Waste in health care

How expensive is American health care?

American health care is the most expensive in the world:

For more detail, see Facts and Data: How high costs hurt us

When did American health care become so expensive?

Since the 1970s, the percent of GDP the U.S. spends on health care has steadily risen:

  • 2010, 17.1%, far higher than any developed country
From 2010 on, U.S. healthcare costs continued to increase, and at a faster rate than any other developed country.

What are the sources of waste in American health care?

Donald M. Berwick, MD, MPP and Andrew D. Hackbarth, MPhil define the process of reducing waste in health care as following waste reduction in other sectors, that is “keep[ing] processes, products, and services that actually help customers and systematically remove the elements of work that do not.” Based on current research, they cite the five largest areas of waste in U.S. health care dollars per year as:

  1. Mismanagement of best care practices and poor care coordination: $127 to $199 billion
  2. Overtreatment, specifically overuse of non-evidence based or patient-preferred care: $158 billion to $226 billion
  3. Administrative complexity: $107 billion to $389 billion
  4. Unreasonably high prices, where the prices are far above the cost plus a fair profit: $84 billion to $178 billion
  5. Fraud and abuse: $82 billion to $272 billion

For more information on how private money influences health care, see Facts and Data: The expensive politics of health care. For information on high prices, see Facts and Data: High drug prices and Facts and Data: Prices in health care.

How much is waste a cause of the excessive cost of American health care?

Waste in U.S. health care added up to a median of $910 billion in 2010, and it continues to grow. At 6% of GDP, this is more than total spending on the military, and about as much as Social Security and Medicare taxes combined.

What can be done to lower waste in American health care?

There have been a number of suggestions to reduce waste:

  • Reform payments to reduce failures of care delivery and overtreatment.
  • Increase price transparency and visibility, and strong price negotiation.
  • Limit price gouging by private companies.
  • Reduce administrative complexity, particularly that was created by unpredictable variability in cost, coverage, and price by private insurers.
  • Improve care coordination through the creation of a universally accessible electronic health record
A simpler and more radical (and effective) solution would be single-price, that is applying the prices used by Medicare, Medicaid, and other federal health programs to private insurance plans. A single-price would help all Americans receive care at more fair and more reasonable prices, regardless of their coverage. Updated 6/1/2018