Six ways the health care industry could save dollars

Ernie Shannon's picture
Health care cost

To hear proponents and opponents of the nation’s new health care reform law, the Affordable Care Act will either make the United States the utopia of medical care or give Americans medicine the equivalent of a third-world country. Likely, it won’t do either. Instead, availability and cost levels might improve while quality could decline. This realization is dawning on some medical experts who are beginning to focus on wasteful spending and practices as the most immediate way to cut into rising health care costs.

In a report appearing in the current issue of the Journal the American Medical Association, Dr. Donald Berwick, a former administrator of the Centers for Medicare and Medicaid Services and Dr. Andrew Hackbarth of the RAND Corporation are suggesting six steps the health care industry can take to begin reducing costs. Those steps include failures of care delivery, failures of care coordination, overtreatment, administrative complexity, pricing failures, and fraud and abuse.

The area of biggest waste, according to the authors, is in administrative complexity which also happens to be a potential Achilles health for the Affordable Care Act. When government, accreditation agencies, payers, and others create inefficient and misguided rules, the industry spends anywhere from $107 to $389 billion more than it needs to. And while the current system often drowns in such inefficiency, the new health care law depends on reformed, yet similar procedures.

Secondly, and no surprise, fraud and abuse steals billions of dollars out of the pockets of patients and physicians. Berwick and Hackbarth finger these fraudulent acts by a few as devastating to the many as everyone pays for those misbehaviors. The writers estimate that fraud results in as much as $272 billion in losses.


Interestingly, the authors blame overtreatment as the next most wasteful activity. “The waste that comes from subjecting patients to care that, according to sound science and the patient’s own preferences, cannot possibly help them – care rooted in outmoded habits, supply-driven behaviors, and ignoring science.” Another aspect of overtreatment not mentioned by the authors includes insurance company requirements that demand tests unrelated to the illness. Supporters of the Affordable Care Act claim the new law will eliminate this kind of overtreatement.

Pricing failures, according to Berwick and Hackbarth, constituted a loss of up to $178 billion last year. They describe pricing failures as when prices migrate from those expected in a well-functioning market. For example, because of the absence of effective transparency, the authors say, prices for diagnostic procedures such MRI and CT scans are several times more than what they should be.

Fifth, Berwick and Hackbarth say the waste that comes with poor execution of the best known practices in health care can be devastating to people entrusting their lives to physicians. The lack of widespread adoption of patient safety systems and preventive care practices result in injuries and bad clinical outcomes.

“We estimate,” the authors say, “that this category represented between $102 billion and $154 billion in wasteful spending in 2011.”

Last on the list is the failure of care coordination, according to Berwick and Hackbarth. This results when patients “slip through the cracks” causing complications, hospital readmissions, declines in functional results, and increased dependency. These slippages can cost the industry as much as $45 billion annually.

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