Getting Serious about Waste in Healthcare: The Rear View Mirror is Not Working

A study released last week found “the estimated cost of waste in the US health care system ranged from $760 billion to $935 billion, accounting for approximately 25% of total health care spending”.

The Humana-UPMC (University of Pittsburgh Medical Center) research team evaluated 71 studies published in peer reviewed journals between 2012 and 2019 categorizing waste in six categories:

  • failure of care delivery, $102.4 billion to $165.7 billion

  • failure of care coordination, $27.2 billion to $78.2 billion

  • overtreatment or low-value care, $75.7 billion to $101.2 billion

  • pricing failure, $230.7 billion to $240.5 billion

  • fraud and abuse, $58.5 billion to $83.9 billion

  • administrative complexity, $265.6 billion

They also identified potential savings in each category totalling $191 billion to $282 billion:

  • failure of care delivery, $44.4 billion to $93.3 billion

  • failure of care coordination, $29.6 billion to $38.2 billion

  • overtreatment or low-value care, $12.8 billion to $28.6 billion

  • pricing failure, $81.4 billion to $91.2 billion

  • fraud and abuse, $22.8 billion to $30.8 billion

They concluded by saying “Implementation of effective measures to eliminate waste represents an opportunity to reduce the continued increases in US health care expenditures.”

MY TAKE

Numerous studies have estimated wastefulness in the U.S. system of at least 30% for the past 20-plus years. This study, led by Humana Chief Medical & Corporate Affairs Officer Dr. William Shrank is substantive, credible and troubling. But it’s not a surprise. Every incumbent in the health system recognizes wastefulness and each is attacking wastefulness in their businesses in measured ways. It’s standard operating procedure.

As this study provides, defining categories of waste is a worthwhile start, but they discount innovations in the delivery and financing of health services that have no recent precedent. This study is based on a rear-view mirror approach to defining waste and possible savings. Though the research team appropriately considered innovations like telemedicine and digital care coordination, increased use of mid-level practitioners, price pressures for prescription drugs and other notable trends in their calculus, two with ominous potential to reduce waste were not considered:

1.Expanded direct role of employers
Large and mid-size employers see healthcare costs as an existential concern to their businesses. They want to provide health benefits to their employees as a means of attracting and keeping them, but they are increasingly losing faith that the system has their interests at heart. They’re taking matters into their own hands including waste: limiting employee options to high deductible plans, direct contracting for specialized services using reference pricing, hiring/contracting for on-site/near site primary care services, and promoting wellness activities. (see recent Keckley Report). The waste embedded in the health system is a function of its complex structure: employers are keen to simplify the system by equipping their employees to make better judgements quicker and easier, and make the services they need more convenient and understandable.

2. Expanded role of non-conventional players
Apple, Amazon, Best Buy, Walmart, CVS-Aetna, Optum and others think healthcare is ripe for technology-enabled disruption that leverage robust data to customize services to consumers while narrowing their use of traditional and non-traditional specialty providers to those offering the highest value. The impact of disruptors in the future of healthcare is unknown, but it’s clear they are making big bets that waste is a by-product of an industry insulated from reality. Disruptors operate aggressively, scale nationally and make bets with minimal fear of failure—attributes often paralyzing to incumbents.

Reacting to this study, former CMS Administrator Don Berwick offered this grim assessment: “In large measure, the challenge of removing waste from US health care and reinvesting that harvest where it could do much more good is not a technical one. It is a political one. In short, removing waste from US health care will require both awakening a sleepy status quo and shifting power to wrest it from the grip of greed.“

Count me among those who see wastefulness as an opportunity: lower costs and better health are not mutually exclusive. But that requires leaders to see the future looking forward and not through their rear view mirror.

Paul









THE WEEK AHEAD

  • Medicare Advantage (MA) Enrollment Starts: enrollment in MA plans for 2020 starts tomorrow (October 15) and runs through December 7. MA plans are growing in popularity among seniors: currently 34% of all Medicare beneficiaries are covered by MA plans increasing to 50% by 2029 (Per the Congressional Budget Office).

  • Seniors Timely Access to Care Act of 2019: the proposed legislation, sponsored by a coalition of 370 organizations including the American Academy of Hospice & Palliative Medicine, the American Medical Association, the National Association of Social Workers and others, would relax prior authorization requirements for Medicare Advantage (MA) plans that often result in delayed or denied access to medical treatments like hospice care and others. Currently 34% of all Medicare beneficiaries are covered by MA plans, increasing to 50% by 2029 (Per the Congressional Budget Office).

  • The Presidential Debate: 12 Democratic rivals for the White House will debate in Westerville, Ohio on Tuesday October 15th.


RESOURCES

Shrank et al “Waste in the US Health Care System: Estimated Costs and Potential for Savings”JAMA. Published online October 7, 2019. doi:10.1001/jama.2019.13978

Berwick “Elusive WasteThe Fermi Paradox in US Health Care”JAMA. Published online October 7, 2019. doi:10.1001/jama.2019.14610