As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on hot topics that might affect employers or employees. This is a reprint of a blog post from KBGH:
How much health care gets wasted?
Recently, researchers from insurance company Humana and the University of Pittsburgh published a review of sources of and current levels of waste in the US health care system. They estimated that waste in the current system amounts to roughly a quarter of all health care spending: $760 billion to $935 billion annually. This waste was accounted for in six “domains”:
Failure of care delivery. This is waste that comes from the lack of adoption of best care practices, like patient safety initiatives.
Failure of care coordination. Think of patients being re-admitted to the hospital because of a gap in the system that held up their home health care, or unnecessary emergency department visits.
Overtreatment or low-value care. If you’ve ever received an antibiotic for what was almost definitely a viral upper respiratory tract infection, this applies to you. Somewhere between one fifth and one third of all health care delivered does nothing to improve the health of the recipient.
Pricing failure. Because of the perversity of the US health care system, with its lack of transparency and effective markets, we simply pay more for everything in medicine—from doctors to nurses to MRI scans—than people pay in other countries.
Fraud and abuse.
Administrative complexity. This is the result of inefficient and misguided rules. As a physician, the example of this that is closest to mind is the paperwork that accompanies prior authorization requests, which is different for almost every insurance company. It takes a lot of manpower to navigate the complexities of a system in which dozens of insurance policies within a practice all have different rules and procedures for payment.
Which of these domains was the biggest offender? Which one is responsible for the biggest chunk of that $760-935 billion annual bill for waste?
Administrative complexity
And it wasn’t particularly close: administrative complexity was thought to account for about $265 billion of waste in and of itself. Number two was pricing failure at $240 billion, and in third place was failure of care delivery at $165 billion.
The authors of the review helpfully scoured the medical literature looking for solutions and potential savings from each of the domains, and they found some interesting nuggets. Integration of behavioral and physical health, for example, was thought to have the potential for $31.5-58.1 billion dollars in savings annually in reducing failures of care delivery. Insurer-based pricing interventions, such as the State of Maryland’s All-Payer Model, were thought to be worth $31.4-41.2 billion annually.
But, you must be thinking, what about that juicy slice of savings from administrative complexity, the biggest cause of medical waste of all? If you scroll through the article to that row, you see this:
What does this mean, “Not Applicable”? This means that, in a thorough review of the existing medical literature, the authors of this review could not find a single example of a high-quality study looking at the effect of an intervention to decrease administrative complexity.
I understand if you need to pause reading in order to flip your desk.
Now understand: this does not imply that no efforts are being made to reduce complexity. The American College of Physicians, one of the largest professional organizations in medicine, has championed a reduction in administrative tasks in health care for several years now. Other organizations have advocated for using artificial intelligence to approve or deny prior authorization requests on first pass without the doctor even needing to submit a form.
But to date, none of these efforts has produced a high-quality paper showing compelling cost reduction. And most of these efforts have taken place in the patient care milieu. We’re curious if any employers have encountered or experimented with ways to reduce administrative waste. If you have a good story, please share it with us.