Column: There’s enormous waste in U.S. healthcare, so why isn’t anyone doing anything about it?

Activists protested profiteering by drug companies during a demonstration in 2015.
(Craig Ruttle / Associated Press)

As Mark Twain reputedly said about the weather, everybody talks about waste in the U.S. healthcare system, but nobody does anything about it.

A new study puts numbers on the scale of that waste and nails down its sources. But it leaves open the question of what to do about it. That’s especially true of the largest single source identified by the authors: “administrative complexity,” which accounts for as much as $265.6 billion in waste a year, or as much as one-third of the total. Yet that’s the one category for which the authors could find not a single article offering solutions for cuts.

The study was published Monday in the Journal of the American Medical Assn. by William H. Shrank and Teresa L. Rogstad of Humana, a big health insurance carrier, and Natasha Parekh of the University of Pittsburgh.


Removing waste from U.S. health care will require both awakening a sleepy status quo and shifting power to wrest it from the grip of greed.

— Healthcare expert Donald M. Berwick

They divided waste in the system into six categories. In addition to administrative complexity, these are:

--Failure of care delivery, which includes hospital-acquired illnesses and other “adverse events” and lack of preventive care (as much as $165.7 billion a year in wasteful spending);

--failure of care coordination, which includes unnecessary hospital admissions and avoidable complications (up to $78.2 billion);

--overtreatment or low-value care, such as using branded drugs instead of generics and prescribing unneeded screening or tests (up to $101.2 billion);

--pricing failure, such as excessive payments for drugs and excessive insurance reimbursements for services (up to $240.5 billion); and


--fraud and abuse (up to $83.9 billion).

Taken together, the sheer magnitude of these numbers, which range from $760 billion to as much as $935 billion a year or about 25% of all U.S. healthcare spending, is stunning yet not entirely surprising.

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Previous studies have estimated waste at 30% to 35% of all spending, but Shrank and his team deliberately tried to be conservative.

Around the midpoint of the authors’ estimate, observes Donald M. Berwick, a former administrator of the Centers for Medicare and Medicaid Services, in an accompanying editorial, the wastage would account for “more than the entire 2019 federal defense budget, and as much as all of Medicare and Medicaid combined.”

Even if only a fifth of the waste could be eradicated, Berwick adds, that would yield more than $150 billion a year, or “almost three times the budget of the U.S. Department of Education.”

As Shrank and his colleagues observe, remedies for some wasteful practices are well understood, and some are even being implemented.

Under pressure from Medicare and other government agencies, for instance, hospitals are taking stronger steps to reduce infections and doctors are offering prevention programs for diabetes and other chronic conditions. “Accountable care organizations” that are paid lump sums to oversee their patients’ health, instead of charging by the service, are gaining ground (if slowly). Providers are trying to reduce overuse of expensive diagnostic equipment and prescribe generics wherever possible. In Washington, lawmakers are at least talking about ways for government to force drug prices lower.


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Yet the system remains stubbornly resistant to adopting these remedies more broadly. “In an era of healthcare when no dimension of performance is more onerous than high cost,” Berwick asks, “as much as $800 billion in waste (give or take a few hundred billion) sits untapped as a reservoir for relief. Why?”

Among the answers offered by Karen E. Joynt Maddox of Washington University in St. Louis and Mark McClellan of Duke in another accompanying editorial is, in part, administrative complexity. Some of the solutions for the other five sources of waste are themselves complex.

Then there are the built-in incentives in our profit-driven medical system to spend more in pursuit of greater profits. Many of the new payment models aimed at weaning American medicine away from the fee-for-service model, which encourages overuse, “are still dominated by financial incentives favoring admissions and more utilization,” Maddox and McClellan write.

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As Berwick observes, some of the options that Shrank and his colleagues pinpoint “would reduce profit for the health care organizations that use them.” The truth, he writes, is that “what Shrank and colleagues... call ‘waste,’ others call ‘income.’”

Those income earners include “very powerful corporations and guilds in a nation that tolerates strong influences on elections by big donors.... When big money in the status quo makes the rules, removing waste translates into losing elections.”

The result is a bipartisan compact to avoid trying to squeeze a significant amount out of healthcare waste, “even though the nation’s schools, small businesses... and communities as a whole could make much, much better use of that money.”


Berwick comes to a conclusion that, sadly, isn’t novel. Making the American healthcare system more efficient isn’t a technical problem, but a political one. “Removing waste from U.S. health care will require both awakening a sleepy status quo and shifting power to wrest it from the grip of greed.”