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  • JAMA: Easing Administrative Complexity, Eliminating Low-Value Care Among Ways to Reduce Health Care Waste and Lower Expenditures

    In this review: Waste in the US Health Care System: Estimated Costs and Potential for Savings
    (JAMA, October 7, 2019)

    The message
    A review of published research and government reports found that the estimated annual cost of health care waste ranged from a total of $760 billion to $935 billion in the areas of failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity. Interventions that reduce waste could significantly "reduce the continued increases in US health care expenditures," authors write.

    The study
    Researchers analyzed data from peer-reviewed articles and government reports published between 2012 and 2019 that focused on US cost of health care waste or savings from interventions to address waste. The study categorized waste by the following domains identified by the Institute of Medicine: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity.

    Authors were interested in a number of causes of waste, including clinician-related inefficiencies, lack of adoption of preventive care practices, unnecessary admissions or avoidable complications and readmissions, low-value interventions and tests, payer-based health services pricing, and administrative burden.

    Studies of savings from interventions addressing waste included initiatives targeting the reduction of adverse hospital events and hospital-acquired infections, bundled payment models to reduce unnecessary variability in care, care coordination within accountable care organizations (ACOs), prior authorization, payer-focused interventions, and strategies to reduce fraud and abuse.

    Findings

    • The cost of waste from failure of care delivery ranged from $102.4 billion to $165.7 billion. Authors estimate that interventions to address this category could save from $44.4 billion to $93.3 billion annually.
    • Waste from failure of care coordination costs from $27.2 billion to $78.2 billion each year. Implementing initiatives in this area could save anywhere from $29.6 billion to $38.2 billion.
    • Overtreatment or low-value care costs between $75.7 billion and $101.2 billion annually. Researchers project that successful initiatives to minimize such care could result in savings ranging from $12.8 billion to $28.6 billion.
    • Overpriced medication and other health services cost an estimated $230.7 billion to $240.5 billion each year. Interventions such as pricing transparency initiatives could save between $81.4 billion and $91.2 billion.
    • Medicare fraud and abuse cost from $58.5 billion to $83.9 billion. Legislative, administrative, and integrity strategies could result in annual saving of $22.8 billion to $30.8 billion.
    • Annual cost of waste due to administrative complexity was $265.6 billion—the largest contributor of all 6 categories. However, no studies addressed savings from interventions in this area.

    Why it matters
    The United States spends more money each year than any other country on health care costs—projected to be more than $3.8 trillion for 2019, approximately 18% of the nation’s gross domestic product. According to authors, addressing unnecessary waste could reduce total health care expenditures by 25%.

    Value-based arrangements, "payer-health system collaboration to improve care coordination and transitions in care," and "greater alignment between payers and clinicians" could greatly reduce waste, as well as low-value care, authors write.

    More from the study
    "Fragmentation in the health care system is one of the causes of costs from administrative complexity, the largest contributor to waste," authors write. They believe that as value-based care models continue to be more widely adopted, there will be "increasing interdependency" among all 6 categories of waste. They estimate that interventions to address waste in care delivery, failure of care coordination, and overtreatment or low-value care categories alone could reduce cost of waste by as much as half.

    Related APTA resources
    APTA's Integrity in Practice website offers resources and information on reducing fraud, waste, and abuse. The association continues to advocate for reducing administrative burden, and members can encourage their House representatives to address the burden of prior approval by supporting H.R. 3107, the "Improving Seniors' Access to Care Act," through the Legislative Action Center or the APTA Action app.

    Keep in mind…
    Authors note several limitations in the existing studies reviewed for this study. Much of the research comes from data on Medicare enrollees, which may not be generalizable to the entire Medicare population or private insurance. Thus, the resulting costs estimated are conservative. Similarly, some studies included multiple sites, rather than nationwide data, limiting the generalizability of the results. In addition, more realistic estimates of cost savings from interventions to address waste would be possible if studies included data on costs of implementing the interventions. Estimates do not include pediatric health care spending, because research in this area is limited.