The Hidden Costs Draining Healthcare Budgets—and How to Fix Them

In healthcare, spending more doesn’t always mean getting more. Organizations can pour money into new technology, add staff to address ongoing shortages and invest in treatments that manage problems without ever addressing what caused them. Meanwhile, the expenses that could make the biggest difference—improving how care is delivered, supporting clinicians and keeping patients healthier—often take a back seat.

So where are healthcare organizations getting the least value for their money? And what would happen if they redirected those dollars toward investments that actually make a difference?

Members of the Senior Executive Healthcare Think Tank—a curated group of experts from across the healthcare landscape—draw on their experience in technology, operations, workforce strategy, clinical care and patient experience to identify where organizations are overspending, why these habits are so difficult to break and where a different approach could deliver greater value for patients, employees and the bottom line.

“IT budgets sink most of their dollars into keeping undocumented legacy systems alive because migration risk is obvious and maintenance drain is not. ”

– Harikrishnan Muthukrishnan, Principal IT Developer at BCBS Florida

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Address Technical Debt Before It Becomes a Financial Drain

Healthcare organizations frequently prioritize immediate, visible expenses over longer-term investments that could prevent much larger costs. Harikrishnan Muthukrishnan, Principal IT Developer at BCBS Florida, sees this pattern in technology management, critical care and community health.

He identifies three areas of overspending: maintaining undocumented legacy systems, providing expensive end-of-life medical interventions without timely advance care planning, and repeatedly treating social problems through emergency departments.

“IT budgets sink most of their dollars into keeping undocumented legacy systems alive because migration risk is obvious and maintenance drain is not,” Muthukrishnan says.

The same short-term thinking affects patient care, he explains: “The last year of life consumes a disproportionate share of spending on ICU stays and procedures no one asked the patient about in time.”

These expenses persist because organizations are often rewarded for activity rather than outcomes. Maintaining an aging system feels safer than migrating it, while reimbursement structures can favor interventions over preventive conversations.

“The better spend is upstream,” he says. “Fund technical debt reduction as a line item, embed advance care planning and palliative care early, and invest in community health workers who address why patients keep returning.”

Fix Operational Problems Before Buying More Technology

Technology investments can be expensive distractions when organizations haven’t addressed the operational problems they’re intended to solve. Kat Marie Alvarez, Founder and CEO of Katalyst & Co., believes healthcare leaders too often mistake purchasing technology for making meaningful progress.

“Healthcare’s biggest waste may be buying technology to solve problems rooted in broken operations,” Alvarez says.

She has seen organizations spend hundreds of thousands of dollars on AI implementations that fail within 90 days because workflows and standard operating procedures weren’t ready.

“Technology can accelerate a sound process; it can also scale a broken one,” she explains.

Alvarez recommends reversing the typical investment sequence.

“The investment should come first in operational discipline and frontline workflow design,” she says, “then in tools that make care faster, more accurate and easier to deliver.”

For executives, that means evaluating readiness before approving major technology purchases. Leaders should establish clear ownership, document existing workflows and involve frontline employees in implementation planning. Success should be measured through operational improvements rather than the novelty of the technology itself.

“These costs persist because departments optimize independently and legacy contracts discourage change.”

– Asaad Hakeem of SARC MedIQ Inc.

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Break Down Technology and Administrative Silos

Fragmented technology creates more than inconvenience. It generates redundant spending, disconnected workflows and additional administrative work that can interfere with patient care.

Asaad Hakeem of SARC MedIQ Inc. identifies fragmented technology, redundant administration and disconnected workflows as three major sources of unnecessary healthcare spending.

“These costs persist because departments optimize independently and legacy contracts discourage change,” Hakeem says.

He recommends shifting investment toward “interoperability, clinical efficiency, early detection and measurable patient outcomes” rather than continually adding systems.

The problem is not simply the number of applications an organization owns. It is whether those applications communicate effectively and support coordinated decision-making. When departments select technology independently, organizations can end up paying for overlapping capabilities while employees spend additional time moving information between systems.

Hakeem’s recommendation is to evaluate technology portfolios across the enterprise rather than department by department. Consolidating redundant capabilities, addressing vendor lock-in and establishing interoperability standards can create a more sustainable technology environment.

Invest in Clinicians’ Time and Workforce Well-Being

Administrative complexity and fragmented processes don’t just affect financial performance. They also contribute to workforce dissatisfaction, burnout and retention challenges.

Vikas Gupta, Technical Manager at HCL America, sees excessive spending on administrative complexity, duplicated processes and reactive care as interconnected problems.

“These expenses persist because they are deeply embedded in operations, reimbursement structures and organizational silos,” Gupta says.

He argues that organizations should prioritize “workforce well-being, interoperable technology, AI-enabled workflow automation, preventive care and care coordination.”

For Gupta, the most important return on these investments is the ability to give clinicians more time with patients.

“The greatest returns come from enabling clinicians to spend more time with patients and less time navigating inefficient systems,” he explains.

This perspective is supported by the Commonwealth Fund’s 2025 analysis of administrative burden in primary care, which identifies complex insurance requirements, EHR usability problems and excessive reporting as contributors to clinician burnout.

Gupta’s recommendations point toward a broader definition of technology ROI. Rather than measuring success primarily through implementation costs or automation rates, executives should examine whether investments reduce administrative workload, improve retention and allow clinicians to focus on patient needs.

Shift Spending From Late-Stage Treatment to Prevention

One of healthcare’s most expensive financial mistakes is waiting until preventable conditions become serious enough to require intensive treatment.

Mick Safron, Founder and CEO of Biohackers World, argues that organizations spend too much managing chronic diseases that could have been identified much earlier.

“The biggest waste is late-stage management of conditions that were visible 10 to 15 years earlier,” Safron says.

He points to type 2 diabetes and cardiovascular disease, noting that indicators such as fasting insulin, ApoB, HbA1c trends, sleep and body composition can provide opportunities to identify risk before a formal diagnosis.

The difficulty, he explains, is that reimbursement often rewards procedures and medications rather than keeping people healthy. Prevention also produces financial benefits over a longer period, potentially after patients have changed insurers.

Safron recommends investing in broader biomarker testing, continuous monitoring for at-risk populations and paid coaching and lifestyle interventions.

“A health coach plus a CGM costs far less than a decade of insulin and a bypass,” he says.

The opportunity for healthcare leaders is to build preventive programs around measurable risk reduction and sustained patient engagement. However, these initiatives must be clinically appropriate, accessible and supported by payment models that recognize their long-term value.

Automate Administrative Work Through Interoperability

Administrative friction is another significant drain on healthcare resources, particularly when payers and providers rely on disconnected systems that require manual intervention.

Mahendran Chinnaiah, Digital Healthcare Architect at a major U.S. healthcare and pharmacy services firm, identifies manual prior authorizations, claims rework and disconnected health data as particularly costly problems.

“Healthcare organizations bleed immense capital on administrative friction—specifically the armies of staff and fragile middleware managing manual prior authorizations, claims rework and disconnected health data,” Chinnaiah says.

He attributes the persistence of these costs to conflicting legacy systems, misaligned incentives and vendor lock-in.

Rather than continuing to maintain manual workarounds, he recommends investing in “real-time interoperability and deterministic point-of-care automation.”

“Investing in open standards like FHIR, automated eligibility checks and in-line reconciliation catches discrepancies before they trigger denials,” he says.

Chinnaiah’s argument is that better data exchange can reduce unnecessary administrative work while giving clinicians more time for patient care. Executives should therefore evaluate interoperability as an enterprise investment, not simply an IT upgrade.

Address Employee Retention Before Turning to Agency Staffing

When healthcare organizations face staffing shortages, temporary and agency personnel can provide essential coverage. But relying on these arrangements as a long-term workforce strategy can become extremely expensive.

David Zechman, President of The Zechman Group LLC, and retired hospital president and CEO, identifies temporary staffing—including physicians—as an area where organizations frequently overspend.

“These temporary staffing fixes are sometimes required due to some sort of crisis,” Zechman says. However, he argues that many staffing problems can be addressed before they reach that point.

His solution starts with leadership.

“If employees are being led by compassionate, servant leaders who are providing the resources for those they lead to be successful, then employee turnover will be decreased,” he explains.

Competitive compensation is another essential part of the equation. Zechman emphasizes that market-based, market-competitive employee compensation can help reduce turnover and the resulting need for expensive agency personnel.

Investing in a stable workforce can help organizations reduce recurring recruitment and agency expenses while preserving institutional knowledge and continuity of care.

“The true ROI of healthcare technology shouldn’t be measured by fancy dashboards but by the hours handed back to clinicians to provide care.”

– Md Akram Hossain, Product and Digital Transformation Leader

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Measure Technology ROI in Hours Returned to Clinicians

Healthcare organizations often accumulate technology systems without considering the operational burden of maintaining them. The result can be a fragmented collection of applications that creates more work instead of simplifying care delivery.

Md Akram Hossain, Product and Digital Transformation Leader, has observed organizations purchasing separate applications for individual workflows.

“I have seen many organizations overspend on fragmented tech stacks, buying a separate app for every workflow,” Hossain says.

He explains that these investments create persistent costs because “when one isolated system breaks, the entire clinical workflow suffers.”

Rather than adding more applications, Hossain recommends investing in interoperable platforms and back-office automation to reduce administrative friction.

“The true ROI of healthcare technology shouldn’t be measured by fancy dashboards but by the hours handed back to clinicians to provide care,” he says.

His perspective reinforces an important distinction for technology leaders: More digital tools don’t automatically translate into better healthcare. Organizations need platforms that work together, reduce repetitive tasks and support existing clinical processes.

Make Patient Education Part of the Treatment Strategy

Unnecessary procedures and imaging can create substantial costs, particularly when patients receive interventions before exploring less invasive approaches.

Dorothy Riviere, Founder and CEO of Work Resilience, focuses on musculoskeletal care, where she sees significant opportunities to reduce spending through patient education and proactive movement health.

“About six in ten commercially insured patients with chronic low back pain still get imaging, and injections often follow a diagnosis made in a rushed visit,” she says. “Why is it so hard to cut?”

The payment structure makes the problem difficult to address. 

“Fee-for-service pays for the MRI and the injection. It barely pays for the conversation that could prevent both,” she explains.

Patient expectations also contribute to unnecessary utilization. After years of advertising that promotes medications and procedures as solutions for nearly every ache, patients may expect immediate intervention rather than education.

Riviere advocates investing in teaching patients how their bodies move and why they experience pain.

“One pain education session before back surgery cut health spending 45% over a year,” she says, emphasizing the potential value of earlier intervention.

Riviere believes hospitals should invest in proactive movement health and payers should reimburse these services appropriately. The broader opportunity is to make patient education and prevention recognized components of treatment rather than optional additions.

Nine Strategies for Smarter Healthcare Spending

• Treat technical debt as a strategic financial priority. Budget for legacy system modernization, early palliative care and community health initiatives rather than repeatedly absorbing the costs of outdated infrastructure and preventable utilization.
• Fix workflows before purchasing technology. Establish operational discipline, standard operating procedures and frontline readiness before implementing expensive AI or other digital solutions.
• Eliminate redundant technology and administrative silos. Evaluate systems across departments, consolidate overlapping capabilities and prioritize interoperability to improve information sharing and clinical efficiency.
• Make workforce well-being part of the cost-reduction strategy. Reduce administrative burdens, improve care coordination and invest in tools that give clinicians more time with patients.
• Shift resources toward preventive healthcare. Expand appropriate risk screening, continuous monitoring and lifestyle interventions to identify health problems before they require expensive treatment.
• Automate administrative processes through open standards. Prioritize FHIR-based interoperability, automated eligibility verification and real-time data reconciliation to reduce claims rework and manual intervention.
• Strengthen employee retention to reduce agency staffing costs. Invest in compassionate leadership, competitive compensation and the resources employees need to succeed.
• Measure technology ROI through clinical productivity. Evaluate whether digital platforms reduce administrative work, eliminate duplicated applications and return meaningful time to healthcare professionals.
• Reimburse education and proactive movement health. Expand access to evidence-based patient education and noninvasive musculoskeletal interventions that can reduce unnecessary imaging and procedures.

The Biggest Savings Start With Asking Better Questions

Changing how healthcare organizations spend money isn’t simply a matter of finding expenses to eliminate. It requires leaders to question practices that have become so familiar they’re rarely challenged, rethink what they consider essential and be willing to invest in solutions that may not deliver an immediate financial payoff. That can mean modernizing systems instead of maintaining them, giving prevention the same attention as treatment and recognizing that supporting the people who deliver care is just as important as the technology they use.

Ultimately, the biggest opportunity may be to stop asking how healthcare organizations can afford to do more and start asking why they’re spending so much on things that aren’t working. The leaders who embrace that question—and have the courage to act on the answers—will be better positioned to build organizations that are financially stronger, more sustainable and better equipped to deliver the care patients deserve.