Harvard Business Review

How the U.S. Can Reduce Waste in Health Care Spending by $1 Trillion

By Nikhil Sahni, Anuraag Chigurupati, Bob Kocher, MD, and David M. Cutler

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"There are two primary ways to reduce costs and improve quality much more: a comprehensive demand-side strategy…and an aggressive supply-side strategy."

During the presidential campaign, Americans will be bombarded with proposals to improve the U.S. health care system in ways big and small that would either build on or radically revamp the Affordable Care Act (ACA). All will claim to reduce costs and improve quality. In order to accomplish this, proposals will largely focus on what is termed “wasteful spending” in health care, spending not associated with improved quality that, by some estimates, accounts for over one-fourth of total health care spending.

But, as Michael Porter and Robert Kaplan of Harvard Business School have argued, we need to examine costs at a more granular level at which clinical outcomes are matched with the business and administrative processes. While this has been challenging, experts have recently better measured the effectiveness of many interventions, ranging from demandside options such as consumer-directed health plans to supply-side options such as alternative methods to pay care providers. These interventions are beneficial because they eliminate mostly waste in the system, avoiding the hard trade-offs among cost, quality, and access to care.