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“Even the low end of aggregate waste estimates—approximately $600 billion per year in 2019 dollars—suggests that wasteful medical care spending is a major drain on the nation’s resources. As shown in Table 2, the median values of waste in each category are comparable in magnitude with major unmet investment priorities in other sectors affecting safety, social goods, and the environment. For example, the median estimate of fraud and abuse in medical care ($185 billion) is equivalent to the total annual estimated costs to provide free tuition at public colleges and universities ($79 billion), universal child care ($42 billion), universal pre-K ($26 billion), and partial wage replacement for up to 12 weeks of family leave ($28 billion). Fraud and abuse are highly visible examples of medical care spending that do not contribute to improved health. The idea that seemingly contentious policy priorities such as the 4 mentioned here could be financially addressed through redirecting resources from just 1 category of waste is powerful. From a financial or opportunity cost perspective, other less visible types of wasteful spending are no less costly, and the benefits of addressing them, even if challenging, are no less impactful.

“As public health officials contend with concerns over a US life expectancy that has decreased each year since 2014,¹⁵ additional tools and resources to have a positive impact on the life course may be needed. Despite clear and persistent warnings that we would be unprepared for the threat of an emerging pandemic, the United States failed to adequately invest in its public health infrastructure in advance of the COVID-19 pandemic. Evidence suggests that investing in policies and interventions that improve the social determinants of health is important, yet financial resources and political will are always limited. Climate change, for example, is an existential threat in which US commitment to renewable energy would show leadership in reducing the pace and effects of climate change. While the mechanisms for transferring wasteful medical care spending into such initiatives remain a policy challenge, public and policymaker understanding is critical to enable the nation to tackle deeply entrenched vested interests and capitalize on the enormous opportunity to repurpose wasted dollars.^6,12“

Source: Matthew Speer, J. Mac McCullough, Jonathan E. Fielding, Elinore Faustino, Steven M. Teutsch, “Excess Medical Care Spending: The Categories, Magnitude, and Opportunity Costs of Wasteful Spending in the United States”, American Journal of Public Health 110, no. 12 (December 1, 2020): pp. 1743-1748. doi.org/10.2105/AJPH.2020.305865

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“Particularly costly has been profiteering among insurance companies participating in the Medicare Advantage (MA) program. Originally intended to give Medicare beneficiaries the choice of access to well-managed care at lower cost, MA has mushroomed into a massive program, now about to cover more than 50% of all Medicare beneficiaries and costing far more per beneficiary than traditional Medicare ever has.¹ By gaming Medicare risk codes and the ways in which comparative “benchmarks” are set for expected costs, MA plans have become by far the most profitable branches of large insurance companies. According to some health services research, MA will cost Medicare over $600 billion more in the next 8 years than would have been the case if the same enrollees had remained in traditional Medicare.² Opinions differ about whether MA enrollees experience better care and outcomes than those in traditional Medicare, but the weight of evidence is that they do not.

“Hospital pricing games are also widespread. Hospitals claim large operating losses, especially in the COVID pandemic period, but large systems sit on balance sheets with tens of billions of dollars in the bank or invested. Hospital prices for the top 37 infused cancer drugs averaged 86.2% higher per unit than in physician offices.³ A patient was billed $73 800 at the University of Chicago for 2 injections of Lupron depot, a treatment for prostate cancer, a drug available in the UK for $260 a dose.⁴ To drive up their own revenues, many hospitals serving wealthy populations take advantage of a federal subsidy program originally intended to reduce drug costs for people with low income.⁵

“Recent New York Times investigations have reported on nonprofit hospitals’ reducing and closing services in poor areas while opening new ones in wealthy suburbs and on their use of collection agencies for pursuing payment from patients with low income.⁶ The Massachusetts Health Policy Commission reported in 2022 that hospital prices and revenues increased during a decade at almost 4 times the rate of inflation.⁷

“Windfall profits also appear in salaries and benefits for many health care executives. Of the 10 highest paid among all corporate executives in the US in 2020, 3 were from Oak Street Health, and salary and benefits included, reportedly, $568 million for the chief executive officer (CEO). Executives in large hospital systems commonly have salaries and benefits of several million dollars a year.⁸ Some academic medical centers’ boards allow their CEO to serve for 6-figure stipends and multimillion-dollar stock options on outside company boards, including ones that supply products and services to the medical center.”

Source: Berwick DM. Salve Lucrum: The Existential Threat of Greed in US Health Care. JAMA. 2023;329(8):629–630. doi:10.1001/jama.2023.0846

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“This review of the current literature of the cost of waste in the US health care system and evidence about projected savings from interventions that reduce waste suggests that the estimated total costs of waste and potential savings from interventions that address waste are as high as $760 billion to $935 billion and $191 billion to $286 billion, respectively. These estimates represent approximately 25% of total health care expenditures in the United States, which have been projected to be $3.82 trillion for 2019.⁶⁸ These estimates are lower than the estimates provided by the IOM report (31%)² and by Berwick and Hackbarth³ (34%, using authors’ mid-range cost estimate), although those estimates included savings from administrative costs. However, the best available evidence about the cost savings of interventions targeting waste, when scaled nationally, account for only approximately 25% of total wasteful spending. These findings highlight the challenges inherent in rapidly changing the course of a health system that accounts for more than $3.8 trillion in annual spending, 17.8% of the nation’s GDP.⁶⁸“

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“As noted, not all administrative spending is wasteful. However, a review of relevant studies indicates that at least half of total administrative spending is likely ineffective (exhibit 1), meaning that it does not contribute to health outcomes in any discernible way. Put another way, if administrative spending is about 15–30 percent of national health spending, then wasteful administrative spending comprises half of that, or 7.5–15 percent of national health spending (or $285–$570 billion in 2019).”

Source: “The Role Of Administrative Waste In Excess US Health Spending, “ Health Affairs Research Brief, October 6, 2022. DOI: 10.1377/hpb20220909.830296

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“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 $97.3 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 $286 billion.”

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“Because the US health care system is so fragmented, there is not a clearly dominant entity to set administrative standards and force adoption. The federal government is the largest payer, but its market power is not concentrated because its payments flow through hundreds of different programs, including 50 unique Medicaid programs, Medicare, hundreds of Medicare Advantage plans, ACA insurance exchanges, federal employee health benefits, the military health system, Veterans Affairs, and the Indian Health Service. Each of these programs has governance over its administrative rules. Some programs, such as Covered California, use their local market power to force standardization of administrative elements, such as benefit design. The private sector alternatives lack either geographic reach or local market scale. The largest private sector entities are the payers United Healthcare and Anthem. However, neither of these companies are positioned to be administrative standard setters. United Healthcare lacks local market scale because it usually only accounts for 10% to 20% of patients for clinicians. Anthem lacks geographic scale because it only operates in 23 states. Only the Medicare system operates in all states and is accepted by nearly all health care organizations, which means changes to Medicare’s administrative rules are adopted nearly universally. Medicare is also a large payer, through the Medicare Advantage program, to the largest commercial payers, which could enhance Medicare’s ability to serve as an administrative standard setter. This makes Medicare the only participant with the market power to set administrative standards.

“The federal government can use regulatory authority to reduce administrative costs. The opportunity today is both larger than in 2010 when the ACA targeted administrative simplification and more readily capturable as a result of improvements in information technology. The authority derived from the ACA should be used to implement the third wave of administrative simplification regulations, which requires auto-adjudication of claims and prior authorizations and, as a by-product, creates long-awaited payment system and electronic health record interoperability. The Trump administration launched the Patients Over Paperwork program to reduce administrative burden. This program has simplified documentation for office visits and reduced reporting burden for many programs, and claims to have saved health care organizations an estimated $6.6 billion and 42 million hours of labor through 2021.⁵ More opportunity likely exists to rationalize the more than 1700 metrics that Medicare collects, which is estimated to incur $15.4 billion in annual data collection and reporting costs.⁶ There are additional opportunities that technology such as artificial intelligence may be capable of addressing, including a national clinician credentialing system; risk adjustment relying on data science models instead of physicians coding hierarchical condition categories; and identifying fraud, waste, and abuse.”

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“In many countries, evidence exists for the overuse of aggressive care for dying patients and simultaneous underuse of appropriate palliative care. Despite evidence that the majority of people around the world would prefer to die at home,^141–46 about half die in hospital worldwide, with considerable variation among countries.¹⁴⁷ Inappropriately aggressive cancer care near the end of life has been identified as a common problem in Canada,¹⁴⁸ the USA,¹⁴⁹ and the UK,¹⁵⁰ with regional variations observed.¹⁵¹ Overuse of aggressive end-of-life care in the UK, for example, includes futile insertion of percutaneous endoscopic gastrostomy tubes¹⁵¹ and administration of chemotherapy that hastens death.¹⁵² Furthermore, ineffective intensive care unit treatment at the end of life has been reported in Canada,¹⁵³ the USA,¹⁵⁴ and Brazil.¹⁵⁵ A study from Korea found that the majority of terminal cancer patients received futile intravenous nutrition during the last week of life, with discussions of palliation in only 7% of cases.¹⁵⁶“

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“High rates of inappropriate use of screening tests have been documented, often in the context of concurrent underuse in appropriate populations. In the USA, where there is widespread public support for cancer screening,¹⁰⁶ overuse of screening for cervical cancer^107,108 in women at very low-risk, and overuse of mammography in women with short life expectancy, who are unlikely to benefit from diagnosis and treatment,¹⁰⁹ has been documented. Furthermore, inappropriate use of colonoscopy screening has been found in both the USA and Canada.^110–12

“Few studies have evaluated rates of inappropriate cancer screening outside of North America.”

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“The influence of the pharmaceutical and medical device industry could be further restricted so patients and clinicians can base their decisions on unbiased and independent information. The United States and New Zealand are two of the few countries that still allow direct to consumer advertising. Regarding the marketing to clinicians, the United States already improved the transparency of payments with the Physician Payments Sunshine Act in 2010, although it has yet to be shown that disclosure affects marketing practices or the opinion of consumers.^35,36 Other opportunities lie in restricting industry ties in research and education.³⁷“

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“The use of LVC [Low Value Care] is costly. For example, the annual cost of LVC for the US Medicare population was estimated to be $8.5 billion, which is almost 3% of total Medicare spending [7]. LVC is a concern both for individual patients and health care systems, and in order to provide evidence-based care to patients, there is a need to deimplement the use of LVC in addition to implementing evidence-based practices. De-implementation involves a structured and planned process using a set of activities to reduce or stop the use of LVC [8]. However, despite dissemination of numerous lists of LVC practices that should be abandoned, e.g. in the Choosing Wisely® campaign [9], the problem with LVC persists. This indicates that lists identifying LVC are not sufficient for these practices to be de-implemented [10].”

Source: Augustsson, H., Ingvarsson, S., Nilsen, P. et al. Determinants for the use and de-implementation of low-value care in health care: a scoping review. Implement Sci Commun 2, 13 (2021). https://doi.org/10.1186/s43058-021-00110-3

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World Health Systems Facts is a project of the Real Reporting Foundation. We provide reliable statistics and other data from authoritative sources regarding health systems and policies in the US and sixteen other nations.

Page last updated December 13, 2024 by Doug McVay, Editor.