Annual U.S. healthcare expenditures exceed $3.5 trillion. Healthcare sites and news feeds have been filled with commentary surrounding a study in the October 2019 edition of the Journal of the American Medical Association (JAMA). The study reports that waste accounts for roughly one-quarter of all U.S. healthcare spending across six domains developed by the Institute of Medicine: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity.
The estimated cost of overspending ranges from $760 billion to $935 billion annually. These numbers could actually be on the conservative side, as the study’s co-authors did not include extrapolations from Medicare data to the population at large. And, what is termed “waste” in the system is actually revenue to some entity, so there are huge political overtones to all of this.
In an October JAMA editorial, former Administrator for the Centers for Medicare & Medicaid Services (CMS) Donald Berwick, M.D., offered comparatives to help provide some perspective: “These are massive numbers. With U.S. healthcare expenditures exceeding $3.5 trillion annually, 25% of the total would amount to more than $800 billion per year of waste (more than the entire 2019 federal defense budget, and as much as all of Medicare and Medicaid combined). Even 5% of the total cost is more than $150 billion per year (almost three times the budget of the U.S. Department of Education). That is worth repeating: by many pedigreed estimates, annual waste in U.S. healthcare equals or exceeds the entire annual cost of Medicare plus Medicaid.”
After exploring 54 peer-reviewed studies, government reports and other information, the latest study suggests one-quarter of that spending could be reduced by implementing interventions found to reduce waste. The projected potential savings is estimated at $191 billion to $282 billion, excluding savings from administrative complexity. The latter is the only domain with no interventions proven to make an impact.
Significant opportunities for savings
Whether the study’s estimates are exactly on point or more on the conservative side, the costs represent significant savings opportunities for hospitals and healthcare organizations. HealthTrust is uniquely positioned to assist its members with cost reduction in three of the six domains where there is evidence of known tangible interventions: failure of care delivery, failure of care coordination, and overtreatment or low-value care.
Consulting services at HealthTrust are through our inSight Advisory Services. In collaboration with HealthTrust members, these teams employ performance enhancement strategies for cost reduction and clinical outcomes improvement. Two areas that represent opportunities for substantive savings are part of the teams I oversee within HealthTrust’s Clinical Services. Those include care redesign and medical device management. Key strategies are implemented to drive standardization and redesign care delivery models to reduce unnecessary care variation.
inSight Advisory Services offers consulting on these and other areas. To learn how HealthTrust can help you reduce waste and improve outcomes, contact me to start the conversation.
John Young, M.D., MBA, CPE, FACHE
Chief Medical Officer, HealthTrust
Executive Publisher & Editor-at-large,
The Source magazine
