October 8, 2019
Approximately 25 percent of spending in the
U.S. health care system can be characterized as waste. That’s between $760
billion and $935 billion annually.
A study published today in the Journal of
the American Medical Association (JAMA) by researchers from health insurance
provider Humana Inc. and the University of Pittsburgh School of Medicine links
the waste to six areas of the health care system identified by the Institute of
Medicine: failure of care delivery; failure of care coordination;
over-treatment or low-value care; pricing failure; fraud and abuse, and
administrative complexity.
For their analysis, the authors identified
government-based reports, articles and peer-reviewed publications from 2012 to
2019 that focused on estimates of costs or savings related to these six areas
of waste. There were 71 estimates from 54 publications and those estimates were
combined into ranges or totaled.
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). The authors highlight the sources of inefficiencies in
the U.S. health care system, cite opportunities to address those
inefficiencies, and underscore several key ways to make health care more
affordable.
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.
Computations yielded the following estimated
ranges of total annual cost of waste and estimated annual savings from
interventions:
|
Waste domain
|
Estimated range of total annual
cost of waste
|
Estimated annual savings from
interventions
|
|
Failure of care delivery
|
$102.4 – $165.7 billion
|
$44.4 – $93.3 billion
|
|
Failure of care coordination
|
$27.2 – $78.2 billion
|
$29.6 – $38.2 billion
|
|
Overtreatment or low-value care
|
$75.7 – $101.2 billion
|
$12.8 – $28.6 billion
|
|
Pricing failure
|
$230.7 – $240.5 billion
|
$81.4 – $91.2 billion
|
|
Fraud and abuse
|
$58.5 – $83.9 billion
|
$22.8 – $30.8 billion
|
|
Administrative complexity
|
$265.6 billion
|
*
|
* No studies were identified that focused on
interventions targeting administrative complexity. The savings do not
include interventions for the area identified as the largest waste area,
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.”
Several 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 Centers for
Medicare & Medicaid Services, will produce new savings, according to the
study. 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.
According to the authors, 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
over-treatment. However, if proven, effective clinical strategies to improve
care available today were scaled nationally, approximately 50 percent of that
waste could be avoided, the study concludes.
“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.”
The study is: Shrank WH, Rogstad TL, Parekh
N. Waste in the US Health Care System: Estimated Costs and
Potential for Savings. JAMA. Published online October 07, 2019.
The study notes that much of the research on
waste and improvement that was reviewed has been conducted in Medicare
populations. While estimates from cohorts of Medicare enrollees were translated
to the broader national Medicare population, data derived from analyses of
waste and waste reduction interventions in traditional Medicare or Medicare
Advantage may not have been fully generalizable to the entire Medicare
population. Importantly, there was no attempt in these analyses to generalize
Medicare costs or savings to other insurance populations, rendering the
findings conservative, the authors note.
Both Shrank and Rogstad reported received
funding from Humana and Parekh reported employment from UPMC Health Plan.
The study is a follow up to a 2012 JAMA study – “Eliminating Waste in US Health
Care,” by Donald M. Berwick, MD, MPP and Andrew D. Hackbarth, MPhi.
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