A Quarter of Healthcare Spending is Waste, Study Says

Quarter of Healthcare Spending

A Quarter of Healthcare Spending is Waste, Study Says


A new study reports what those in healthcare have known for a long time. The healthcare system is riddled with waste. So much, in fact, that 25 cents out of every dollar spent in American healthcare contributes absolutely nothing of value.

The dollar amount of waste in the healthcare system is so staggering that it surpasses the entire annual defense budget of the United States.

The study, published by the Journal of American Medical Association, breaks down the following contributors and cost of healthcare waste in the following categories:

-administrative complexities ($265.6 billion): required tasks including medical coding and billing, recordkeeping, and other clerical work.

-high or excessive prices ($240 billion): high payments for drugs and excessive reimbursement on services rendered.

-failure of care delivery ($165.7 billion): inclusive of adverse events, such as hospital acquired illnesses, and a lack of preventative care.

-failure in care coordination ($78.2 billion): inadequacies in coordinating care, such as complications that could be avoided.

-overtreatment or low-value care ($101.2 billion): examples include administering unneeded tests or utilizing brand-name drugs when generics are available

-fraud and abuse ($83.9 billion): costs related to deception or misrepresentation of services, or outside of accepted general medical practice.

The studies results are in line with other reports that show similar, if not more, waste in the US healthcare system. The irony in all of this is many of these added expenses are the unintended consequences of processes that are aiming to do the exact opposite- reduce healthcare expenditures, especially when looking at administrative costs.

Interestingly, the greatest contributor of wasteful healthcare expenses (administrative costs) also have the fewest resources available for identification and improvement, according to the sites authors.

Healthcare stakeholders should work together to identify and reduce some of the inefficiencies that exist across the healthcare continuum. Due to the intricacies that intertwine healthcare partners, a coordinated and forward-thinking effort will allow enterprises to identify the main drivers of waste and work on creating long-lasting solutions that can positively reduce waste in the system.

Also, organizations should have a strategic plan in place to look inward at their own processes, as their is no shortage of opportunities for leaders to identify obstacles to reducing waste, and ultimately improving the profitability, quality, and efficiency of care delivered.


Authored by Brett Shay, Managing Partner at Informed Concepts Consulting. Published on October 22, 2019.