What can physicians do to reduce healthcare costs?

Estimated reading time: 14 minutes

“Cost of care is probably the number one reason I am not able to treat a patient the way I see most fit.” That’s how one Sermo member and cardiologist described the cost problem the way most physicians run into it, with a sound treatment plan falling apart because their patient can’t afford it.

U.S. healthcare spending hit $5.3 trillion in 2024, or 18.0% of gross domestic product (GDP), and the Centers for Medicare & Medicaid Services (CMS) expects it to reach 20.6% of GDP by 2034. An estimated 25% of that spending is waste, meaning money that goes out the door without making anyone healthier.

Most of what gets written about how to reduce healthcare costs is aimed at employers, insurers, and policymakers, and physicians rarely get addressed directly. You don’t set drug prices or negotiate insurance contracts, but every test and prescription you order is a decision about cost as well as care, and you make thousands of them each year.

Most physicians on Sermo say cost already factors into those decisions. In a community poll of more than 1,400 physicians in late 2024, 63% said they consider the cost of care all or most of the time when making treatment decisions, and another 27% do so occasionally. Asked what resources they use to bring costs down for patients, the top answer was patient assistance programs (34%), followed by discount cards (15%) and co-pay cards (13%), while 21% said none. 

So how can healthcare costs be reduced? Partly through what physicians change in daily practice, and partly through systemic reforms physicians can’t make alone but are well placed to advocate for. This article covers both from the physician’s side of the desk.

Physicians on Sermo compare notes every day on how cost shapes the care they can deliver. Join the community to add your experience to the conversation.

Understanding the trillion dollar healthcare waste problem

Waste in healthcare isn’t just one thing, and only some of it is within a physician’s reach.

Six categories driving unnecessary healthcare spending

The most cited breakdown when it comes to identifying sources of waste comes from a 2019 study in the Journal of the American Medical Association (JAMA) by Shrank and colleagues, which sorted U.S. healthcare waste into six categories and put the total at $760 billion to $935 billion a year, roughly 25% of what the country was spending at the time. Adjusted for how much spending has grown since, that’s around $1.2 – $1.5 trillion a year.

Waste category	Annual cost (2019 JAMA)	2026 extrapolation	Key driver
Administrative complexity	$265.6 billion	~$420 billion	Billing, coding, reporting, and juggling multiple payers
Pricing failures	$230.7 to $240.5 billion	~$365 to $380 billion	Price increases beyond what a functioning market would support
Failures of care delivery	$102.4 to $165.7 billion	~$162 to $262 billion	Preventable complications and safety failures
Overtreatment and low-value care	$75.7 to $101.2 billion	~$120 to $160 billion	Unnecessary tests, procedures, and defensive medicine
Fraud and abuse	$58.5 to $83.9 billion	~$92 to $133 billion	Fraudulent billing and upcoding
Failures of care coordination	$27.2 to $78.2 billion	~$43 to $124 billion	Duplicate testing and poor transitions of care

2026 figures shown above are extrapolations for illustrative purposes only, not published estimates. Each 2019 figure from Shrank et al. (JAMA, 2019) was multiplied by the growth in total US health spending since 2019, about 1.58x. This assumes waste stays a constant share of spending, and that each spending category has grown at the same rate as the total national healthcare expenditure. 

Administrative complexity leads by a wide margin, and it’s almost entirely outside any individual physician’s control. The three categories physicians can influence most directly, care delivery, overtreatment, and care coordination, still add up to billions per year.

Waste in the system eventually shows up in the exam room as a skipped prescription, a declined referral, or a patient who waits until a manageable problem becomes an emergency. In the same Sermo poll, 43% of physicians said their patients are very concerned about the cost of care and another 33% said somewhat, suggesting that three in four physicians regularly field money worries in the middle of a clinical conversation.

How can physicians reduce healthcare costs in daily practice?

Physicians can reduce healthcare costs by ordering fewer low-value tests, bringing cost into shared decision-making, tightening hand-offs between providers, investing in prevention, and taking part in value-based contracts. 

A Sermo member and internal medicine physician described the balancing act most physicians already do. “I try to be as efficient and effective in keeping the burden of expense as low as possible,” while still ordering “what is necessary if more costly diagnostic testing like imaging is needed,” and reaching for “generics as much as possible.” Referrals get the same scrutiny. “I tend to be circumspect or judicious in deciding on the need for referring to a specialist.”

Ordering the right test for the right patient at the right time

Fear of a missed diagnosis, medicolegal worry, and patient expectations can all push toward ordering more than the evidence supports, and they account for a good share of the $75.7 billion to $101.2 billion the JAMA study attributed to overtreatment and low-value care. Evidence-based clinical decision support built into the EHR can help by prompting the right test at the moment of ordering, so the broad panel stops being the default.

A well-known resource is Choosing Wisely, launched by the American Board of Internal Medicine (ABIM) Foundation in 2012. More than 80 specialty societies have since published over 600 recommendations on tests, procedures, and treatments worth questioning, with the guidance for your field written by colleagues doing the same work. The ABIM Foundation wrapped up the campaign in 2023, but the specialty lists remain in use. The point is never to deny care, but to make sure every intervention earns its place in the plan.

An obstetrician-gynecologist on Sermo put it plainly. “I believe this country is overtested and overmedicated. This is often driven by patient demand and pharm marketing.”

Use shared decision-making to bring cost into the conversation

Shared decision-making is standard practice for clinical tradeoffs, yet cost often gets left out of the conversation, either because it feels awkward or is seen as someone else’s department. Asking whether a patient can afford a medication belongs in the same category as asking about allergies, since the answer may change what you decide to prescribe.

Patients are more open to the conversation than physicians might expect. In the Sermo poll, 30% of physicians said their patients are very comfortable talking about cost concerns, and 45% said somewhat comfortable. Only 7% said their patients won’t discuss it at all. With willingness on both sides, one direct question is usually all it takes. Patients who help pick a plan they can afford are also more likely to stick with it.

A Sermo member and internal medicine physician sees how often the price is simply out of reach. “Most of my patients are seniors, on a fixed income, but are on Medicare, which covers quite a bit for them, but some meds are really pricey, and they sometimes will refuse them. Our health system emphasizes fixing what is broken rather than preventing disease, and that is expensive and needs to change.” 

In the poll, 18% of physicians said patients often refuse a treatment option because of cost and another 46% said it happens occasionally, so nearly two in three watch plans fall apart over price at least some of the time. The harder case isn’t the patient who refuses in the room but the one who nods, leaves, and then never fills the prescription.

Strengthen care coordination

Failures of care coordination cost billions a year, and much of it stems from avoidable hand-off problems between providers. That can mean a duplicate scan ordered because the outside records never arrived, or an emergency visit a timely follow-up would have prevented. Each one puts the patient at risk and adds a bill, and the fixes are mostly workflow related rather than technology:

• Referral management: Send the relevant records with the referral, then close the loop when the consult note comes back, so you know the visit happened and neither office repeats the other’s work.
• Transitions of care: Get the discharge summary and an updated medication list to the primary care office before the first follow-up visit, and book that visit before the patient leaves the hospital.
• Medication reconciliation: Confirm what the patient is taking at every visit, not only what the chart says, since duplicates and interactions can enter through a prescription that another office added.

None of these strategies can be effective without solid practice management behind it, and the stakes rise as AI takes on more clinical work, since a mistake in an AI-generated summary can travel from one provider to the next unless the hand-off catches it.

Preventive care cost reduction

As the saying goes, prevention is best, and studies support its function in overall healthcare cost reduction. Among 5 million VHA patients, a first primary-care visit was associated with average savings of $3,976 per patient per year, and each additional in-person primary-care visit was associated with $721 in total annual cost reduction. Primary care practices built around prevention show measurably lower total cost of care across their panels, with healthier patients.

Managing a patient’s diabetes well in the office costs a fraction of treating the complications of unmanaged disease, and the same logic applies to lifestyle counseling, immunizations, and screenings that catch problems while they’re still affordable to treat. However, it is worth recognizing that screening still carries costs of its own that vary widely by intervention, population, and implementation. 

Value-based care cost savings

Value-based care (VBC) contracts pay for quality and preventive outcomes rather than visit volume, which finally puts physician incentives on the same side as cost reduction, and rewards the prevention and coordination that fee-for-service works against. Medicare and commercial payers are both speeding up the move away from fee-for-service, and physicians who understand these contracts can benefit financially while bringing down costs for the system.

Systemic changes needed to reduce healthcare costs

Individual practice decisions only go so far. As a Sermo member and psychiatrist noted, “although cost of care is a huge barrier, usually physicians don’t have much control over it and insurance companies become the patient’s only resource.” 

Some of the systemic changes needed to reduce U.S. healthcare costs include site-neutral payment, real price transparency, administrative simplification, and incentives that reward outcomes. Each one shows up directly in what your patients pay, which is what makes them worth advocating for.

Pricing disparities that inflate costs

The same echocardiogram or infusion can cost far more in a hospital outpatient department than in a physician’s office, even when the same clinician performs it. Site-neutral payment reform would pay the same rate regardless of setting, and the Congressional Budget Office estimates that fully expanding site-neutral rates could save more than $170 billion from 2025 to 2034. CMS took a first step in 2026 with site-neutral payments for drug administration, which is estimated to save around $290 million in the first year.

The current disparity also gives hospitals a financial reason to buy physician practices, since the same service earns more once it’s billed under a hospital, and that consolidation pushes prices up without improving quality. For physicians in independent practice, site-neutral reform protects the lower-cost setting you already offer, and for your patients it means lower coinsurance on the same infusion or imaging study.

Price transparency

CMS already requires hospitals and insurers to publish their prices, and the 2026 Outpatient Prospective Payment System (OPPS) rule expanded those requirements for hospitals, which now have to post the median and the 10th and 90th percentile allowed amounts for each service in a standardized format. Patients who use that information end up with lower claims costs, but the data only helps if someone points patients to it.

For physicians, transparency is a clinical tool too, since you can’t have an affordability conversation without knowing the numbers. As a Sermo member and radiologist put it, “Hospitals need to be more transparent about costs of tests, so we have the info for the patients.” A physician who can compare the hospital’s price with the imaging center’s can send the patient to the more affordable option. 

Healthcare administrative costs

Administrative complexity is the largest waste category, and it’s the one physicians feel most personally. The cost shows up twice, first as the staff and software dedicated to billing, coding, and each payer’s separate rules, then as the physician hours spent on prior authorizations and documentation that would otherwise go to patients. Prior authorization delays also push some patients to give up on treatment altogether. In a 2026 American Medical Association survey, 74% of physicians said denials have increased over the past five years.

Simpler prior authorization and standardized payer requirements fall into the rare category of reform that improves patient care and physician working life at the same time, since administrative load is a well-documented driver of burnout. Management services organizations (MSOs) can take some of this load off a practice, though they add costs of their own, so the real fix still has to come from payers and regulators.

System incentives to accelerate value-based care (VBC) cost savings

Moving from volume to value takes more than individual physicians signing VBC contracts one practice at a time. The incentives have to line up across the whole system, so that physicians get paid for outcomes rather than encounters, prevention earns more than treatment, and the providers who generate savings keep a share instead of handing all of it to the payer.

As Medical Economics put it in December 2025, “the burden to justify value is being shifted from the insurer to the provider.” If physicians are going to carry that burden, the rewards need to move with it. Who owns the practice matters too, since private equity acquisition can lower costs or raise them depending on how the practice is run afterward.

At the far end of the price scale, a Sermo member and oncologist who uses immune checkpoint therapies and Amtagvi, a tumor-infiltrating lymphocyte (TIL) therapy approved in 2024, doesn’t see a practice-level fix at all. “I’m not sure how to decrease the cost of care when these therapies cost patients’ insurance up to $500K/year or more. I think the only feasible way to decrease the cost of care is to have a pricing policy that closely reflects the benefit gained with a particular oncology treatment.” 

Pricing that tracks benefit is a payer and legislative decision, which is true for every reform in this section. Physicians can’t enact any of them, but they can supply the clinical case that makes them harder to argue against.

Key Takeaways

• About 25% of U.S. healthcare spending is waste, and administrative complexity is the largest category.
• Physicians can cut waste in daily practice by questioning low-value tests, bringing cost into shared decision-making, tightening hand-offs, and investing in prevention.
• Site-neutral payment, price transparency, and simpler prior authorization all depend on physician advocacy, and each one shows up in what patients pay.

How to reduce healthcare costs: The bottom line

Physicians can cut a meaningful share of healthcare waste from inside their own practices, but the bigger savings depend on changes to payment, administration, and pricing that no practice can make alone.

With about 25% of $5.3 trillion classified as waste, even modest progress would be worth more than $100 billion a year. The physician-side tools already exist in Choosing Wisely, decision support, care coordination, and value-based care. So do the system-side fixes, from site-neutral payments worth more than $170 billion over a decade to simpler prior authorization. Those fixes are up to payers and legislators, but physicians see firsthand what unaffordable care costs patients, and steady physician advocacy can help move them along.

Sermo is where physicians work through these issues together, from what’s working in their own practices to which policy changes deserve their support. Join the community to weigh in, and use your voice to move the discussion forward among peers. 

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