By Michael Chernew
The American healthcare system is experiencing rapid change, largely driven by the recognition by both public and private payers that the trajectory of healthcare spending growth must be slowed. Despite the recent slowdown in healthcare spending growth, which many attribute to the recession, efforts to transform benefit design and payment systems are proceeding rapidly. For example, public payers are both cutting payment rates and experimenting with bundled and global payment models. Private payers are adopting similar payment models and developing more sophisticated benefit designs that encourage patients to seek care from low cost and maybe high value providers, and to avoid expensive and maybe low value services.
In this environment it is crucial to try to eliminate waste. The new payment models allow providers to share some of the savings if utilization of wasteful services can be curtailed. The challenge of course is identifying which services are wasteful. The fact that waste exists in the healthcare system is widely accepted. Berwick and Hackbarth (2012) estimate there is about 200 billion dollars in waste due to over treatment in the United States’ healthcare system, almost 10% of total spending.
But eliminating that waste may be a challenge. Like everything in healthcare, the waste is likely to vary across geography and more importantly, across providers. Identifying which providers to focus on is a challenge. More fundamentally, aggregate measures of waste are not necessarily helpful to providers. Detailed, operational measures that can be applied to provider systems are needed. Fortunately, there has been a recent increase in effort to identify wasteful services. A number of lists exist. Perhaps the most prominent of these efforts is the Choosing Wisely campaign, sponsored by the American Board of Internal Medicine Foundation, challenged specialty societies to identify wasteful practices. Other panels, such as the United States Preventive Services Task Force, have identified services that might be wasteful. Thus clinically meaningful knowledge of what is wasteful exists.
Translating the knowledge of what is wasteful into tools that can be applied to identify that waste at the system level is difficult. Claims data is not ideal in many cases to identify waste. Often the measures of waste depend on patient history. Clinical knowledge and IT expertise are needed. Academic efforts to quantify waste using subsets of available measures are just beginning. For example, using a limited number of services, Schwartz et al. (2014) find 0.6% – 2.7% of Medicare spending may be wasteful and between 25% – 40% of beneficiaries have received at least 1 low value. Moreover, they found that there was significant regional variation in spending on low value services, suggesting some providers are more prone to use low value services than others. Finally, different measures of low value services were correlated across regions suggesting that measures of low value services based on a small number of services may be indicative of broader patterns of waste.
Commercial tools to quantify practice patterns will be crucial to many cost containment activities. Data can help focus efforts on reducing waste and thereby improve value. Such tools could be used to support payment reform, provider education, tiered benefits or even value based insurance designs. One way or another spending growth must be contained. Our goal must be to do so in a way that improves value.
This article first appeared at Milliman MedInsight.