Study: Financial waste in healthcare remains significant
Tuesday, October 22, 2019
Despite its reputation for saving things, healthcare can be a pretty wasteful environment. In fact, there’s so much excess that nearly a quarter or more of all the money in the sector gets wasted, a new study suggests.
The sum of all waste is estimated to range from $760 billion to $935 billion, according to a report in JAMA published in October.
There’s a small sliver of good news: Things could be worse. The study authors suggest that the amount of waste was worse, by as much as 5%, in 2011.
Per the report, six areas of previously identified waste were reviewed, including failure of care delivery; failure of care coordination; overtreatment or low-value care; pricing failure; fraud and abuse; and administrative complexity.
According to the Committee for a Responsible Federal Budget, the United States spends more on healthcare than any other country in the world, and a large share of that spending comes from the federal government. In 2017, the U.S. spent about $3.5 trillion, or 18% of its gross domestic product, on health expenditures — more than twice the average among developed countries.
Of that $3.5 trillion, $1.5 trillion, is directly or indirectly financed by the federal government. The federal government dedicates resources equating to nearly 8% of the economy for healthcare.
"Over the long term, the rising cost of federal healthcare spending is clearly unsustainable. Without a course correction, the result will be program insolvency, crowding out of important public priorities, and a growing federal debt," the committee points out.
These rising costs are especially untenable if a quarter or more of all the money spent is wasted.
The JAMA study does suggest that potential savings from interventions that reduce waste ranged from $191 billion to $282 billion. This amount represents about a 25% reduction in the total cost of waste. Implementation of effective measures to eliminate waste represents an opportunity to reduce the continued increases in U.S. healthcare expenditures.
The study was based on various literature reviews from peer-reviewed publications and government-based reports, among other sources. This figure didn't take into account any efforts to reduce administrative complexity costs, as the authors said they were unable to find any published articles addressing savings from interventions in this waste category.
"Reductions in total cost of care that result from investments in improving chronic disease have been challenging to demonstrate," they wrote. "Because few sources took the cost of interventions into account when calculating savings, it was not possible to report estimates of the return on investment, i.e., the actual cost-savings that can be expected."
Per the Committee for a Responsible Federal Budget, federal health spending has grown significantly over the past several decades and is projected to grow in the future. Spending on the major federal health programs — Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and the health insurance exchange subsidies created under the Affordable Care Act — has increased from 0.8% of the economy in 1970 to 3.1% by 2000 and 5.4% in 2017.
"In dollar terms, major federal health spending has grown by 230% since 2000, while economy-wide prices have only risen 40%, and the economy has only grown by 90%, the Committee said. The growth is the result of automatic growth in enrollees and healthcare costs, and expansions in the form of the Medicare prescription drug program and the Affordable Care Act," the committee said.
As the population ages and per capita health care costs rise, nearly all forecasters expect federal health care spending to continue to grow. Based on Congressional Budget Office (CBO) projections and our own extrapolations, major federal health spending will rise from 5.4% of GDP in 2017 to 6.8% in 2028 and 8.4% by 2040.
"Meanwhile, healthcare will consume a larger share of the budget over time," the organization says. "In 1970, major health programs made up only 5% of the budget. That share increased to 20% by 2000 and 28% by 2017. By 2028, one-third of federal dollars not spent on interest will go toward health spending, and by 2040, nearly 40% will. Even these estimates do not account for the erosion of the tax base resulting from the tax exclusion for employer-sponsored health insurance."
No matter the outcomes, healthcare spending continues to rise and, even if costs of waste fall, these expenses continue to be significant.
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