Skip to main content

New Report Offers Updated Look at Spending Waste

A recent analysis estimates current levels of wasteful spending in the US health care system and suggests there are opportunities to intervene and save. Experts point to shared decision-making as one tool that could help address waste factors such as overtreatment and low-value care without sacrificing quality.

It is commonly accepted that the United States continues to spend more on health care than any other nation. On a per-person basis, we spend over $10,000 a year, according to data released by the Organization for Economic Co-operation and Development, which is more than double the per capita amount of many other developed countries across the globe. 

And spending waste is a leading contributor, according to Natasha Parekh, MD, MS, who co-authored a JAMA report published on October 7, 2019, that took a closer look at this issue. “For us, it was important to understand the extent to which waste contributes to health care cost in order to define goals and opportunities to reduce it,” said Dr Parekh, who is chief medical officer of the Medicare shared savings accountable care organization and medical director of Primary Care Practice Transformation with Queen’s Health System in Honolulu, HI.

Previous reports by Berwick and Hackbarth as well as the Institute of Medicine have attempted to estimate the amount of waste that exists in the health care system. These earlier efforts served as useful models, Dr Parekh pointed out, but in the years since there has been added focus on various sources of spending such as overtreatment, drug costs, and end-of-life care. There has also been increased emphasis on value-based payment models, delivery reform models, and other efforts to curb expenditures. 

“We felt like the time was right,” said Dr Parekh, to understand the scope of the problem by updating these previous estimates and attempting to enumerate savings from more recent interventions that address waste. 

Dr Parekh and colleagues reviewed 71 estimates from 54 peer-reviewed publications, government-based reports, and other articles published between January 2012 and May 2019 to approximate current levels of wasteful health care spending. In doing so, they used six broad categories: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity. 

The estimated total annual cost of waste in the US health care system amounts to anywhere from 

$760 to $935 billion, they found, which accounts for roughly one-quarter of total health care spending. Projected potential savings stemming from interventions to cut waste (excluding savings from administrative complexity) ranged from $191 to $282 billion, according to estimations by Dr Parekh and colleagues. 

Administrative complexity represented the most significant contribution to waste. What’s interesting about this area, she explained, is that there were no high-quality, generalizable studies targeting administrative complexity as a source for waste reduction. This lack of guidance in terms of interventions that could lead to savings presents an opportunity moving forward.

Pricing failure, she pointed out, was found to be another significant driver of waste. “This is in the context of not just health services pricing but also pharmaceutical and device pricing,” she said, which highlights the need for new value-based payment models for services and medication as well as regulation and policies that help curb costs.

The most robust evidence of interventions that address waste target failure of care delivery, failure of care coordination, and overtreatment or low-value care. “As value-based care continues to evolve and payer-clinician or payer-provider collaboration is further enhanced, we’re hoping that interventions can be coordinated and scaled to produce better care at lower cost based on these kinds of partnerships to address these domains,” Dr Parekh said.

What Role do Payers Play? 

“I think we live in an interesting health care environment where payers are consolidating, collaborating, partnering, and merging—at times—with providers, who are now increasingly sharing risk with payers,” Dr Parekh said. Payers have always had the incentive to reduce waste and have led many efforts to address the issue. Now that incentives seem to be more aligned between payers and providers, there are opportunities for true collaboration and partnership. 

In payment and delivery model reform, “payers must continue to encourage alignment of incentives with providers to curb unnecessary duplicatives and wasteful health care delivery,” she said, in addition to developing and supporting payment models that truly prioritize and incorporate value. In partnership with providers, payers should support the development and execution of evidence-based pathways, she added, and “facilitate interoperability and better access to data in order to comprehensively define and understand the members they serve.” 

Another area of emphasis should be supporting effective price transparency platforms for both providers and patients to make informed decisions, she added. With providers taking on added risk, they “can and should be more involved than traditional payer-driven cost reduction strategies in terms of prior authorization and utilization management.” 

One excellent opportunity for payers, Dr Parekh pointed out, is partnering with providers on clinical pathways that incorporate shared-decision making to develop treatment plans that respect patient values and preferences while also curbing low-value care. 

Dialogue as Tool for Waste Reduction 

This topic of shared-decision making is one of the issues addressed within an accompanying JAMA Ophthalmology editorial piece co-authored by Paul Lee, MD, JD, professor and chair of ophthalmology and visual sciences at the University of Michigan. Together, he contends, clinicians and patients can discuss the best available evidence while considering options to arrive at well-informed preferences. Along the way, it is the patient who determines what represents high-value care in their unique situation, given information about factors like risks, benefits, and costs. 

Dr Lee pointed to the Choosing Wisely campaign as an example of physicians’ organizations, health care organizations, and others working together to help patients choose care that is supported by evidence while avoiding unnecessary medical tests, treatments, and procedures. This initiative, which is led by the ABIM Foundation, asks medical specialty societies to make recommendations for preventing the overuse of a treatment in their field. 

In 2012, for example, the American Academy of Ophthalmology joined the campaign and identified five recommendations focused on tests and treatments whose necessity ought to be questioned so that conversations can take place to determine what is most appropriate for an individual patient and his or her unique situation. Examples include routine imaging for patients without signs or symptoms of eye disease and routine antibiotics for eye injections.

Shared decision-making extends beyond just vision health, however. In a number of different areas, for example, a common dilemma that comes up is whether or not to get an magnetic resonance imaging test for a headache. In working together, Dr Lee said, a patient’s desire to have the test may be reduced. And on the physician side, understanding patient preferences could mean deciding not to order an MRI because the need to practice defensive medicine may be alleviated. 

When considering issues related to the value of care, “we should always keep in mind the importance of having the individual patient’s perspective,” he said, to avoid subjecting people to care that, according to sound science and their own preferences, cannot help. Engaging with patients can potentially help save costs across other waste categories, too, such as administrative complexity and failure of care delivery. 

“We all have an opportunity of working together to focus on the things that patients really would like to see happen in the care system,” Dr Lee added, “and if we do that, we’ll be in a position to have more resources available for people that need care.” 

Back to Top