Waste and needless spending in America’s healthcare system could amount to almost $1 trillion each year, topping total US military expenditures in 2019 – the world’s largest defense budget – according to new research.
Encompassing administrative overhead, fraud and abuse, inflated pricing and other inefficiencies, a study published this week in the Journal of the American Medical Association found the cumulative waste in US healthcare ranged from $760 billion to $935 annually, or 25 percent of what Americans spend each year on health services. And they spend a lot – approximately 18 percent of the gross domestic product (GDP), or more than $10 000 per individual a year on average. Medical bills also contribute to up to 50 percent of bankruptcies in the country.
The study looked at six “domains” of waste, finding the most significant problems in the realm of administrative tasks – such as billing, recordkeeping and other clerical activities – which account for some $266 billion of the total waste.
Dr. Donald Berwick, CEO of the Institute for Healthcare Improvement, said much of the waste is linked to number of “payers” in the system, resulting in extra complication and reams of paperwork.
“Right now you’re billed for the hospital room, by the ambulance company, by every doctor, rehab facility – everyone is keeping their own records and doing their own billing and dividing it up into tiny pieces, which makes it hard for the patient and hard for the caregivers,” Berwick told CBS News.
Coming in second place behind administrative costs is the pricing system itself, where fees have vastly outpaced the consumer price index (CPI) – a statistical tool used to determine the general rate of price inflation – making up between $231 and $241 billion of the yearly waste.
“The prices of health care don’t reflect what would happen in a competitive market,” Berwick said.
Among the factors keeping healthcare prices inflated are an onerous licensing system, regulations, as well as lobbying from special interests in the medical field, which together help to restrict “the supply of physicians, hospitals, insurance and pharmaceuticals,”writes market analyst Mike Holly.
The other four domains – failures in care delivery and care coordination, overtreatment and fraud and abuse – accounted for another $400 billion of waste or excess spending.
“It’s a serious problem,” Berwick said of fraud and abuse, including the outright “overbilling” of customers. “I don’t know any other industry in which it’s this onerous, and where it’s taking money right out of the wallets of patients and families who are bearing greater and greater burdens of payment.”
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