What Is Sludge? A Look at Inefficient Healthcare

I first encountered the concept of “sludge” while listening to 'Freakonomics Radio.' Stephen Dubner and his guests were describing something every American has felt but rarely had a precise name for: the unnecessary friction that turns simple tasks into exhausting slogs.

Behavioral economist Richard Thaler (Nobel laureate and co-author of Nudge) coined the term. A nudge is choice architecture that makes desirable actions easier such as defaults that enroll people in retirement savings or organ donation. A

Sludge is the opposite that acts as friction such as paperwork, confusing interfaces, long wait times, or opaque rules making it harder for people to do things that would leave them better off. Thaler calls it “gunk.” In a 2018 Science piece titled “Nudge, not sludge,” he urged a cleanup campaign: “Less sludge will make the world a better place.” Sludge can be accidental stemming from poor design, institutional inertia or strategic abuses such as making cancellation harder than signup so customers stay longer and pay more. Either way, the costs pile up in real time as wasted money, frustration, and forgone benefits.

Healthcare

Healthcare is an especially easy target for sludge. It accounts for nearly 20% of U.S. GDP and employs more people than any other industry. Thaler has estimated that medical sludge alone runs into the hundreds of billions of dollars a year. Independent analyses put administrative complexity among the largest categories of waste in the system, often cited in the $250–265 billion range annually, and sometimes higher when broader regulatory and billing burdens are included.

Listeners to the Freakonomics series shared vivid examples:

• Months of back-and-forth to get reimbursed for a vaccine.

• Filling out paper forms and paying fees just to share a patient’s own medical records with another provider in the same city.

• Dozens of hours spent reconciling deductible statements across 17 pages of printouts and multiple insurer phone calls.

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Ben Handel, a UC Berkeley economist who studies healthcare markets, described a more everyday form of sludge: trying to find an in-network doctor. Insurer provider directories are often outdated, incomplete, or poorly organized. Patients may have to call dozens of offices only to discover the information is wrong. Compare that to the seamless search-and-buy experience on Amazon or Target. The difference is not technological capacity; large insurers have enormous resources. The incentives and priorities simply do not favor reducing friction for patients.

Physicians also face their own sludge. Prior authorizations, claims denials, and documentation requirements pull clinicians away from patients. Surveys show the vast majority of doctors view these administrative burdens as a major problem. Some practices employ large teams whose sole job is navigating insurer processes. Independent practices often consolidate into larger systems partly because they can no longer afford the administrative overhead resulting in a loop: more bureaucracy creates more bureaucracy.

Patients experience the downstream effects as delayed care, abandoned claims, higher out-of-pocket costs, and simple exhaustion. When the process of getting or paying for care is so draining, some people simply forgoe it as it no longer becomes a rationally viable option.

Several forces collide in healthcare which make it so prevalent:

• Multiple payers, each with its own rules, forms, and portals.

• Insurers may benefitwhen utilization is slowed by friction. Providers and patients bear the time costs.

• Information asymmetry means that plans, networks, and pricing are deliberately or inadvertently hard to compare.

  
  

Sludge is not unique to healthcare—subscription services, government forms, and customer service phone trees are full of it—but the stakes are higher when the “product” is health.

The process of solving it

Thaler and others advocate for “sludge audits” which systematically measure the time, effort, and psychological costs of processes and then redesign them. Some promising directions include making cancellation and appeals as easy as enrollment by making it possible in the press of one button. Using technology including AI, complex documents can be parsed clearly without confusion or uneccessary redundancies in the workforce.

These solutions are slowly being tested in the real world but the efficacy of them relies on time; just as sludge wastes it, fixes will need it to suggest real improvements.