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No one disputes the fact that our current health care system is riddled with waste. In fact, a just-released report reveals that 25% of every dollar spent on health care in the US is wasted . It is a staggering sum — hundreds of billions of dollars. Each year.

The Centers for Medicare and Medicaid Services (CMS) says that, at the current 5.5% rate of annual increase, health care spending will represent 19% of the nation’s gross domestic product by 2027. The Institute for Healthcare Improvement (IHI) disagrees. They say health spending will account for 20% of the GDP by 2020 .

That’s unhealthy any way you look at it.

Because the detrimental effects of health care waste impact everyone, the push is on to diagnose the specific problems in order to identify cures. The recent report published in the Journal of the American Medical Association cites six health care “domains” as key contributors to the waste problem, ranked as follows:

  1. Administrative complexity ($265.6 billion)
  2. Pricing failure ($230.7 billion – $240.5 billion)
  3. Failure of care delivery ($102.4 billion – $165.7 billion)
  4. Overtreatment or low-value care ($75.7 billion – $101.2 billion)
  5. Failure of care coordination ($27.2 billion – $78.2 billion)
  6. Fraud and abuse ($58.5 – $83.9 billion)

With numbers like these, it’s easy to see that even a small percentage of improvement could mean dramatic savings. And that would make health care more affordable, according to the report’s authors. Twenty-five percent more affordable.

Diagnosing the problem

According to the IHI, health systems are using a variety of methods to uncover waste. These include:

  • Learning from safety events. For instance, as hospitals work to reduce the potential for infections, they often find unnecessary tests or other procedures that can be eliminated.
  • Reviewing efficiency reports with an eye toward increasing standardization.
  • Hosting focus groups with staff and even patients, whose experiences with waste provide a different perspective than that of physicians or management. This option offers dual benefits, in that it helps identify opportunities to reduce or eliminate waste while also engaging stakeholders in creating solutions.

No easy or obvious cure

While everyone agrees that reducing waste throughout the health care system is critical, there is no agreement on how to go about that. Surely, all six of the areas listed above need to be addressed. And it is telling to note that three of the six domains directly relate to patient care.

But “administrative complexity” is the worst offender when it comes to waste. Too much paperwork, and too many rules and regulations that are conflictive and/or inconsistent. Fragmentation that inevitably leads to confusion, redundancy, and delay. Some physicians and others suggest that switching to a value-based care model would restore coordination that would, in turn, eliminate waste and provide better outcomes. For example, such a model would eliminate insurer requirements for prior authorization.

 

But over-pricing draws the most attention

The IHI cites over-use of emergency care is a key contributor to wasted health care spending due to over-pricing. ER care is very expensive, so it is essential to work toward “improving systems to connect patients to the right care at the right time.” They also note that lack of pricing transparency makes it virtually impossible for physicians or patients to shop around and compare costs before making purchasing decisions. This not only costs more out of pocket, it encourages over-pricing.

Dr. Marty Makary is a surgeon at Johns Hopkins. In his book “The Price We Pay,” he suggests that over-pricing must be attacked on multiple fronts. He notes that doctors convince patients to have unnecessary tests or even surgeries, ambulance companies (and, in particular air ambulance operators) deliberately conceal their high fees, and some hospitals overcharge and then turn around and sue patients who cannot pay.

He’s not alone. Many students of wasteful health care spending point to over-testing and over-prescribing as two of the worst culprits. Dr. Makary believes that improved data tracking is already helping improve pricing transparency. When pricing is clearer, competition will increase, too, further benefiting patients and other payers throughout the health care system.

Harvard’s Dr. Michael McWilliams believes much of the pricing problem lies with care coordination. Dr. McWilliams is Professor of Medicine and Profession of Health Care Policy at Harvard, as well as a general interest at Brigham and Women’s Hospital. He says, “If the objective is to control spending, why are we pouring billions of dollars into care coordination and high-risk case management instead of developing systems for eliminating waste?”

He believes the solution is to do less, not more. For example, one way to reduce over-use of the health system is to improve patient care to prevent illness from occurring. Quality goes up, costs go down.

 

Bill Gates says education is the big loser

Surprised? We usually think in terms of lost time, over-pricing, and less-than-stellar patient care when we talk about the costs of waste in the health care system. But Bill Gates sees a very different, very damaging problem. He certainly knows a thing or two about healthcare systems and costs. The Bill & Melinda Gates Foundation spends more each year than most countries, funding health improvement initiatives around the world.

Bill Gates says US states are robbing education spending to pay for health care over-spending and waste. In doing that, he asserts we are stealing our children’s future.

“Money once directed to education is getting gobbled up by healthcare’s hyperinflation,” he says. “This piles onto the problem that kids don’t learn enough about health, nutrition, finance or any of the things that lead to healthy, long lives.”

Gates believes states must solve this problem by implementing better accounting tools as well as honest, fully transparent budget-balancing methods.

 

The patient is still sick

Dr. Michael McWilliams says physicians must be part of the solution. “We have all these really smart and dedicated people who have dedicated years of their lives to learning about medicine and patients, and who have taken an oath to serve others. We have got to figure out a better way to use that resource.”

It will take that resource and all other available resources to continue diagnosing waste and contemplating cures, whether they come in the form of new care models, pricing models, or government regulation. But the driving force will continue to be simple: waste in health care spending costs everyone, dearly.

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