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Kelley & Fabius: How to Eliminate Health Care Waste

Health care is an industry. Amid the political rhetoric, it is easy to forget that, as an industry, health care accounted for national expenditures of $2.5 trillion last year, representing 17.3 percent of U.S. gross domestic product. While the health care reform agenda has spotlighted many of this industry’s shortcomings, there remains great opportunity to address the root causes of health care inefficiency. To remedy them, we need an operational mindset that transcends politics to convert institutionalized bad habits into business best practice.

[IMGCAP(1)]We believe that by putting five proven strategies into effect to address the worst of those bad habits, the health care industry can cut its costs by 5 percent a year, an achievement that over a 10-year period would save the nation an impressive $3.6 trillion.

It starts with curbing waste. In a recent study, researchers at Thomson Reuters found that $700 billion is wasted each year on systemic inefficiencies such as unnecessary treatments, redundant tests and a lack of coordination among providers, as well as outright fraud. If nothing changes, U.S. health care expenditures will reach $4.8 trillion in a decade, or 19.7 percent of GDP, with $1.6 trillion of that doing nothing to contribute to better health.

However, many hospitals, health systems, insurers, employers and government agencies are forging solutions, and we can learn from their example. To move that process along, we have published a new report that analyzes dozens of private and public sector efforts to reduce waste while maintaining or improving the quality of care. From that body of work, five strategies have emerged.

Engage Consumers

Empower health care consumers to make more informed decisions about their health care. There has been much ink spilled on this topic, but most of the popular arguments for consumer education have been too theoretical, comparing a patient battling disease to a consumer researching a used car. For a more practical alternative, consider that one large employer changed its benefit plan to provide a financial incentive for preventive care. As a result, preventive screenings increased and 20 percent of expectant mothers enrolled in Maternity Pre-Care, a program that delivered a return on investment of 2.4 to 1.

Coordinate Care

When health care providers lack access to patients’ medical records, the result can be duplication of tests and inappropriate treatments that cost up to $50 billion annually. Leading health care organizations have leapt ahead of health reform legislation to create incentives for the adoption of electronic medical records with the potential to solve this problem. New York’s North Shore Hospital System on Long Island, for example, recently announced that it will pay up to $40,000 to each physician in its network who adopts its electronic health record-keeping system.

Manage Disease and Maintain Wellness

Currently, 58.5 percent of Americans receive health coverage through an employer, according to the U.S. Census Bureau. While the role of employers in providing coverage has been at the center of the reform discussion, the ability of employers to improve public health has received minimal attention. Well-managed health promotion and wellness programs have produced documented improvements in workers’ health, medical costs and productivity. A large employer and Thomson Reuters undertook the first long-term evaluation of the financial and health effects of a large-scale corporate health and wellness program on participating employees. The evaluation included a financial analysis of medical insurance claims for 18,331 workers. Savings averaged $8.5 million annually. Medical costs declined $225 per employee annually because of reductions in hospital admissions, mental health visits and outpatient service use.

Design for Patient Safety and Quality Improvement

A February 2008 study from the New England Healthcare Institute estimates that 5 percent to 10 percent of patients admitted to acute care hospitals acquire one or more infections. The Keystone project in Michigan stands out as a classic real-world example in which efforts to reduce waste and improve patient safety resulted in a significant, measurable outcome. A program to reduce catheter-associated urinary tract infections by implementing a caregiver checklist based on evidence-based best practices, for example, cut the number of hospital-acquired infections by 3,000 and reduced overall treatment costs by more than $1 million.

Reduce Opportunities for Fraud

The scale of fraud in the U.S. health care system is staggering. In 2007, when the U.S. spent roughly $2.3 trillion on health care, fraud was estimated to account for as much as 10 percent of that spending. By integrating data integrity and analytic programs into billing and payment processes, many state Medicaid programs have significantly reduced fraud claims. A pilot program initiated in January 2009 to curb prescription drug abuse in the South Carolina Medicaid program, for example, monitors health care claims data to identify suspicious behaviors such as visiting multiple doctors and hospitals for prescription painkillers. The initiative saved the state more than $320,000 in its first 10 months. We estimate that a similar initiative at the national level would save more than $450 million per year.

And that’s the point. Implemented on a national scale, these five strategies can have a huge effect. Our study finds that a 5 percent annual reduction in waste in each of these areas would, over a decade, save $3.6 trillion and keep the nation’s health care spend below 17 percent of GDP. In this scenario, the nation’s investment in health care will be more within our means and grow at the same rate as the economy.

Robert Kelley is vice president of health care analytics at Thomson Reuters. Ray Fabius is the company’s chief medical officer.

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