Waste in healthcare refers to any spending that does not improve patient health. In the United States alone, estimates suggest that roughly 25% of total healthcare spending is wasted, spanning everything from unnecessary medical tests to bloated billing systems to outright fraud. A landmark analysis published in JAMA identified six distinct categories of this waste: administrative complexity, overtreatment, failure of care delivery, failure of care coordination, pricing failure, and fraud and abuse. Understanding each category helps explain why healthcare costs so much and where the money actually goes.
Administrative Complexity
The single largest source of waste in U.S. healthcare is the administrative machinery that keeps the system running. Billing, coding, prior authorizations, credentialing, quality reporting: these processes employ enormous numbers of people and consume enormous amounts of time without directly treating anyone. Estimates vary, but research published in Health Affairs found that at least half of all administrative spending is wasteful. That means for every dollar a hospital or insurer spends on paperwork and bureaucracy, roughly 50 cents produces no value for patients.
This complexity exists partly because the U.S. has hundreds of different insurance plans, each with its own rules for what’s covered, what needs preapproval, and how claims should be submitted. A single doctor’s office may need dedicated staff just to navigate different insurers’ requirements. Every denied claim that gets resubmitted, every hour a physician spends on documentation instead of patient care, and every duplicated form adds cost without adding health.
Overtreatment and Low-Value Care
Overtreatment happens when patients receive care that sound evidence says won’t help them, or that conflicts with their own preferences. Common examples include prescribing antibiotics for viral infections, ordering imaging before low-risk surgeries when guidelines say it’s unnecessary, performing procedures when watchful waiting would produce the same outcome, and providing aggressive intensive care at the end of life for patients who would prefer hospice.
A national Task Force on Low-Value Care identified a “top five” list of clinical services that offer little to no benefit while exposing patients to unnecessary harm. These five services alone account for over $25 billion in wasteful spending each year. Reducing them doesn’t mean rationing care. It means aligning treatment with what the science actually supports and what patients actually want. In California, for instance, two medical centers successfully cut back on unnecessary diagnostic testing and imaging for low-risk patients before low-risk surgeries, eliminating costs and sparing patients from procedures that carried risk but no meaningful benefit.
Failure of Care Delivery
This category covers waste that results from not consistently doing what we already know works. Evidence-based safety protocols, preventive care practices, and standardized treatment processes exist for many conditions, but hospitals and clinics don’t always adopt them. The result is avoidable complications, medical errors, and worse outcomes that then require additional, costly treatment to fix.
Variability is a key driver here. Two hospitals in the same city might treat the same condition in dramatically different ways, not because the patients differ but because their internal processes do. When a hospital uses high-cost specialists for tasks that trained generalists can handle equally well, or when a clinic orders redundant tests because previous results weren’t accessible in the system, money is spent without improving anyone’s health.
Failure of Care Coordination
When patients, especially those with chronic conditions, see multiple doctors across multiple facilities, information can easily get lost. A specialist may not know what the primary care doctor prescribed. A patient discharged from the hospital may not receive adequate follow-up instructions. These gaps lead to complications, unnecessary emergency department visits, and hospital readmissions that could have been prevented.
The numbers illustrate the problem clearly. Among heart failure patients, 30-day hospital readmission rates hover around 25% in developed countries. Medicare treats these high readmission rates as a signal of deficient care transitions. But when providers who share patients actually communicate and coordinate, outcomes improve substantially. Research in the American Journal of Managed Care found that heart failure patients receiving highly coordinated care had 10% lower odds of readmission, 17% lower odds of dying within 30 days, and 16% lower costs compared to patients whose providers were poorly connected. Coordination doesn’t require new drugs or technology. It requires information flowing between the people responsible for a patient’s care.
Pricing Failure
Healthcare prices in the U.S. often bear little relationship to the actual cost of delivering a service. The same MRI scan can cost wildly different amounts depending on which facility performs it, even within the same city. Before transparency reforms took effect in New Hampshire, the state’s most expensive hospital charged nearly 50% more than its competitors for comparable services. These gaps aren’t explained by differences in quality.
Pricing failure thrives where competition and transparency are absent. Patients rarely know what a procedure will cost before agreeing to it. Insurers negotiate rates behind closed doors. Drug manufacturers set prices without meaningful market pressure. The result is that prices “migrate far from those expected in well-functioning markets,” as the JAMA framework puts it. This affects medications, diagnostic tests, procedures, medical devices, and durable equipment like wheelchairs and oxygen concentrators.
Fraud and Abuse
Healthcare fraud drains an estimated $100 billion from the system every year through fake billing, phantom services, upcoding (billing for a more expensive service than what was provided), and kickback schemes. Some of this is deliberate criminal activity. Some is the downstream cost of trying to prevent it: the inspections, audits, and compliance programs that every provider must maintain because of the bad behavior of a relative few.
The scale of fraud is difficult to pin down precisely because successful fraud, by definition, goes undetected. But the combination of complex billing systems, high transaction volumes, and limited oversight creates an environment where fraudulent claims can slip through for years before being caught.
How Waste Affects Patients Directly
Healthcare waste isn’t an abstract accounting problem. It translates directly into higher premiums, larger deductibles, and steeper copayments for the people who use the system. When a hospital’s administrative overhead is inflated, or when drug prices exceed what a competitive market would produce, those costs get passed along to insurers and then to patients.
The financial burden can be severe enough to qualify as what researchers call “financial toxicity,” particularly for people with serious illnesses. Cancer patients, for example, now receive more expensive treatments than they did a decade ago, and their copayments have risen accordingly. Even patients with insurance can face crushing out-of-pocket costs through the combination of copays, deductibles, and coinsurance. Patients without insurance face even higher exposure. The National Cancer Institute notes that financial toxicity affects treatment decisions: people skip doses, delay care, or choose less effective options because they can’t afford the recommended ones.
Proposed solutions include price transparency (requiring hospitals to post their prices), value-based pricing that steers patients toward high-value treatments with lower out-of-pocket costs, and financial navigators who help patients understand their options. Each of these targets a different category of waste, from pricing failure to overtreatment, by putting better information in the hands of the people paying the bills.
Reducing Waste Without Reducing Care
The critical distinction in healthcare waste reduction is that eliminating waste does not mean cutting services patients need. It means stopping services that don’t help, streamlining processes that add cost without adding value, and making prices reflect reality. The Choosing Wisely campaign, launched by medical specialty societies, encourages doctors and patients to have conversations about which tests and treatments are truly necessary, building awareness that more care is not always better care.
Workforce engagement plays a surprisingly large role. At St. Bartholomew’s and the Royal London Hospital in the UK, a program called “Operation TLC” reduced energy consumption by linking resource savings to patient comfort and safety, encouraging staff to turn off unused equipment, switch off lights, and close doors. The lesson was that frontline workers, the people closest to where waste happens, are often the best positioned to identify and reduce it. Simple steps like better waste segregation, color-coded disposal stations, and staff training on sorting recyclables from hazardous materials can cut both costs and environmental impact.
At the system level, the shift toward value-based care models, where providers are paid for outcomes rather than volume of services, directly targets several categories of waste. When a hospital’s revenue depends on keeping patients healthy rather than performing more procedures, the incentive to overtreat disappears. When coordinated care is rewarded, providers invest in communication systems that prevent the fragmentation driving avoidable readmissions. None of these changes require inventing new treatments. They require spending existing resources on things that actually work.