Various numbers are tossed around to quantify the amount of healthcare spending in the US that is essentially wasted money – or, worse, money spent on healthcare that is potentially harmful. Understanding the sources of waste is critical to employer-driven efforts to improve the US healthcare system. The four studies summarized below help illuminate different aspects of waste:

• Low value or wasteful healthcare services. A study conducted by the Washington Health Alliance analyzed health care service data on 1.3 million patients across Washington State. In this population, low value or wasteful health care services were estimated to cost $282 million in unnecessary health care spending in one year. Services measured included 47 common tests, procedures, and treatments used in clinical situations where they were deemed to be of little benefit, as determined by expert clinicians from medical societies and associations. In many cases, these unnecessary health care services have the potential of causing physical, emotional, or financial harm to patients.

• Fraud and abuse. The Centers for Medicare & Medicaid Services (CMS) defines health care abuse as practices that, either directly or indirectly, result in unnecessary costs to the health care program. In addition to improper billing practices, like upcoding, and outright fraud, abuse includes any practice inconsistent with providing patients with medically necessary services meeting professionally recognized standards. Waste includes services that lack evidence of producing better health outcomes compared to less-expensive alternatives; inefficiencies in the provision of health care goods and services; and costs incurred while treating avoidable medical injuries, such as preventable infections in hospitals. CMS estimated in fiscal year 2016 that the Medicare fee-for-service improper payment rate was 11 percent or approximately $41 billion and the Medicaid improper payment rate was 10.5 percent or approximately $36 billion.

• Administrative complexity, poor care coordination, and exorbitant prices. Overtreatment, fraud and abuse can be uncovered with claims analysis. There are other sources of waste that may be harder to pinpoint: failures of care coordination, administrative complexity (including inefficient rules and overly bureaucratic procedures), and prices for healthcare services that are far higher than prices in a properly functioning market. A Health Affairs study estimates that administrative complexity accounts for one-third of all of the health care wasted in this country – making it clear that it isn’t only providers, but also the insurance industry and regulators that need to become more efficient in the administration of health care benefits.

• Unnecessary physician services. In a recent survey of physicians, respondents provided estimates of the amount of care they provide that they believe is unnecessary. The median responses were 21% for overall medical care; 22% for prescription medications; nearly 25% for tests; and 11% for procedures. The most common reasons given for over-treatment were fear of malpractice, patient pressure or request, and difficulty accessing medical records. Physicians identified potential solutions as training residents on appropriateness criteria, easier access to outside health records, and more practice guidelines.

While it may feel like an overwhelming problem, there are steps employers can take right now to address waste.

• Collaborate with health plans to review information about their program integrity initiatives addressing health care fraud, waste, and abuse, including on-going reporting.
• Educate employees about the issue of health care waste by distributing information from Choosing Wisely®, an initiative of the ABIM Foundation that seeks to advance a national dialogue on avoiding unnecessary medical tests, treatments and procedures by providing recommendations to patients from medical societies on overuse of healthcare services. www.choosingwisely.org/.
• To what extent does your provider network incorporate evidence-based clinical guidelines, shared decision making with patients, and other initiatives aimed at reducing waste? Find out.
• Request routine reporting from your health plan regarding the results from their health care fraud, waste, and abuse initiatives. 
• Incorporate performance guarantees that include measures of misuse, over-use, and under-use of health care services into the contracts of your health plan’s provider networks. 
• Encourage employees to use available patient decision aids that support shared decision making for clinical situations where there are treatment options, such as back surgery. 
• Accelerate efforts to transition away from traditional fee-for-service to value-based care arrangements, such as accountable care organizations (ACOs), where the health system is partially or fully at risk for health care costs.

Combating waste is an area that will require collaboration between employers, health plans, patients, and providers. The benefits are worth the effort: improving patient safety and reducing unnecessary health care costs.

More Mercer posts