How Much Medical Dollars are Wasted in the US Healthcare System?

The American healthcare system is a robust healthcare delivery platform that aims to bring innovations in medical products and services and provide high-caliber treatment to American citizens. Health is a basic need for everyone. It enhances other aspects of our lives, enabling us to be more productive and physically competent to perform everyday tasks with relative ease and enjoyment. There are two ways an individual can improve their health; by making lifestyle changes and adopting healthy practices and by availing healthcare services. Owing to the unhealthy lifestyle most of us live today, the demand for healthcare services always stays high. To cater to this ongoing high demand, the healthcare system spends hefty amounts every year, ensuring high-quality healthcare services are rendered to US citizens. However, inefficiency in care delivery processes results in staggering amounts of wasteful spending which can be saved by optimizing the areas where undue expenditure happens. In this article, we will discuss the six domains of wasteful spending identified by the Institute of Medicine (IOM) and their impact on the healthcare system. 

Importance of healthcare in the United States 

The importance of quality healthcare can’t be stressed enough, especially in these pandemic-stricken times. The demand for healthcare is pretty different from other consumer products and services as it directly affects the physical well-being of an individual. Healthcare improves the quality of life, which, in turn, enhances the ability to enjoy goods and leisure and be productive in work environments. Its ability to inspire productivity in individuals makes healthcare an important component of human capital investment. According to the Current Population Survey (CPS), 2.3 percent of workers are absent during a typical week owing to injuries and illnesses. Advanced healthcare services are essential to prevent absenteeism and presenteeism, which significantly negatively impact the productivity and profitability of an organization. 

6 waste domains

Healthcare spending in the US accounts for 18% of the total gross domestic product, more than any other country. In 2019, the total annual healthcare spending was projected to be $3.83 trillion. The national healthcare expenditure is estimated to reach $6.2 trillion by 2028. The annual healthcare expenditure of the US is rising 1.1% faster than the annual GDP. As baffling as these figures may seem, what’s actually baffling is the amount of wasteful spending in the US healthcare system. Almost 30% of the total healthcare spending accounts for wasteful expenses in the US healthcare system. In 2010, the Institute of Medicine (IOM) identified six avenues of wasteful spending and categorized unnecessary expenditure under these domains. Interventions in these areas can enable the healthcare system to save millions of dollars of wasteful expenditure and improve the quality of healthcare services delivered. The six domains of wasteful spending are as follows-

• Administrative complexity
• Pricing failure
• Failure of care delivery
• Overtreatment or low-value care
• Fraud and abuse
• Failure of care coordination

Administrative complexity claims the highest amount in total annual wasteful spending in healthcare with a total waste of $265.6 billion. Administrative tasks in healthcare constitute all activities that help keep a hospital, clinic or any other medical facility operational. Healthcare administration can include staff management, regulatory compliance, quality control, patient data management and budgeting. The estimates of the total administrative spending suggest that it constitutes around 30% of annual healthcare spending. Inefficiency in administrative activities is a glaring issue in the healthcare system and a prominent reason for excessive healthcare expenditure waste, which can be saved and utilized in essential medical avenues like cancer care. 

The most prominent component of administrative complexity costs is billing and insurance-related expenses. The costs that go into processing claims, billing and health insurance form a significant part of overall administrative complexity expenses. According to NAM, excess BIR expenses amount to $245 billion. That’s almost half of the total annual BIR expenditure. Furthermore, on the patients’ side of things, most of them report being confused about what’s mentioned on their medical bills. Health insurance buyers aren’t aware of even the basic terms like ‘deductibles’  and ‘premium.’ According to Accenture, health insurers spend $4.8 billion every year to assist consumers with little knowledge about health insurance. 

Pricing failure is second in the list of categories of wasteful spending. With the rising prices of pharmaceuticals, wasteful spending is rapidly rising as consumers are paying undue amounts to avail of drugs necessary for treatment. Pricing regulation should happen sooner rather than later to curb wasteful spending in this avenue.

Failure of care delivery and low-quality care are also major contributors to annual wasteful spending in the healthcare system. With low accessibility and quality of care, complications can arise leading to expensive hospitalization and treatments. Illnesses that can be nipped in the bud and prevented from deteriorating if diagnosed early can cost thousands of dollars due to healthcare inaccessibility. Furthermore, low-quality care and overtreatment can result in severe aggravations and take treatment costs for a relatively benign illness off the roof. 

Lack of care coordination and fraud are other avenues that cause wasteful spending. Overcharging for treatment can be considered a medical fraud and claims a hefty amount of medical dollars. 

Key findings

Identifying and tackling the waste domains where precious dollars are going to the bin will be essential in curbing the ever-increasing healthcare spending. Completely eliminating waste is not a possibility but planning interventions according to these six wasteful spending categories will be key to making healthcare in the US more accessible, advanced and affordable. Remote patient monitoring is one way to improve care coordination, increase transparency and counter pricing failures. RPM makes high-quality medical care more accessible than ever, preventing wasteful spending on expensive treatments and hospitalization. 

Conclusion

Health Wealth Safe is a full-service healthcare solutions provider offering technological applications that can help providers in simplifying administrative complexity and preventing wasteful spending. We also offer cutting-edge RPM solutions to enable healthcare providers to better manage their healthcare delivery processes and bring efficiency in various administrative and clinical operations. If you want to know more about Health Wealth Safe and our products and services, reach out to us now.