25 Cents of Every Dollar Spent on Health Care Is Wasted – What Is To Be Done?

25 Cents of Every Dollar Spent on Health Care Is Wasted – What Is To Be Done?


The US about three and a half trillion
dollars on healthcare every year. To put that in perspective, it’s 18% of the GDP. And a new Special Communication
published in JAMA estimates that approximately 25% of
that spending is waste. As we try to build quality healthcare in the US,
we’re going to have to reckon with that waste. To me the word quality refers to the match
between the work you do, and the products and services you make, and the
need you’re trying to meet. That’s Don Berwick, former
administrator for Medicare and Medicaid. If you meet the need, that’s quality. If you fail to meet the need,
that’s not quality. If that’s the definition of quality,
then waste is the opposite of quality. It’s doing stuff that doesn’t help. Will Shrank, one of the authors
of the new study, joined JAMA’s Editor-in-Chief Howard
Bauchner to discuss this on a recent podcast. You’re all set? And we’re recording. Let’s give people the totals. Ding ding ding, or whatever the
sound is for a cash register. The actual amount is somewhere
between $760 and $935 billion a year. That’s the total estimated waste. So let’s break down how the
money is being wasted. The authors estimated waste in six categories. Starting with an obvious one: fraud and abuse. Here’s the price tag. Another obvious one: pricing failure, or
high prices that are way out of proportion to the value of services and products. But that’s only the second largest category. The largest category of waste is administrative
complexity: the costs of infrastructure for billing, coding, documentation and payment. There’s waste in clinical practice, too. That’s these three categories. Things like medical errors, overtesting,
lack of adoption of preventive care, unnecessary ED visits, and inefficient use of high cost clinicians and
hospitals are also waste. Collectively these categories
account for as much as 345 billion. Right about now you might
be thinking: something should be done. We didn’t want to, sort of, tell a
helpless story about how much waste there is. The goal, I think, was to be able to, at the
end of this, say not only where are we in terms of waste, but how do we deploy what we know
today to better address those problems? So the authors took the analysis one step
further and quantified the potential savings from evidence-based interventions. The total they came up with is 191
to 282 billion. That’s what could be saved if interventions
were implemented and were successful. Notice how administrative complexity,
the biggest category of waste, doesn’t have a savings estimate?
Interestingly enough, there aren’t really any good quality
studies looking at interventions to reduce administrative complexity. That’s a signal there’s something wrong. I mean, if that, that’s low-hanging fruit. And it should be an object
of tremendous amount of activity to get that out of the system. It doesn’t help anybody. It certainly doesn’t help the patient. So more than 260 billion dollars are
wasted on administrative complexity, and no good data to estimate whether
that could be reduced. Evidence for interventions in
the other categories is there, but we haven’t implemented them nationally. Now imagine if we could free up
those dollars and use them elsewhere. You know, at $10,000 per individual,
that’s what the cost of care is in the US, $250 billion lets you insure 25 million people. That’s such an important context. Yeah, those are the round numbers. But, you know– We could insure all Americans
by just making some of these changes. Of course it’s a bit more complicated than that. This waste is there. We know it. And so you’d expect that there’d
be tremendous activity to get it out to reduce cost, to reduce the burden. And everyone’s complaining about the burden. Everyone is worried about cost. How come we’re not getting it out of the system? It’s got to be viewed as a paradox,
because the opportunity is so massive. Part of what makes it difficult to redirect that money is the way the healthcare
system is set up in the US. And because of the complex payment system of American healthcare moving
the money is tough. The people that actually harvest the
waste may not be the ones that — harvest the resources from waste may not
be the ones that need to reinvest it. And we’re going to have to — we would have
to struggle, both locally and at a state level and nationally, about how you
can move that money around. It is a tough problem. And that’s not to mention that another
way to look waste is as revenue. And as long as we’re
fee-for-service driven and activity driven, it’s a little less interesting to say, “Well, let’s stop that because it’s really not
needed,” if money is being made at it. I don’t think that’s venality,
but it is certainly illogical to work against your own interest. So the billions of dollars we’ve been
talking about might not buy any value, but it’s still money flowing into the
system that pays salaries and bonuses, funds building and equipment upgrades, and new programs that attract more
patients and insurance dollars. When you think about it that way,
it’s easy to see why any policy to reduce waste will have pushback. When a policymaker wants to make moves
that would really reduce waste in healthcare, there’s going to be pushback from
people that donate to campaigns. And I think that political nexus is, it’s
a pretty deep and important explanation for why we’re living with this
really unconscionable amount of non-value-added activity. And the policies that have made it through congress haven’t had the wholesale
effects that some expected them to. So, one of the main ways that
the federal government has tried to address waste is they’re
changing the payment paradigms. That’s Karen Joynt Maddox, she’s a
cardiologist and health policy researcher at Washington University, and she’s
referring to value-based payment. So value-based payment really has bipartisan
support, which in this day and age is important. Really the devil is in the details. While these programs sound straighforward–
reward good quality, penalize poor quality– implementing them has been really tricky. Some of that is due to the difficulty
of actually measuring quality. Right now, we measure a whole bunch of
measures, there’s almost 300 quality measures in the current outpatient payment
program and it makes it very difficult to know what quality really means when any health system can just pick
their favorite ones to report on. And most quality measures do not adequately
account for socioeconomic factors that influence patients’ health and their ability
to access health care services. This means that value-based payment
might penalize providers who serve vulnerable populations. To make matters worse, some providers
don’t have the internal capacity to even participate in payment reform programs. So there are now a number of consulting
agencies, programs, companies that will come in and will help hospitals participate
in value-based payment. So we now have a scenario in which hospitals
are paying consultants millions of dollars to participate in a program that’s
ultimately supposed to save Medicare money. The calculus there of the dollars, and where
they’re going, and is it actually cost savings, have just not yet been worked out. So we need to take a hard look at the unintended
consequences of interventions to reduce waste. But in the meantime, we can begin to implement interventions already shown
to be effective. The question is whether the
collective will is there to do it. As I’ve said in other podcasts, my
greatest fear is that the economy is healthy. And so states have generally
done well the last couple years, but when economy inevitably will be less
robust, and there’s less state revenues, I think the specter of the cost particularly
of Medicaid is going to come up again. So I’m really fearful, like, if we don’t
figure this out now when the economy’s healthy, it is gonna be a struggle when
the economy is less healthy, and the states have less resources. So, I do think that we may be in a sweet
spot now where there’s enough concern about growing healthcare costs, but at the
same time, enough sort of cushion in the system for people to be able to get around a
table and talk about how to change things. And in order for us to truly reduce
waste, everybody is gonna have to get a little bit of a haircut. This is not a drug company problem,
this is not a hospital industry problem, it’s not a private insurer problem, and it’s not
a government problem, it’s a collective problem. So, everyone agreeing that we have to move in
the direction of better value is the only way to get, to get people on board
and make meaningful change. Otherwise, it will just devolve into a
shouting match, which will get us nowhere. And that means it’s time to
remind ourselves that the goal of healthcare is not to generate profits, create
jobs, and keep getting bigger, but rather to keep patients healthy. There’s a lot of detail in the Special
Communication, and we were only able to scratch the surface in this video. So for a more in-depth discussion,
make sure to listen to the entire interview with
study author Will Shrank. You can find that at jamanetworkaudio.com
or wherever you listen to podcasts.