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Waste in the US Health Care SystemEstimated Costs and Potential for Savings

Educational Objective
To understand the sources of waste, and potential savings, in the US health care system.
1 Credit CME
Abstract

Importance  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. Despite efforts to reduce overtreatment, improve care, and address overpayment, it is likely that substantial waste in US health care spending remains.

Objectives  To estimate current levels of waste in the US health care system in 6 previously developed domains and to report estimates of potential savings for each domain.

Evidence  A search of peer-reviewed and “gray” literature from January 2012 to May 2019 focused on the 6 waste domains previously identified by the Institute of Medicine and Berwick and Hackbarth: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity. 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 when necessary, and combined into ranges or summed as appropriate.

Findings  The review yielded 71 estimates from 54 unique peer-reviewed publications, government-based reports, and reports from the gray literature. Computations yielded the following estimated ranges of total annual cost of waste: failure of care delivery, $102.4 billion to $165.7 billion; failure of care coordination, $27.2 billion to $78.2 billion; overtreatment or low-value care, $75.7 billion to $101.2 billion; pricing failure, $230.7 billion to $240.5 billion; fraud and abuse, $58.5 billion to $83.9 billion; and administrative complexity, $265.6 billion. The estimated annual savings from measures to eliminate waste were as follows: failure of care delivery, $44.4 billion to $93.3 billion; failure of care coordination, $29.6 billion to $38.2 billion; overtreatment or low-value care, $12.8 billion to $28.6 billion; pricing failure, $81.4 billion to $91.2 billion; and fraud and abuse, $22.8 billion to $30.8 billion. No studies were identified that focused on interventions targeting administrative complexity. The estimated total annual costs of waste were $760 billion to $935 billion and savings from interventions that address waste were $191 billion to $282 billion.

Conclusions and Relevance  In this review based on 6 previously identified domains of health care waste, the estimated cost of waste in the US health care system ranged from $760 billion to $935 billion, accounting for approximately 25% of total health care spending, and the projected potential savings from interventions that reduce waste, excluding savings from administrative complexity, ranged from $191 billion to $282 billion, representing a potential 25% reduction in the total cost of waste. Implementation of effective measures to eliminate waste represents an opportunity reduce the continued increases in US health care expenditures.

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Article Information

Corresponding Author: William H. Shrank, MD, MSHS, Humana Inc, 500 W Main St, Louisville, KY 40202 (wshrank@humana.com).

Accepted for Publication: August 26, 2019.

Published Online: October 7, 2019. doi:10.1001/jama.2019.13978

Author Contributions: Dr Shrank had full access to all of the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis.

Concept and design: Shrank, Parekh.

Acquisition, analysis, or interpretation of data: Rogstad, Parekh.

Drafting of the manuscript: Shrank, Parekh.

Critical revision of the manuscript for important intellectual content: Rogstad, Parekh.

Statistical analysis: Rogstad, Parekh.

Administrative, technical, or material support: All authors.

Supervision: Shrank.

Conflict of Interest Disclosures: Dr Shrank reported receiving support from Humana Inc. Dr Rogstad reported receiving support from Humana Inc. Dr Parekh reported employment from UPMC Health Plan. No other disclosures were reported.

Additional Contributions: We thank Elizabeth C.S. Swart, UPMC Health Plan, for her assistance with literature searching and data abstraction, Julie Hutchinson, MD, Humana Inc, for her assistance with literature searching, and Rituparna Battacharya, PhD, Humana Inc, for her cost data conversions and assistance with fact checking. All those listed here are with Humana Inc and did not receive additional compensation for their work.

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