Thursday, October 17, 2019

Wasteful Spending in Healthcare Estimated at $760B to $935B

Waste accounts for about 25% of U.S. healthcare spending, new research in JAMA indicates. Reducing spending in the second-highest wasteful category [pricing failure] poses daunting challenges because of the rising prices of pharmaceuticals, the researchers wrote. "New high-cost specialty drugs, which will soon exceed 50% of pharmaceutical spending, are raising new questions about how to maintain affordability."

This topic has thus received considerable attention from policy makers, and numerous proposals are currently under consideration. The researchers say strategies to ease cost pressure in pharmaceuticals include increasing market competition, importing drugs from countries with lower medication prices, and reforming price transparency.

Tyrone's Commentary:

Ohio's Medicaid Director, Maureen Corcoran, said, "Have we saved the state money? That wasn’t the point. The point was transparency and so that we could continue to work on necessary changes in an educated way.” This was in response to a question from a reporter about Ohio's new prescription drug pricing system. Radical transparency is tough to come by when purchasers don't fully understand key pricing benchmarks and how they play in PBM service agreements. At the end of the day, success in eliminating overpayments to non-fiduciary PBMs is relative to the purchaser's level of sophistication.
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The JAMA researchers generated several key data points:

  • Annual wasteful spending on healthcare is estimated from $760 billion to $935 billion.
  • Interventions to reduce waste in the six IOM categories would result in annual savings from $191 billion to $282 billion.
  • The annual cost of wasteful spending from administrative complexity accounts for the highest category of waste, estimated at $265.6 billion.
  • The annual cost of waste from pricing failure is estimated from $230.7 billion to $240.5 billion.
  • The annual cost of waste from failure of care delivery is estimated from $102.4 billion to $165.7 billion.
  • The annual cost of waste from overtreatment or low-value care is estimated from $75.7 billion to $101.2 billion.
  • The annual cost of waste from fraud and abuse is estimated from $58.5 billion to $83.9 billion.
  • The annual cost of waste from failure of care coordination is estimated from $27.2 billion to $78.2 billion.

The impact of likely interventions to reduce wasteful spending are significant but limited, the researchers wrote.

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