Blog | Healthcare Reform

Addressing the largest area of healthcare waste requires plans and providers to collaborate

Blog | Healthcare Reform

Addressing the largest area of healthcare waste requires plans and providers to collaborate

  • Some 25%, or $760 billion to $935 billion annually of U.S. healthcare spending is unnecessary, based on a literature review, according to a recent study published in JAMA.
  • Administrative complexity is the greatest source of waste of the six domains of unnecessary healthcare spending identified in the study.
  • The study notes that administrative complexity is a result both of the fragmentation in the U.S. healthcare system and efforts to reduce waste in the other five areas mentioned.

A study published in JAMA, which updates former CMS Administrator Don Berwick’s analysis of waste in the healthcare system,  estimates that 25% ($760 billion to $935 billion annually) of U.S. healthcare spending is unnecessary based on a literature review. The framework identified six domains of unnecessary healthcare spending:

  1. Failure of care delivery
  2. Failure of care coordination
  3. Overtreatment or low-value care
  4. Pricing failure
  5. Fraud and abuse
  6. Administrative complexity

It also was estimated that anywhere from $191 billion to $282 billion could be saved based on known interventions (view the study published in JAMA, and then within the article, click on Table 2 and Table 3 links for full details).  

Though administrative complexity is the greatest source of waste, the study reports that “there were no generalizable studies that had targeted administrative complexity as a source for waste reduction.” The study notes that administrative complexity is a result both of the fragmentation in the U.S. healthcare system and efforts to reduce waste in the other five areas mentioned.

Takeaway

Administrative complexity should be low-hanging fruit. These are processes that at best add very little value to a patient’s outcome (and may actually hinder improved outcomes, according to an AMA article), like manual prior authorizations or each health plan having different formatting, criteria and processes for physician credentialing. Administrative complexity also has a significant negative impact on physicians and clinicians contributing to the epidemic of provider burnout. And, it’s probably the most compelling argument for a single-payer “Medicare for All” model.  

At the risk of being Pollyannaish, it seems to me like now would be the time for plans and providers to come together at the table, systematically catalog what the biggest “administrative wasters” are and develop a standardized approach for each of the “wasters” that reduces their frequency or eliminates them. For example, in the case of utilization management tools (e.g. prior authorization), create an exclusion for providers participating in payment models that incorporate a certain amount of risk or are adhering to documented clinical best practice like the ABIM Foundation’s Choosing Wisely guidelines. I also think it’s going to be easier operationally and politically to generate savings by reducing administrative complexity.

On the operational side — failures of care delivery, failures of care coordination and overtreatment/low-value care (as illustrated in Table 2 and Table 3, which can be accessed via the JAMA study and clicking on the links for each table) — generating material savings from care re-engineering is hard because of the need to change ingrained clinical practices, human behavior and long-standing societal failures. So far, the incentives to tackle these three barriers are milquetoast (today) at best for many providers and health systems (That said I don’t think we should stop trying; I am still realistically optimistic about APMs because of their ability to improve outcomes).

On the political side, there’s far less room for mischief-making due to concerns about income reduction from influential stakeholders or politicians wanting to take advantage of a polarizing topic (e.g. care rationing). While there will be jockeying between plans and providers for the administration standard each party views as favorable, there’s far less risk in addressing administrative issues than say mandating APMs due to the nature of the work.    

About the Authors

Chad Mulvany, FHFMA

is director, healthcare finance policy, strategy and development, HFMA’s Washington, D.C., office.

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