An industrial approach to eliminating heath care waste

Health care is an industry. Amidst 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 (GDP). 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.

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 between 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 money 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, coordinate care, manage disease and maintain wellness, design for patient safety and quality improvement, and reduce opportunities for fraud.

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 one.

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 care 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 & 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 impact 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 due to reductions in hospital admissions, mental health visits, and outpatient service use.