A recent study published in the Journal of the American Medical Association (JAMA) reports that about 25% of spending in the U.S. healthcare system is wasteful. The study points to six main areas outlined below with the midpoint of the estimated range of annual savings created by waste-reduction measures:
- Failure of care delivery – $68.8 billion
- Failure of care coordination – $33.9 billion
- Overtreatment or low-value care – $20.7 billion
- Pricing failure – $86.3 billion
- Fraud and abuse – $26.8 billion
- Administrative complexity – $265.6 billion (cost of waste as no savings data is available)
The problems are clear, but I don’t think government alone can effectively mitigate this overspending. Federal and state governments have been focused on drug pricing and it’s no wonder; this is the second-most impactful area of waste. Another government effort is in reducing waste and abuse in Medicare and Medicaid.
The insurance industry, however, has led the charge on value-based and risk-based contracting to reduce costs and provide incentives to be more efficient in care delivery. And in the fast-moving pharmaceutical industry, I doubt the government can be agile enough to combat the quick-thinking pharma pricing sharks.
Since healthcare is approaching 20% of Gross Domestic Product (GDP), eliminating this waste represents a savings opportunity of almost 5% of our nation’s GDP. We need all hands at the ready to stand a chance.