Skip to main content

“Waste” in the US Health System

By October 14, 2019Commentary

Didn’t I just get done railing on and on about the plethora of bad research in regard to administrative expenses and waste in the American health system?  And here comes the Journal of the American Medical Association with a massive article and editorials on the subject.  And this is even worse quality work.   (JAMA Article)   Here’s a tipoff; the authors conclude that 25% of total annual health spending, or $760 to $935 billion is “wasted”.  That is absurd.  But then they say that interventions to reduce waste could save only $191 to $282 billion.  How is it waste if you can’t even identify an intervention which would prevent it from being spent.  Here is how the authors came up with their ludicrous numbers–let’s go look at all the studies that estimate “waste”, however poorly conducted, and compile an estimate from all that bad research; because if you combine a bunch of bad research, it makes it less bad.  They identified 71 estimates from studies published from 2012 to May 2019.  These estimates were grouped into six domains of waste–failure of care delivery, failure of care coordination, over-treatment or low-value care, pricing failure, fraud and administrative complexity.  Administrative complexity is the biggest culprit, at $266 billion; followed by pricing failure at $231 to $241 billion.  Failure of care delivery had a large range of supposed cost–$102  to $166 billion.  I am not going to bother pointing out the vagueness of these categories when you read the details behind them or the completely speculative nature of the supposed wasting spending in each category.  I would suggest that it might be appropriate to add back in to the analysis the cost of undertreatment.  It is misleading to only deduct supposed wasting spending from our health bill while not adding what we would spend in a well-functioning system that we aren’t currently spending.

Here’s what’s really a waste–making all of us spend our time having to read this misleading and useless garbage.  Here is the right way to think about this.  Health spending is a combination of utilization and the prices for that utilization.  In terms of actual spending on medical care, can we define the optimal care for each patient–what is the care that leads to the best health and health outcomes for the patient, while avoiding unnecessary care.  I am convinced that there is as much needed care that isn’t provided as care delivered that isn’t needed; I just don’t believe there would be a lot of net utilization reductions.  And there is a ton of grayness and judgment in that effort to determine optimal care for a patient.  International comparisons definitely suggest we don’t have much of an over-utilization issue.  Price is a different matter, but that has nothing to do with waste.  Would it help if we paid less for our health care?  Absolutely, but we pay more because our doctors want to make more money, we want fancy health care facilities, we allow excessive market power and health system managers want to get paid a lot.  At the end of the day, these are political issues and choices.  And reducing prices could very well have an impact on access and quality and therefore on the health of our citizens.  There is plenty of research to support that notion.  And yes we spend too much on the administrative component embedded in the cost of medical services and the cost of insurance.  But a lot of this spending is driven by regulations and by the desire of people working in these areas to also have good incomes.  Again, I don’t know how you call most of that waste. The actual cost of administrative inefficiencies is likely well under 1% of spending.  Be nice to see some serious non-ideological research and analysis on this topic for a change.

Leave a comment