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waste in the healthcare industry

5 Tips for Managing Healthcare Waste

Approximately $3.5 trillion. That’s the difference in the national health expenditures of the United States and the next closest country — Germany. The U.S. spends an estimated $12,318 per person on healthcare, while Deutschland shells out roughly $7,383 per capita. 

With those lofty numbers, you’d assume that America ranked first in health outcomes. You’d be wrong. Out of the 11 highest-income countries in the world, the U.S. ranks last on not only outcomes but also access to care, administrative efficiency and equity. 

So, why the suboptimal results, even with such high expenditures? It’s partially due to financial waste, which costs the U.S. healthcare system an estimated $765 billion annually — or about 25 percent of total medical spending. According to the National Quality Forum (NQF), U.S. adults receive recommended care only about 55 percent of the time, and 30 percent of healthcare spending is wasteful and produces no value to the patient.  

Waste in the United States healthcare system can be categorized as administrative, operational or clinical. Along with a lack of interoperability and price transparency, the biggest drivers of waste include:

  • Failure of care delivery ($102.4 – $165.7 billion)
  • Failure of care coordination ($27.2 – $78.2 billion)
  • Overtreatment or low-value care ($75.7 – $101.2 billion)
  • Pricing failure ($230.7 – $240.5 billion)
  • Fraud and abuse ($58.5 – $83.9 billion)
  • Administrative complexity ($265.6 billion)

Administrative Waste

The U.S. spends more on administrative costs than other wealthy countries, even as healthcare providers in this country are increasingly tasked with increasing efficiency while reducing waste. As noted by The Commonwealth Fund, billing and insurance-related (BIR) costs — i.e., eligibility determination, claims management, clinical documentation and coding, prior authorization, sales and marketing, quality measurement and credentialing — are the largest component of administrative costs.

What causes such a high level of administrative waste? Primarily, it’s due to the excess administrative overhead from the complexity of the U.S. insurance and provider payment systems. It’s the type of spending that could be reduced or even eliminated without harming patients or diminishing the quality of care they receive.

Clinical Waste

Services in this category include those that have either a negative or less positive effect compared to alternatives that cost less. Types of clinical waste consist of:

  • Excessive antibiotic use for viral upper respiratory infections and otitis media
  • Avoidable emergency department use
  • Avoidable hospitalizations of nursing-home patients
  • Overuse of cytology for cervical cancer screening
  • Inappropriate hysterectomies

Also classified as clinical waste are overtreatment and failures of delivery and care coordination. Combined, these account for up to 16 percent of all healthcare spending in the U.S. 

Operational Waste

Especially problematic in hospital care and pharmaceuticals, operational waste occurs when resources are utilized inefficiency in the delivery of healthcare services. The four main types of operational waste are duplication of service, inefficient processes, errors and overly expensive input. 

Applicable Areas of Focus for Reducing Healthcare Waste 

With the healthcare waste numbers so high, it might seem like reducing them is an insurmountable task — or one that will negatively affect patient care. There are effective options, though, for safely reducing waste, and they’re not overly complex or costly. 

The safest type of healthcare cost savings come in the form of interventions that reduce administrative waste. Excluding administrative complexity, the potential savings range from 191 billion to $286 billion. That’s an almost 25 percent reduction in the total cost of waste. 

Healthcare executives often are the key employees responsible for mitigating administrative, clinical and operational waste. Or, they’re charged with developing and implementing resources and tools to do so. To aid them in that goal, we’ve compiled a list of five ways these professionals can do their part to at least make a dent in that hefty and excessive spending amount.

1. Price Transparency 

As we mentioned in a previous blog, the idea behind price transparency is to help Americans be aware of the cost of medical care before receiving it. The overall goal is to reduce healthcare costs and spur competition among providers by enabling consumers to shop for healthcare services. 

Along with reducing the cost of healthcare, price transparency has the potential to provide numerous benefits to both patients and providers, such as real-time online access to estimated out-of-pocket (OOP) costs, enhanced patient engagement and reduced market prices for various procedures. It also helps patients make more educated healthcare purchasing decisions and be more aware of their payment responsibility to their provider.  

2. Interoperability 

Promoting interoperability by connecting and integrating disparate healthcare IT systems enables providers to communicate and collaborate more quickly and easily with other clinicians. The result? An increased focus on evidence-based medicine and a reduction in duplicate tests and procedures.  

Convenient and accessible digital tools enable healthcare providers of all sizes to compete with direct-to-consumer healthcare options nd promote patient retention. Interoperability and integration of such digital tools with electronic health records (EHRs) will result in better quality outcomes and lower cost of care.  

3. Technology 

Clinicians waste an average of 45 minutes per day by utilizing outdated communication technologies. However, medical practices that implement technology and other solutions to streamline workflow have the potential to reduce waste, especially for administrative tasks that don’t directly affect patient care. 

Along with a focus on patient-centered care, automation can be used to proactively improve quality and consistency of healthcare and reduce waste and costs. Also recommended are technology tools that employ artificial intelligence, machine learning and data analytics to identify and address areas of waste. 

4. Care Coordination 

Failures in this category account for up to two percent of total U.S. healthcare spending. They also lead to unnecessary hospital admissions and readmissions. 

It’s important that providers involve patients and their families and/or caregivers in care decisions. Similarly, partnerships between providers and the communities they serve should be promoted to improve care transitions. 

Another simple yet often overlooked component of care coordination is ensuring providers are able to access completed and accurate and electronic health records (EHRs) in real-time. This reduces the problems that occur when patients experience fragmented care. 

5. Healthcare Fraud 

Healthcare fraud costs the U.S. an estimated $68 billion annually. Not all of that occurs intentionally or maliciously, either. 

It’s essential that medical practices develop and implement a strong compliance program and regularly educate and train staff on it. The Medical Group Management Association (MGMA) recommends that such a program include the following components:

  • Written policies, procedures and standards of conduct
  • Compliance program oversight
  • Open lines of communication regarding compliance issues, education and concerns
  • Auditing and monitoring, including reporting any misconduct within 30 days to the OIG and the Centers for Medicare & Medicaid Services (CMS)
  • Implementation of consistent discipline
  • Corrective action

As with most recommendations for healthcare leaders, these tips aren’t a one-size-fits-all answer to reducing waste. Used together, though, they create solid first steps to combating an industry-wide issue. Subscribe to our blog for more information about issues facing the healthcare industry.