How can we reduce unnecessary healthcare costs in the US?

It’s no secret that the United States spends an exorbitant amount on health care, by far the highest in the world. In 2021, health care spending in the United States totaled $4.3 trillion and averaged nearly $13,000 per person.

It is also known that despite the huge health care spending in the US, we don’t get what we pay for in terms of results. Many experts emphasize the need to reduce unnecessary and wasteful health care costs to help support the country’s budget, economy and general well-being.

Dr. William Shrank of Humana (a health insurance company) and colleagues estimated that about 25% of health care spending is waste. Of that proportion, approximately $516 billion could be recovered or saved in three main areas: administrative, clinical and operational. Recent reports by Dr. Shrank and Harvard professor David Cutler with McKinsey outline solutions in each of these three areas that policymakers need to consider when seeking health care savings.

Solutions to reduce healthcare administrative expenditure

The biggest source of spending inefficiencies in US health care comes from administrative costs, estimated by Shrank to total $351 billion annually. Cutler and McKinsey & Company’s proposed changes could reduce administrative inefficiencies by $265 billion annually (after accounting for $50 billion in overlapping savings across interventions, which is why the following estimates are not fully additive). .

  • Individual organizations ($175 billion in savings): Small-scale interventions can be implemented by single organizations. Options include streamlining the processes for submitting applications, automating repetitive work in HR and finance, leveraging new technologies such as analytics and cloud computing, and improving administrative support functions.
  • Among the organizations ($35 billion in savings): Some solutions would require collaboration between organizations, such as using compatible policies for prior authorization (a process in which a patient insurance company reviews the need for medical care or drugs before approving them). Other payer-provider platforms strategic to reducing friction and administrative duplicity would also reduce costs (for example, making it easier to find doctors online or cheaper prescription drugs).
  • Systemic Change ($105 billion in savings): Hospitals and clinics could adopt a standard automatic clearinghouse to process medical claims that would simultaneously detect fraudulent claims. Other options include standardization of medical policies, medical licensing, and reporting quality.

Changes at multiple organizational levels could reduce administrative inefficiencies by $265 billion annually