Here’s how employers can reduce waste in healthcare spending

Just how much of what the U.S. spends on healthcare is wasted?

According to a new study in Journal of the American Medical Association, the cost of waste accounts for roughly one-quarter of all U.S. healthcare spending.  Further, the study also 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

So what actions can employers that offer self-funded plans take right now to lower the amount of wasteful healthcare spending?

Related: Employer-sponsored healthcare costs top $20K a year

One of the first steps, says Dr. Andy Halpert, Mercer’s clinical innovation leader, is that employers should 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,” Halpert says. “Value-based care occurs in many forms and has shown mixed results.  Attribution model accountable care organizations 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.”

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Employers can refocus other strategies to hack away at waste as well, Halpert says.

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),” he says. “While this can be accomplished most forcibly through a direct contract, employers of all sizes can and should ask their carriers for these features.”

Michael O'Brien
Michael J. O'Brienhttp://
Michael J. O’Brien is former web editor with Human Resource Executive®.