It already hurts to hear that the United States spends more on health care than any other country, with costs approaching 18% of the gross domestic product and more than $10,000 per individual.
A report published last week in The Journal of the American Medical Association makes those numbers even more painful as it reveals the estimated cost of waste in the United States ranges from $760 billion to $935 billion, accounting for approximately 25% of total health care spending. This amount exceeds national military spending, as well as total primary and secondary education spending.
The report identified 6 domains of waste: failure of care delivery, failure of care coordination, pricing failure, administrative complexity, overtreatment or low-value care, and fraud and abuse. Administrative costs, which includes time and resources devoted to billing and reporting to insurers and public programs, makes up the largest source of waste, totaling $200 billion per year.
Following available evidence, which excludes solutions to countering administrative costs, would only reduce a quarter of the waste, or $200 billion, reducing health spending by 5%.
According to The New York Times, experts believe moving to a single-payer system would largely eliminate the vast administrative complexity required to report to private payers and public programs, but they acknowledge the lack of political will to make such a system materialize. They say it’s possible to reduce administrative waste in a system with private insurance, pointing to Switzerland and Netherlands as examples of countries with lower administrative costs than the U.S. Regardless of the type of health care system, they say stakeholders should focus on administrative simplification.
Pricing failure, at $231 billion to $241 billion year, is the second largest source of the waste with high brand drug prices as the major contributor. Failure of care delivery, which includes hospital-acquired conditions and adverse events, clinician-related inefficiencies and the lack of adoption of preventive care practices, is the third largest source of waste at $102 to $165 billion per year. Waste from overtreatment or low-value care is the fourth largest source of waste at $75 to $101 billion per year. Fraud and abuse are the fifth largest sources of waste at $58 to $83 billion per year. Failure of care coordination, which includes unnecessary admissions or avoidable complications and readmissions, is the smallest source of waste at $27 to $78 billion.
Although fraud and abuse only counts for 10% of health care waste, even small percentages in savings translate into huge dollars. The authors of the report say the estimated annual savings from legislative, administrative and integrity interventions range from $22 billion to $30 billion.
The Trump administration has recently ramped up its fight against fraud and abuse. Last month, the administration published its Program Integrity Enhancements to the Provider Enrollment Process final rule, allocating new revocation and denial authorities to prevent fraud, waste and abuse. In addition, just last week the administration proposed an overhaul of Medicare fraud rules.
The authors of the report cite the enhanced payer collaboration with health systems and clinicians in the form of value-based payment systems as a solution to reducing waste by addressing administrative complexity. The authors state: “In value-based models, in particular those in which clinicians take on financial risk for the total cost of care of the populations they serve, many of the administrative tools used by payers to reduce waste (such as prior authorization) can be discontinued or delegated to the clinicians, reducing complexity for clinicians and aligning incentives for them to reduce waste and improve value in their clinical decision-making.”
Backed by the Department of Health and Human Services, North Carolina has recently switched to a value-based payment model, paying doctors and hospitals in ways that incentivize efficiency and good outcomes.
Some experts, however, warn value-based payments haven’t been as effective as people had hoped. Those that have had success have produced a smaller amount of savings than expected. Experts say more promising solutions include giving hospitals and doctors a single payment as opposed to paying for individual services, physicians referring patients to lower-priced facilities, or cutting back on potentially lower-value care in procedures, tests or post-acute services.
The New York Times reports bundled payment programs and accountable care organizations also seem to produce savings.
With a lack of evidence on how to rein in administrative complexity, the largest source of waste, researchers need to focus more on this issue. Policymakers must continue to tackle waste from all angles in order to comprehensively address this multifaceted issue.
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