About 25% of Total U.S. Health Care Spending Is Waste: Study

In a Special Communication published in the Journal of the American Medical Association (JAMA), researchers from Humana Inc. and the University of Pittsburgh School of Medicine estimated the cost of waste in the United States (U.S.) health system. The study found that approximately 25 percent of health care spending can be characterized as waste – between $760 billion and $935 billion annually. The findings can be accessed by clicking here.

The U.S. spends more on health care than any other country, with costs approaching $3.6 trillion, or 18 percent of the gross domestic product (GDP). These findings highlight the sources of inefficiencies in the U.S. health care system, opportunities to address those inefficiencies, and underscore several key solutions to make health care more affordable for all Americans.

The study is a follow up to the well-known 2012 JAMA study – “Eliminating Waste in US Health Care,” by Donald M. Berwick, MD, MPP and Andrew D. Hackbarth, MPhil.

The goal of the new study was to estimate the levels of waste in the U.S. health care system in six previously developed domains and to report estimates of potential savings for each domain. The authors conducted a search of medical literature from January 2012 to May 2019 focused on the six waste domains identified by the Institute of Medicine:

• failure of care delivery
• failure of care coordination
• overtreatment or low-value care
• pricing failure
• fraud and abuse, and
• administrative complexity

“This study highlights the opportunity to reduce waste in our current health care system,” said lead author William Shrank M.D., Humana’s Chief Medical and Corporate Affairs Officer. “By focusing on these opportunities, we could make health care 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.”

For each domain, available estimates of waste-related costs and data from interventions shown to reduce waste-related costs 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.

Computations yielded the following estimated ranges of total annual cost of waste and estimated annual savings from interventions:

* No studies were identified that focused on interventions targeting administrative complexity.

“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 Bruce D. Broussard, Humana’s President and Chief Executive Officer. “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 estimated total annual costs of waste and savings from interventions that address waste 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.

Several key findings can be drawn from this study:

The greatest source of waste, at over a quarter trillion dollars annually, is administrative complexity. Some of this waste is due to a fragmented health care system. More seamless data interoperability, as is currently being driven by CMS, will produce new savings. The movement to value-based care – which focuses on alignment of incentives and increased collaboration between payor and provider – could meaningfully reduce this source of waste as many of the administrative tools used by payers to reduce waste (such as prior authorization) can be discontinued or delegated to the clinicians, reducing administrative complexity for all stakeholders.

Pricing inefficiency, in particular drug pricing, represents the second greatest source of waste. These inefficiencies have arisen in a highly regulated market-based system, and suggest that policies that systematically promote competition and price transparency should foster substantial savings.

Approximately $300B in waste results from failure of care delivery, failure of care coordination, and overtreatment. However, there is clear evidence that if proven, effective clinical strategies to improve care available today were scaled nationally, approximately 50 percent of that waste could be avoided.

For the last several years, Humana has been focusing on advancing the concept of interoperability and leveraging the transformative power of the value-based care model to lower costs. According to the company’s 2017 annual report, medical costs for patients who were affiliated with physicians in Humana Medicare Advantage value-based agreements were 15.6 percent lower than original Medicare fee-for-service.

Humana has an extensive and growing value-based care presence. As of June 30, 2019, Humana had approximately 2.3 million individual Medicare Advantage members and approximately 115,000 commercial members who are cared for by more than 58,000 primary care physicians in more than 1,000 value-based relationships across 43 states and Puerto Rico. Humana’s total Medicare Advantage membership is more than four million members, which includes members affiliated with providers in value-based and standard Medicare Advantage settings. For more information, visit humana.com/provider/support/vbc.