A recent study from Shrank et al. in the JAMA Network identified that US Healthcare waste is approaching 18% of the US GDP. The researchers additionally found that approximately 25% of healthcare spending could could be considered waste.
The researchers divided the costs into six components:
- Administrative Complexity, meaning the cost of bureaucratic inefficiencies that a 2010 National Academy of Medicine study projects could be reduced by half
- Failure of Care Delivery, meaning costs resulting from treating an illness in a patient that did not receive proper preventative care
- Failure of Care Coordination, including unnecessary patient admission costs
- Overtreatment or Low-Value Care, resulting from the use of overpriced on-brand drugs and running unnecessary tests
- Pricing Failure, encompassing excessive payments on drugs and excessive insurance reimbursement costs
- Fraud and Abuse charges the researchers estimate to cost between $58.5 and $83.9 billion.
Of these, Administrative Complexity accounted for the greatest total of money at approximately $265.6 billion. In large part, these expenditures are on billing and insurance-related (BiR) costs, that one study calculated to account for 20-22% of privately-insured California healthcare spending.
In an editorial published alongside the study, Donald Berwick notes that the figure of $150 billion that comprises only 5% of the total cost of healthcare waste is in of itself nearly three times the US Department of Education budget and that 25% of total healthcare waste would encompass the entirety of the 2019 federal defense budget. Additionally, he writes that the annual healthcare waste cost is greater than the annual cost of Medicare and Medicaid put together.
In attempting to identify reasons why healthcare waste reduction is essentially unheard of in the US, Berwick identifies politics as ‘the most plausible explanation of all’. “What Shrank and colleagues and their predecessors call “waste,” others call “income”, writes Berwick. He notes that under current delivery models, ‘very powerful corporations and guilds’ make ‘big income’ and that platforms that seek to reduce healthcare waste risk poor political performance due to severe pressure from big donors.
Shrank et al. conclude by stating that they believe a potential of 25% of the total healthcare waste cost could be saved by implementing what they term ‘effective measures’. These measures are defined in a different accompanying article as falling into the two categories of “clinical care redesign”, meaning a restructuring of care approaches and coordination, and “policy initiatives meant to incent and support the care redesign activities”. The article continues by enumerating various reasons for the previous failure of policy to reduce waste costs.
“In short,” concludes Berwick, “removing waste from US health care will require both awakening a sleepy status quo and shifting power to wrest it from the grip of greed.”