Is 25% of Healthcare Spending Wasted?

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According to an article in the Journal of the American Medical Association (JAMA), the U.S. wastes between $760 billion and $935 billion on “healthcare”—up to 25 percent of $3.8 trillion. It estimates that interventions could save as much as $282 billion.

The biggest source of waste is “administrative complexity,” accounting for $265.6 billion, but the study’s authors were not able to find any research that focused on measures targeting this.

Other sources of waste are said to include:

  • failure of care delivery, $102.4 billion to $165.7 billion;
  • failure of care coordination, $27.2 billion to $78.2 billion;
  • overtreatment or low-value care, $75.7 billion to $101.2 billion;
  • pricing failure, $230.7 billion to $240.5 billion;
  • and fraud and abuse, $58.5 billion to $83.9 billion.

The recommended solutions amount to more managed-care methods—not surprisingly, because lead author William H. Shrank, M.D., now Chief Medical Officer at Humana, has a long career as a managed-care executive and advocate. Yet most “insurance” in the U.S. today is already managed care, including the Medicare Advantage plans that enroll approximately one-third of Medicare beneficiaries.

Shrank touts “value-based models, in particular those in which clinicians take on financial risk for the total cost of care of the populations they serve.” In other words, doctors would be penalized for ordering what bureaucrats consider to be wasteful.

Shrank ignores the tremendous waste and moral hazard involved in third-party payment of most medical bills, even small, routine, budgetable expenses. Direct payment at the time of service reduces the price tremendously and eliminates administrative overhead. Direct primary care, in which a small monthly retainer is paid to a physician’s practice instead of a huge premium to a managed-care megacorporation, also puts patients back in control.

As much as 40 percent of U.S. “healthcare” spending went to NO care—not even overpriced, arguably unnecessary care, estimates Deane Waldman, M.D., author of Curing the Cancer in U.S. Healthcare.

For further information, see ”Draining the ‘Healthcare’ Swamp,” AAPS News, March 2017; “OPEC and ‘Healthcare’,” AAPS News, December 2016; and “Unaccountable Care Organizations.”