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Published: September 1, 2015

The 80/20 Rule of Healthcare Spending

There’s an 80/20 rule when it comes to healthcare – 80% of healthcare cost comes from 20% of the populace, the chronically ill. According to the Deloitte Center for Health Solutions, healthcare spend in the United States is expected to eclipse $4 trillion this year. Take an estimated population of 319 million into consideration; that means $3.2 trillion is accounted for by 63.8 million people, or $50,157 per person. Some questions come to mind when looking at this ratio:

  • Why does it seem as if the 80/20 rule doesn’t move?
  • What can we do to lower the 80/20 rule?
  • Will our attempts to lower the 80/20 rule prove beneficial?

To find answers, we must look at what we know. It’s entirely possible one major reason the 80/20 ratio won’t move is because while we’re improving efficacy of care and outcomes for many chronically ill patients, we’re replacing them with new chronically ill patients. On the other hand, this year’s repeal of Medicare’s Sustainable Growth Rate (SGR) formula is a meaningful step forward towards value-based care. Designed to incentivize positive patient outcomes over care volume, this is a powerful weapon in fast tracking more efficient and effective treatments, lowering costs and affecting the 80/20 problem.

In regard to shifting the 80/20 ratio, there are breakthroughs in disease treatment and prevention medications that usher in hope for diseases once thought to be incurable. When it comes to new, high cost medication therapies, cooperation among all healthcare stakeholders can attack the problem from all sides: lowering gross therapy costs, driving adherence and obtaining payment authorization.

The question no one seems to be able to answer definitively is whether our efforts to lower the 80/20 rule will prove beneficial, or if the ratio will remain constant due to new cases of the chronically ill. Clearly, it takes much more than improvements in therapy to move the needle on healthcare’s 80/20 issue. Most likely, doing so will require a combination of several factors working in tandem to both reduce the number of chronically ill patients and the costs associated with treating them. Along with patient adherence, payer, provider and manufacturer cooperation will be key.

Check out our latest article on the 80/20 rule in healthcare spending in MedCity News.

We’d love to hear your thoughts on how to change the 80/20 ratio in healthcare spend. Reach out and send an email to Marc O’Connor at to continue the conversation.


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