The U.S. Wastes 25 Percent of Its Healthcare Spending, With up to $935 Billion Lost Every Year

American healthcare is the most expensive in the world, but as much as a quarter of medical spending is being wasted. It's a figure that amounts to costs of $760 billion to $935 billion per year. That's according to a study from researchers at Humana, a for-profit American health insurance company.

The study, published in JAMA, is based on government reports, articles and peer-reviewed publications related to costs and savings estimates in six categories of waste released between 2012 and 2019.

The authors' calculations suggest that as much as $265.6 billion is spent on what they refer to as "administrative complexity"—waste including time physicians spend reporting on quality measures, in addition to billing and coding waste. Another $230.7 billion to $240.5 billion of waste can be attributed to "pricing failure," or price increases that far exceed those expected in a well-functioning market. Some $102.4 billion to $165.7 billion is related to "failure of care delivery," poor execution or lack of widespread adoption of best care processes.

Fraud and abuse takes up a further $58.5 billion to $83.9 billion each year, while $75.7 billion to $101.2 billion is spent on overtreatment or low-value care. An additional $27.2 billion to $78.2 billion goes toward unnecessary admissions or avoidable complications and readmissions—categorized as "failure of care coordination."

To put it into perspective, the Committee for a Responsible Federal Budget calculated $3.5 trillion (18 percent of GDP) was spent on healthcare in 2017.

"There are a number of sources of waste that result from a fragmented healthcare system," William H. Shrank, Chief Medical Officer at Humana, told Newsweek.

"We would never expect to eliminate all. But there is good reason to believe that through deeper collaboration between physicians and insurance companies, investments in data interoperability and promoting integrated, coordinated care, we could massively reduce waste and make healthcare more affordable in this country."

nurse checks blood pressure
A nurse checks a patient's blood pressure. John Moore/Getty

Shrank and colleagues then went on to look at ways to reduce waste in each category. They believe approximately $191 billion to $282 billion—or 25 percent—of the waste they calculated can be saved. However, they do point out limitations with the costings. For example, the studies they used to gauge that figure may not cover all costs and savings.

Still, the expense of the American healthcare system in comparison to many other developed countries is hardly news—indeed, the 25 percent calculated here is a significantly lower estimate than many previous studies.

"Their estimates, which they suggest are conservative, are similar to other major reports of the past decade, which came up with median estimates of waste amounting to 30% to 35% of total health expenditures," Donald M. Berwick, President Emeritus and Senior Fellow at the Institute for Healthcare Improvement, said in an accompanying editorial, in which he described U.S. healthcare as a "Femi paradox."

"The paradox is that, in an era of health care when no dimension of performance is more onerous than high cost, when many hospitals and clinicians complain that they are losing money, when individuals in the United States are experiencing financial shock at absorbing more and more out-of-pocket costs for their care, and when governments at all levels find that health care essentially confiscates the money they need to repair infrastructures, strengthen public education, build houses, and upgrade transportation—in short, in an era when health care expenses are harming everyone—as much as $800 billion in waste (give or take a few hundred billion) sits untapped as a reservoir for relief," Berwick wrote.

In August, John Hopkins published a study that found Americans not only spent more money on healthcare than those living in other developed nations, but also received a lower standard of care.

That study's authors worked out that Americans doled out an average of $9,892 per person in 2016. That is 25 percent higher than the average Swiss person ($7,919), with the second-highest healthcare costs, and more than twice the amount spent by the average American in 2000, which was $4,559 when accounting for inflation.

The reason for this, they suggest, is a combination of drug costs, staff wages and fees for hospital administration, which are higher than those in other developed countries.

In 2017, the Commonwealth Fund put the U.S. at the bottom of 11 developed countries ranked on healthcare. The other ten were Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland, the United Kingdom—all of whom have universal healthcare as the norm.

The U.S. consistently came last or close to last in terms of access to care, administrative efficiency as well as equity and health care outcomes. U.S. citizens also spent the most on healthcare. In comparison, the U.K.'s taxpayer-funded NHS was named the best healthcare system of the bunch—as it was in the previous report, in 2014.

In a recent Gallup poll, 70 percent of respondents said the U.S. healthcare system is "in a state of crisis," and so it is little wonder that healthcare is a key talking point in the race to be Democratic presidential nominee.

While Bernie Sanders and Elizabeth Warren back an extension of Medicare ('Medicare for All') that would see the government-run health insurance program cover all Americans and not just those who are 65 plus, the bulk of candidates propose a public insurance plan. This (at least, in theory) should reduce the amount spent on healthcare per individual as the government would be able to negotiate more affordable medical rates.

Article has been updated to correct Donald M. Berwick's title.

The U.S. Wastes 25 Percent of Its Healthcare Spending, With up to $935 Billion Lost Every Year | U.S.