Yes, we can reduce waste in healthcare spending 

Close up asian nurse using tablet technology health care medical. Mercer
June 23, 2022

A new study in JAMA cuts through a lot of the noise about the problems in U.S. healthcare by juxtaposing two facts:  The U.S. spends more on healthcare than any other nation and the cost of waste accounts for roughly one-quarter of all U.S. healthcare spending.  The study identified and ranked six categories of waste: 

 Type of Waste     Annual Amount Spent
  1. Administrative complexity    $265.6 billion
  2. Pricing failure (overcharging)    $230.7 - $240.5 billion
  3. Failure of care delivery    $102.4 - $165.7 billion
  4. Overtreatment or low-value care    $75.7 - $101.2 billion
  5. Waste related to fraud and abuse costs         $58.5 - $83.9 billion               
  6. Failure of care coordination    $27.2 - $78.2 billion


The JAMA paper, accompanying editorials, and articles that followed in the general press  (see NYT article) touch on approaches to realize these potential savings.  Many articles specifically highlighted value-based care payment models, which seek to reduce wasteful spending -- without affecting quality of care -- by aligning incentives and increasing collaboration between payers and providers. 

The commentary did not focus on self-funded employer-sponsored plans, despite the fact that they account for a very significant percentage of overall health care spend. This is important because the barriers to reducing waste that were articulated in some of the editorials -- in particular the political dynamics related to special interest influence -- should not impede employer sponsors.  Unlike Medicare or Medicaid, employer interventions do not depend on an “act of Congress”.  

So what actions can employers take right now to make a meaningful dent in wasteful health care spending?

First, develop a network strategy that, as much as possible, seeks to directly influence the delivery system to provide more cost-efficient care. In other words, do not rely on traditional intermediaries to effect change.  Value-based care occurs in many forms and has shown mixed results.  Attribution model ACOs led by hospital systems that accept only upside risk and are still primarily engineered for a fee-for-service world will not aggressively address the waste opportunity.  However, employers can pursue more direct arrangements where they can dictate the terms to address as many of the waste “buckets” as possible – many of which are interrelated.  

For example, an on-site or near-site clinic approach can embed agreements with the operating provider (who is only beholden to the plan sponsor(s) involved) to implement best practice treatment pathways, avoid duplicative care, and only refer to efficient providers for off-site services such as imaging, outpatient surgery and other high value specialists. These clinics are a growing trend among larger employers. According to our 2018 Worksite Clinic Survey, one-third of all organizations with 5,000 or more employees, provide a general medical clinic at or near the worksite – that’s up from 24% in 2012.  The spread of shared, near-site clinics gives smaller employers the opportunity to work together to influence care provision.  Clinic sponsors can stipulate that members are charged a copay so they don’t have to decipher what a service might cost.  You can even mandate that a preventive exam adheres to the services that strictly map to the evidence-based age/sex indications and avoid the upset when a member believes a preventive exam will be free “but it wasn’t!”  

There!  You have just attacked several of the flavors of waste. And these same approaches can be embedded in a more global direct provider contract strategy, such as an employer-specific, narrow network ACO plan.

Employers can refocus other strategies to hack away at waste as well.  Centers of Excellence can be deployed to address pricing failure (via aggressive bundled payments) and failure of care delivery (through a partnership with a high quality provider).  While this can be accomplished most forcibly through a direct contract, employers of all sizes can and should ask their carriers for these features.  And, while you’re at it, insist that there are no OON ancillaries (e.g. pathology, anesthesia) lurking, to avoid surprise OON billing – a major cause of administrative complexity and waste.  You can also insist that the provider, prior to performing the service, conduct an independent second opinion to ascertain if the procedure is even necessary –attacking the overtreatment/low value care bogeyman!  

The largest category of waste, according to the JAMA authors, is administrative complexity.  Self-funded plans pay significant fees for basic member services, and often even more for add-on “concierge” services to deal with issues that arise because of poor-functioning systems: “What is this service going to cost, why didn’t it cost what I was told, can you confirm my doc is in network, why did I get an out of network bill from an in network hospital, why wasn’t my preventive exam free?” ....and the list goes on.  If you attack some of these ridiculous “only in healthcare” pain points as part of the initiatives discussed above, administrative complexity, and its associated cost, will slowly begin to wither. 

So, employers, use the six circles of h…, I mean waste, as pillars to embed in any project, strategy or initiative.  Remember that the sources of wasteful spending are interconnected:  The more you address, the more successful you will be.

-Article by Andrew Halpert, MD, Clinical Innovation Leader

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