costs and create better health; prevention of 11% more screenings for colorectal cancer screenings and 10% more breast cancer screenings could lead to 11% fewer ER visits and 10% less hospital admissions, according to the report. 

23% of older Americans say it is difficult to afford their prescription medications, among those 1 in 10 say it is very difficult. Research suggests that it is pricing inefficiency, particularly lack of competition and transparency that drive the significant waste in this important sector of the healthcare marketplace. If inefficiencies could be minimized in this area it would help to save costs; such as being able to fill 90 days supply of medication rather than 30 days which should be reviewed by a pharmacist for accuracy before being dispensed or delivered. High costs of brand name drugs are pointed to as being the major contributor, and consolidated hospital markets also contribute to higher prices. 

Research suggests that mail delivery pharmacies may be up to 23 times more accurate than retail pharmacies in keeping people up to date on having the right medications, many of which also help to save money by offering users discounts on 90 day prescriptions compared to prescriptions obtained traditionally at a drugstore. 

Inefficient, low value and uncoordinated care total at least $205 billion in waste annually. Over half of medical treatments lack solid evidence of effectiveness which includes hospital acquired infections, use of high cost services over sufficient lower cost options, low rates of preventive care, avoidable complications, avoidable hospital admissions/readmissions, and services that provide very little to no benefit. 

Fraud and abuse represents at least $59-84 billion in waste a year which is about 10% of spending; there are obvious advantages of cutting back in this area, but there are also obvious drawbacks such as it costing more than a dollar to save a dollar making it hard to tackle this waste. 

Billions of dollars are being spent wastefully rather than being utilized to make the healthcare system better. It is possible to build a better system by expanding what is already in place that is helping both physicians and patients alike such as value based care, preventive services, and lower drug costs. It is working in areas where it has been implemented, and it may help throughout the healthcare system to provide healthier lives at lower costs. 

Only a few value based payment approached seem to be producing savings, putting the theory into practice is proving to be more difficult than was thought. “Savings tend to come from physicians referring patients to lower-priced facilities or cutting back on potentially lower-value care in areas such as procedures, tests or post-acute service,” says  Zirui Song, a physician and a health economist with Harvard Medical School. There is also evidence of bundled payment programs which provide a fixed overall budget for care having savings; and accountable care organizations seem to be able to eliminate some waste. 

American healthcare waste comes from many sources, meaning a single policy will not be able to address it all. There is now evidence on how to reduce a fraction of it, but more needs to be done to collect evidence about what works. What we have now clearly is not working, it may be time to try something different as at least 20-25% of American healthcare spending is wasteful. Not only do these problems have direct adverse health effects they also lead to patient anxiety, stress, and lower patient satisfaction and trust in the healthcare system.