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Waste Accounts for 25% of US Health Care Spending

October 16, 2019

Based on data presented in a JAMA study, the United States health care system spends an approximate $760 billion to $935 billion in waste—accounting for 25% of all health care spend.

In the study, William H Shrank, MD, MSHS, of Humana, and colleagues said, “The United States spends more on health care than any other country, with costs approaching 18% of the gross domestic product (GDP). Prior studies estimated that approximately 30% of health care spending may be considered waste.”

While data collected from examining peer-reviewed and gray literature from January 2012 through May 2019 showed a slight decrease in wasteful health care spend, Dr Shrank and colleagues note that there are several areas in which the US could decrease waste.

The areas of waste examined included failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity.

Administrative complexity ranked the highest in terms of contribution to the total wasted spend, and Dr Shrank and colleagues explained that few studies exist to measure it constructively as a source.

The greater opportunity to reduce waste in this category should result from enhanced payer collaboration with health systems and clinicians in the form of value-based payment models,” Dr Shrank and colleagues explained.

The study authors continued to explain that many of the many of the administrative tools used by payers to reduce waste (such as prior authorization) can be discontinued or delegated to the clinicians, reducing complexity for clinicians and aligning incentives for them to reduce waste and improve value in their clinical decision-making.

The second highest contributor to wasteful spending was attributed to pricing failure. Dr Shrank and colleagues not that new high-cost speciality medications will soon account for over 50% of pharmaceutical spend, which is in itself, an issue.

“Over the next decade, CMS[Centers for Medicare & Medicaid Services] projects that prescription drug spending will be the fastest-growing cause of rising health care expenditures,” stated Dr Shrank and colleagues in the study, adding that several proposals are already in the works to combat the rising spend.

“These proposals advocate enhanced market competition, reimportation of drugs from less expensive nations, leveraging pricing negotiated by other nations, and greater transparency of pricing and return of rebates to patients at point of sale.

Care delivery failure came in third as one of the top contributors to waste

The authors of the study estimate that there is a possible $191 billion to $282 billion to be saved if effective measures—like the successful transition to value-based care—were implemented.

“There is compelling empirical evidence in all 3 categories that interventions can produce meaningful savings and may reduce waste by as much as half,” Dr Shrank and colleagues concluded. “Many of these interventions have arisen in settings where payers are collaborating with clinicians and health systems, either to align payment models with value or to support delivery reform to enhance care coordination, safety, and value.”

—Edan Stanley

Shrank WH, Rogstad TL, Parekh N. Waste in the US health care system estimated costs and potential for savings [published online October 7, 2019]. JAMA. 2019;322(15):1501-1509. doi:10.1001/jama.2019.13978

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