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Reducing Waste in Health Care

Reducing Waste in Health Care

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Published by Ignatius Bau

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Published by: Ignatius Bau on Dec 16, 2012
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health policy briefwww.healthaffairs.org
Hl Ply B
december 13, 2012
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 A third or more of what the US spends annually may  be wasteful. How much could be pared back—and how—is a key question.
what’s the issue
Health care spending in the United States iswidely deemed to be growing at an unsustain-able rate, and policy makers increasingly seekways to slow that growth or reduce spendingoverall. A key target is eliminating waste—spending that could be eliminated withoutharming consumers or reducing the quality of care that people receive and that, accordingto some estimates, may constitute one-thirdto nearly one-half of all US health spending. Waste can include spending on servicesthat lack evidence of producing better healthoutcomes compared to less-expensive alterna-tives; inefficiencies in the provision of healthcare goods and services; and costs incurredwhile treating avoidable medical injuries,such as preventable infections in hospitals. Itcan also include fraud and abuse, which wasthe topic of aHealth Policy Brief published onJuly 31, 2012.This policy brief focuses on types of wastein health care other than fraud and abuse, onideas for eliminating it, and on the consider-able hurdles that must be overcome to do so.
what’s the background
Many studies have examined the characteris-tics and amounts of wasteful or ineffective UShealth care spending in public programs, suchas Medicare and Medicaid, and in care paid for by private insurance as well as out-of-pocketby consumers. By most accounts, the amountof waste is enormous.
the cost of waste:
By comparing healthcare spending by country, the McKinsey Glob-al Institute found that, after controlling for itsrelative wealth, the United States spent nearly $650 billion more than did other developedcountries in 2006, and that this differencewas not due to the US population being sicker.This spending was fueled by factors such asgrowth in provider capacity for outpatient ser- vices, technological innovation, and growthin demand in response to greater availability of those services. Another $91 billion in waste-ful costs or 14 percent of the total was due toinefficient and redundant health administra-tion practices.By looking at regional variations in Medi-care spending, researchers at the DartmouthInstitute for Health Policy and Clinical Prac-tice have estimated that 30 percent of all Medi-care clinical care spending could be avoidedwithout worsening health outcomes. Thisamount represents about $700 billion in sav-ings when extrapolated to total US health carespending, according to the CongressionalBudget Office.More recently, an April 2012 study by for-mer Centers for Medicare and MedicaidServices (CMS) administrator Donald M.Berwick and RAND Corporation analyst An-drew D. Hackbarth estimated that five catego-ries of waste consumed $476 billion to $992
health policy briefreducing waste in health care
billion, or 18 percent to 37 percent of theapproximately $2.6 trillion annual total of all health spending in 2011. Spending in theMedicare and Medicaid programs, includingstate and federal costs, contributed about one-third of this wasteful spending, or $166 billionto $304 billion (Exhibit 1). Similarly, a panelof the Institute of Medicine (IOM) estimatedin a September 2012 report that $690 billionwas wasted in US health care annually, not in-cluding fraud.
categories of waste:
Researchers haveidentified a number of categories of waste inhealth care, including the following:
Failures of care delivery.
This category includes poor execution or lack of widespreadadoption of best practices, such as effectivepreventive care practices or patient safety best practices. Delivery failures can result inpatient injuries, worse clinical outcomes, andhigher costs. A study led by University of Utah researcher David C. Classen and published in the April2011 issue of 
 Health Affairs
found that adverseevents occurred in one-third of hospital ad-missions. This proportion is in line with find-ings from a 2010 study by the Department of Health and Human Services’ Office of Inspec-tor General (OIG), which found that Medicarepatients experienced injuries because of their care in 27 percent of hospital admissions.These injuries ranged from “temporary harm events,” such as prolonged vomitingand hypoglycemia, to more serious “adverseevents,” such as kidney failure because of med-ication error. Projected nationally, these typesof injuries—44 percent of which were foundto be clearly or likely preventable—led to anestimated $4.4 billion in additional spendingby Medicare in 2009, the OIG found. Berwickand Hackbarth estimate that failures of caredelivery accounted for $102 billion to $154 bil-lion in wasteful spending in 2011.
Failures of care coordination.
Theseproblems occur when patients experiencecare that is fragmented and disjointed—for example, when the care of patients transition-ing from one care setting to another is poorly managed. These problems can include unnec-essary hospital readmissions, avoidable com-plications, and declines in functional status,especially for the chronically ill.Nearly one-fifth of fee-for-service Medicarebeneficiaries discharged from the hospitalare readmitted with 30 days; three-quartersof these readmissions—costing an estimated$12 billion annually—are in categories of di-agnoses that are potentially avoidable. Fail-ures of care coordination can increase costsby $25 billion to $45 billion annually. (See theHealth Policy Brief published on September 13, 2012, for more information on improvingcare transitions.)
• Overtreatment.
This category includescare that is rooted in outmoded habits, that isdriven by providers’ preferences rather thanthose of informed patients, that ignores sci-entific findings, or that is motivated by some-thing other than provision of optimal care for a patient. Overall, the category of overtreat-ment added between $158 billion and $226 bil-lion in wasteful spending in 2011, accordingto Berwick and Hackbarth. An example of overtreatment is defensivemedicine, in which health care providers order unnecessary tests or diagnostic procedures toguard against liability in malpractice lawsuits. A September 2010
 Health Affairs
study led by Harvard University researcher Michelle M.Mello estimated that in 2008, $55.6 billionor 2.4 percent of total US health care spend-ing was attributed to medical liability systemcosts, including those for defensive medicine.
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health policy briefreducing waste in health care
Overtreatment can also result from overdi-agnosis, which results from efforts to identify and treat disease in its earliest stages whenthe disease might never actually progress andwhen a strategy such as watchful waiting may have been preferred. For example, in July 2012the US Preventive Services Task Force recom-mended against prostate-specific antigen–based screening for prostate cancer because of “substantial overdiagnosis” of tumors, many of which are benign. Excessive treatment of these tumors, including surgery, leads to un-necessary harms, the task force said.Overtreatment also includes intensive careat the end of a person’s life when alternativecare would have been preferred by the patientand family, or excessive use of antibiotics. Another form of overtreatment is the use of higher-priced services that have negligible or no health benefits over less-expensive alter-natives. When two approaches offer identicalbenefits but have very different costs, the casefor steering patients and providers to the lesscostly alternative may be clear—for example,using generics instead of brand-name drugs.There is also provision of many services thatmay once have been considered good healthcare but that now have been discredited aslacking in evidence of benefit. Under theumbrella of the American Board of InternalMedicine Foundation’s “Choosing Wisely” ini-tiative, nine different medical specialty groupsand Consumer Reports have identified a seriesof regularly used tests or procedures whoseuse should be examined more closely. In 2013,21 additional medical specialty groups will re-lease similar lists in their respective fields.The National Priorities Partnership pro-gram at the National Quality Forum, a non-profit organization that works with providers,consumer groups, and governments to estab-lish and build consensus for specific healthcare quality and efficiency measures, hasproduced a list of specific clinical procedures,tests, medications, and other services thatmay not benefit patients. The next step is for physicians and payers to change their prac-tices accordingly. After requesting public input, CMS on No- vember 27, 2012, posted on its website a list oprocedures or services that may be overused,misused, or provide only minimal healthcare benefits. They include lap-band surgery for obesity, endoscopy for gastroesophagealreflux disease, and lung volume reductionsurgery. CMS said that these services may beevaluated to determine whether they shouldcontinue to be reimbursed under Medicare.
Administrative complexity.
This cat-egory of waste consists of excess spendingthat occurs because private health insurancecompanies, the government, or accreditationagencies create inefficient or flawed rules andoverly bureaucratic procedures. For example,a lack of standardized forms and procedurescan result in needlessly complex and time-consuming billing work for physicians andtheir staff.In an August 2011
 Health Affairs
article, Uni- versity of Toronto researcher Dante Morraand coauthors compared administrative costsincurred by small physician practices in theUnited States, which interact with numerousinsurance plans, to small physician practicesin Canada, which interact with a single payer agency. US physicians, on average, incurrednearly four times more administrative coststhan did their Canadian counterparts. If USphysicians’ administrative costs were similar to those of Canadian physicians, the resultwould be $27.6 billion in savings annually.Overall, administrative complexity added$107 billion to $389 billion in wasteful spend-ing in 2011.
Pricing failures.
This type of waste oc-curs when the price of a service exceeds thatfound in a properly functioning market, whichwould be equal to the actual cost of productionplus a reasonable profit. For example, Berwickand Hackbarth note that magnetic resonanceimaging and computed tomography scans areseveral times more expensive in the UnitedStates than they are in other countries, at-tributing this to an absence of transparency and lack of competitive markets. In total, they estimate that these kinds of pricing failuresadded $84 billion to $178 billion in wastefulspending in 2011.
Fraud and abuse.
In addition to fakemedical bills and scams, this category in-cludes the cost of additional inspections andregulations to catch wrongdoing. Berwickand Hackbarth estimate that fraud and abuseadded $82 billion to $272 billion to US healthcare spending in 2011.
what are the issues
 Although there is general agreement aboutthe types and level of waste in the US healthcare system, there are significant challenges
 “Al lm  ypd lvl   US l ym,  llvlvd d .” 
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