Infuriating as medical bills are, particularly the high, out-of-network and surprise bills, it’s even more infuriating to know that waste accounts for approximately a quarter of all health care spending. This is according to a JAMA review of 54 peer-reviewed studies, government reports and other information.
Keep In Mind: One quarter of annual healthcare spending is $760 billion to $935 billion yearly in wasteful health care spending
Two 2012 studies estimated waste at roughly 30 percent and 34 percent of total health care spending. While the percentage may be down, the dollar figures are dizzying: every year, $760 billion to $935 billion go to waste. The study adds that a quarter of it could be cut just by using interventions that cut waste.
“There have been a lot of changes in the healthcare system in the last seven years,” says Dr. William Shrank, an author of the study and chief medical and corporate affairs officer for health insurer Humana. “We thought it was an appropriate time to update that study.”
The waste percentage estimated is lower than the earlier studies. This may be due in part to the fact that the new study did not extrapolate Medicare-only data to the broader population, which earlier studies did account for.
The JAMA study estimated wasteful spending in six categories:
- Administrative Complexity: $265.6 billion in wasteful spending per year
- 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 & Abuse: $58.5 billion to $83.9 billion
- Failure of Care Coordination: $27.2 billion to $78.2 billion
Waste-cutting measures, the study found, could save $191 billion to $282 billion annually combined, or about 25 percent of the total cost of waste.
None of the scientific intervention measures addressed the biggest money-waster: administrative waste. According to Dr. Shrank, businesses don’t generally discuss the measures they take to cut down on it; he hopes that the study will bring about sharing across the industry.
He states, “In an environment where payers are pre-paying physicians or sharing risk with physicians for the management of populations, much of these sources of administrative complexity can be reduced or eliminated or streamlined.”
According to former CMS Administrator Dr. Don Berwick, the Institute for Healthcare Improvement senior fellow who wrote a 2012 JAMA study on health care waste, value-based payment arrangements such as bundled payments and accountable care organizations bring about 1 to 3 percent in cost savings—but a lot more will have to be done.
That said, Dr. Ashish Jha, professor of health policy in the Harvard T.H. Chan School of Public Health, is cited saying that value-based care programs provide little to no improvement, with the most effective yielding no more than 3 percent.
“I’ve got literally dozens of studies I can point to that show it’s having little to no impact,” Jha says. “This is not one where people just get to have differing opinions. You’ve got to bring some evidence to bear for why it’s going to be useful, because all the data so far show things heading in one direction.”
He believes that the “irrational pricing” of health care is the place to tackle the problem—as well as hitting monopolies, stimulating competition and importing drugs or negotiating for lower drug prices.
Edited for content. Original article appears in Benefits Pro Magazine by Marlene Satter
Based on 2019 JAMA Study: https://jamanetwork.com/journals/jama/article-abstract/2752664