$395 Billion in Waste: Why It’s Time to Measure the Care That Should Never Have Happened

Waste—spending on unnecessary healthcare services and missed prevention opportunities—is a major, solvable problem in the United States. This problem persists because the industry fails to measure and manage care that should never happen in the first place.

Why does the U.S. healthcare system tolerate waste? With such sophisticated financial and risk arrangements, clear evidence-based clinical guidelines, and the most regulation of any U.S. industry. Why, according to the National Academies’ report, The Healthcare Imperative: Lowering Costs and Improving Outcomes,is healthcare wasting $395 billion every year? For context, the money the U.S. wastes on healthcare would pay for all the annual healthcare needs of either France or Japan.

Waste in the U.S. healthcare system does not help patients; it hurts them. Waste is not inevitable; it can be stopped. And waste can be corrected under our existing mix of fee-for-service and value-based care. To get started, payers and providers need measurement so that they can examine their patterns of waste.

Waste Can Be Objectively Identified

Is waste a subjective thing? Is there widespread disagreement about what wasteful care is versus valuable care? Not at all.

Unnecessary services and missed prevention opportunities are two areas of waste that have clear, evidence-based practice guidelines published by professional associations, such as the American College of Cardiology, and in top medical journals, including The Lancet and the New England Journal of Medicine. These guidelines are the result of extensive clinical research that has been carefully reviewed and conservatively presented.

To be certain, practicing healthcare is not executing an algorithm. Some patients have other medical circumstances that require treatment outside of the guidelines. Some physicians do see a sicker cohort of patients. A well-crafted methodology of physician performance measurement can address these factors and assess performance while accounting for the range of reasonable practice variation. Such a methodology can objectively evaluate the patterns of physicians’ decisions against the scientific criteria established by their peers. This is a much better way to assess waste than the commonly used approach of subjectively force-ranking a physician’s costs against the average of other physicians.

Some physicians reject practice guidelines and insist that their practices are superior. Perhaps they learned another method in medical school and inflexibly cling to it years later. Maybe they have a personal experience that contradicts the extensive research and rigorous standards that inform the creation of practice guidelines and articles in leading journals.

Waste also persists because it is profitable. Removing $395 billion per year from the U.S. economy will disrupt the livelihoods of specific physicians and the associated waste spent in hospitals, imaging centers, and pharmacies. Certain actors have a pecuniary incentive to resist. However, they cannot successfully argue that the evidence-based guidelines are not widely accepted and grounded in scientific evidence.

Waste Does Not Benefit Patients in Any Way

When people buy a house, they want the most house they can get for their money. When someone buys groceries, it is better to get more groceries for the same amount of money. Healthcare does not work like that. Patients need the right care, not the most care. Unlike other areas of the economy, more healthcare is seldom better healthcare.

No one would argue that missing a prevention opportunity is ever suitable for the patient. But is there a benefit to the patient in getting more care than specified in the guidelines? If one unit of anesthesia is good, might two be better? What about surgeries? Tests?

As an example, consider radiation treatment after surgery for breast cancer. A study published in the New England Journal of Medicine demonstrates that many patients continue to receive the traditional five-week treatment, despite evidence-based guideline recommendations that most patients should receive the condensed three-week treatment. 

Waste Is Not Inevitable

There is a misconception in healthcare that altering provider behavior is complicated. This is not true. Provider behavior changes constantly with the right levers.

Sometimes, change occurs due to convenience — there was never a mandate to adopt e-prescribing, but its use increased from 7% to 92% in just 15 years, according to Health IT Buzz, the blog of the Office of the National Coordinator for Health IT. Sometimes, change occurs through education alone — consider the changes in breast cancer screening guidelines or the use of statins to treat high cholesterol in patients at high risk of heart disease. While gaps in adoption still exist for each of these, most physicians have readily adopted these guidelines without objection. And provider behavior constantly adapts to changes in payer policies, such as benefit design, utilization management, and payment rates.

These examples tell a story: the overwhelming majority of physicians can change their behavior, unless financial barriers exist. To be clear, that same overwhelming majority wants to deliver the best possible care to their patients. However, understanding the economics of the situation is necessary to identify why stubborn patterns of waste persist.

Consider again the example of radiation treatment after surgery for breast cancer. Adopting the new guideline decreases the number of treatments, which directly reduces the radiologist’s income. Furthermore, the new guideline may require retiring expensive existing equipment for even more costly new equipment. Given these factors, it is understandable why some radiologists choose to continue delivering the older treatment.

Delivering the right information and the right incentives does not require massive federal regulation or upending the current U. S. healthcare system; it can be achieved using methods already available to payers and providers. This starts with systematic measurement on a national scale, using direct attribution to each physician.

Putting Measurements to Work: Using Current Payment Models to Reduce Waste

The first step in any serious effort to reduce waste is to measure it. However, traditional quality measures do not identify impactful waste; instead, it is necessary to measure the appropriateness of care.

Any useful measurement of waste must meet several critical criteria:

• It must be systematic and inclusive in scope.
• The methodology must be transparent and rigorous.
• It must be based on widely accepted, evidence-based practice guidelines.
• Cases that do not meet the clinical criteria described in the practice guidelines must be omitted from the evaluation. For example, cases of heart failure and atrial fibrillation should be evaluated only in the context of the guidelines that apply to them.
• Only cases that can be accurately attributed to the physician who is responsible should be included in the evaluation.

Once the analysis can convincingly indicate patterns of wasteful and unnecessary services and missed prevention opportunities specific to the physician making these decisions, it is necessary to educate the physicians. However, this education must first overcome a mountain of resistance from those physicians who have endured a lifetime of performance reports that are opaque, inaccurate, and designed to make money for someone else.

But education, even compelling education, is often insufficient. The financial incentives and disincentives must be addressed.

There are multiple ways for payers and providers to create the right incentives for physicians to reduce unnecessary services and missed opportunities for prevention. In value-based care programs where variable payments to a provider are substantial enough to influence behavior, using adherence-to-guidelines levels can be a more effective lever than relying solely on the total cost of care. 

However, in reality, the majority of U. S. healthcare remains fee-for-service, despite the trappings of value-based care that may exist. In fee-for-service, volume is king — and this is a powerful lever for payers and providers who want to reduce waste. Payers have many existing methods of affecting a physician’s volume, such as including only high-performing physicians in their networks. Payers can also develop preferential search results when members (or care managers or referring physicians) are searching for providers in health plans. Providers can also greatly impact the volume of other providers through their referral patterns.

For some critics, steerage is a negative concept associated with low-cost, low-quality care. But how can the triple aim be accomplished if we are neutral about what the right care and the right place mean, especially when choosing between two physicians who objectively differ in their adoption of guidelines that reduce unnecessary services and missed prevention opportunities?

Steering to the best physicians is obviously the best thing for a member. But it also creates the feedback loop necessary to create systemic change at scale. Physicians who are following the guidelines will be economically rewarded. Physicians who are not following the guidelines will lose patient volume. Suppose no one sends patients to a radiologist who continues to use the less effective, more wasteful treatment for breast cancer. In that case, the radiologist will have no choice but to adopt the better treatment.

Today, patients are steered to one physician over another for any number of reasons. By combining persuasive analytics with the most basic parts of either value-based care or fee-for-service, including network design and referral patterns, the industry can start to reduce the care that should never happen.