Government and Health Care

Where does the trail of health care waste lead?

January 22, 2013
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Where does the trail of health care waste lead?
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More than a third of annual U.S. health spending may be wasteful. Now that the Patient Protection and Affordable Care Act, or Obamacare, requires everyone who can afford insurance coverage to obtain it, increased attention is coming to focus on ways to assure that insurance provides value, not waste.

A report by the Institute of Medicine last fall estimates that $765 billion a year is wasted through various means.

-- unnecessary services

-- inefficiently delivered services

-- excessive prices

-- excessive administrative costs

-- missed prevention opportunities

-- fraud and abuse

Waste includes avoidable medical errors and other failures of care delivery. It includes over treatment for various reasons, including the incentives of fee-for-service payment and avoidance of medical liability. It includes failures of providers to coordinate care among themselves, leading to situations such as avoidable hospital readmissions. It also includes under treatment.

The most common definition of waste is “what the other guy does.” Although everyone agrees that there is waste, no one personally admits to being wasteful. Also, remember that cost containment to one person is income containment to another, whose livelihood depends on getting paid.

Despite general agreement about the types and level of waste in the U.S. health care system, there are big challenges involved in reducing it. Some remedies include increased provider use of digital data to improve care coordination and delivery and heightened transparency in all aspects of provider performance — quality, costs and outcomes.

Another issue involves reducing health care spending if the benefits are relatively small in comparison to the cost. Most Americans have been led to fear that a focus on cost-effectiveness could lead to "rationing" in health care. Although the Affordable Care Act bars Medicare from engaging in certain types of these evaluations, the law is silent on how this issue affects health care outside of Medicare.

Work to remove waste from the health care system will continue through a range of public and private sector activities, including adoption of health information technology, pay-for-performance systems, payment and delivery reforms, comparative effectiveness research and competitive bidding.

Such programs are already underway at state Medicaid agencies and by private insurance companies and providers.

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