A new study evaluating waste in the U.S. healthcare system identified six areas of wasteful spending and how cost curtailment efforts are ongoing there. But it couldn’t point to any studies out there that have calculated how efforts to rein in administrative complexity — that it identified as the single largest source of U.S. wasteful healthcare spending — can yield savings.

Total wasteful spending amounted to between $760 billion to $930 billion, which accounts for nearly 25 percent of overall healthcare spending.

The paper reviewed 6 categories of wasteful spending as follows and enumerated the dollar ranges for each:

  • failure of care delivery — $102.4 billion to $165.7 billion
  • failure of care coordination — $27.2 billion to $78.2 billion
  • overtreatment or low-value care — $75.7 billion to $101.2 billion
  • pricing failure — $230.7 billion to $240.5 billion
  • fraud and abuse — $58.5 billion to $83.9 billion
  • administrative complexity — $265.6 billion

“We weren’t surprised that administrative complexity is the largest area of waste,” said Jim Doughtery, co-founder and CEO of Madaket Health, a firm that provides software tools to improve administrative efficiency, in an email. “Our research and data show that a typical provider has relationships with 25 payers.  Just do the math – it’s burdensome work with little added value to care.  Each time a provider has to update information in their profile, which is often, it typically takes 4 months to complete the update to each of the payers, each with different forms requiring separate redundant submissions by all types of providers. The result is unpaid bills, incorrectly paid bills, all requiring additional work to remedy.”

The JAMA study also reviewed the ongoing efforts to eliminate waste and found that in five categories the following amounts could be saved:

  • failure of care delivery— $44.4 billion to $93.3 billion
  • failure of care coordination— $29.6 billion to $38.2 billion
  • overtreatment or low-value care— $12.8 billion to $28.6 billion
  • pricing failure— $81.4 billion to $91.2 billion
  • fraud and abuse — $22.8 billion to $30.8 billion

The JAMA study co-authored by representatives from Humana, the University of Pittsburgh School of Medicine and others weren’t able to find any study that tackled how wasted spending in administrative complexity could be curtailed. This is likely troubling given that, as mentioned above, this category alone accounts for the single-largest share of wasteful spending in healthcare.

However, the study noted how wasteful spending because of administrative complexity may be curtailed.

Some of that complexity results from fragmentation in the health care system. Recent proposals by CMS and the Office of the National Coordinator of Health Information Technology to foster data interoperability and government initiatives such as Blue
Button 2.0 will hopefully alleviate some burden as information flows more freely and billing and authorization processes become more automated. The greater opportunity to reduce waste in this category should result from enhanced payer collaboration with health systems and clinicians in the form of value-based payment models.

Dougherty agreed with these suggestions.

“The ideas presented in the study made sense and would be worth trying,” he said. “The solution is to create standards and digitize manual and fax based processes.”

The study also pointed out that as healthcare moves further into value-based care payment arrangements where providers and clinicians bear a certain amount of financial risk, the administrative burden oversight could be reduced for them and other healthcare players. Study authors assumed that health systems, payers and others are exploring digital solutions to reduce administrative complexity, but acknowledged there are no good mechanism to estimate cost savings.

“The science describing the success of these interventions is limited and more evidence is needed to quantify the waste in this category that could be reduced and the resulting savings,” the report said.

The study also noted its own limitations – among them is the fact that the review of the cost and savings data has relied on other research on Medicare populations and there “was no attempt in these analyses to generalize Medicare costs or savings to other insurance populations, rendering the findings conservative.”

Photo: Damon_Moss, Getty Images


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