Reconstructing US Healthcare by Eliminating Waste

In a special communication posted online in the Journal of the American Medical Association, Daniel M. Berwick, MD, MPP, and Andrew D. Hackbarth, MPhil, offered a strategy aimed at Eliminating Waste in US Healthcare [JAMA. 2102;307(14):doi:10.1001/jama.2012.363]. Dr. Berwick is the former president and CEO of the Institute for Healthcare Improvement and the former administrator of the Centers for Medicare & Medicaid Services (CMS). Mr. Hackbarth is affiliated with the Rand Corporation in Santa Monica, California.

According to the authors, there is nearly unanimous agreement in the United States that the continuously increasing costs of healthcare are “unsustainable.” In 2011, costs associated with healthcare were 18% of the gross domestic product, and estimates say that these costs will increase to 20% by 2020. Rising healthcare costs “reduce the resources available for other worthy government programs, erode wages, and undermine the competitiveness of US industry,” the authors state.

Noting that provisions in the Patient Protection and Affordable Care Act (ACA) are designed to generate savings by lowering payments or paying for fewer services, the authors contend that cutting waste is “a better idea.”

They continue by identifying 6 areas where efforts to reduce waste will yield reductions in costs: (1) failures of care delivery; (2) failures of care coordination; (3) overtreatment; (4) administrative complexity; (5) pricing failures; and (6) fraud and abuse. The authors’ estimates of the wasteful spending in 2011 in each of the 6 areas are: (1) between $102 billion and $154 billion; (2) between $25 billion and $45 billion; (3) between $158 billion and $226 billion; (4) between $107 billion and $389 billion; (5) between $84 billion and $178 billion; and (6) between $82 billion and $272 billion.

Dr. Berwick and Mr. Hackbarth continue by using an analytical model created by Pacala and Socolow in designing a strategy for maintaining atmospheric carbon in a sustainable range. This model proposes a series of tactics, each intended to fill a “wedge” of needed reductions over time. Applying the model to reducing healthcare costs, the authors used the example of overtreatment, saying that the wedge would require identifying specific clinical procedures, tests, medications, and other services that do not provide benefits to patients and then applying changes in policy, payment, training, and management to reduce use of those tests in appropriate situations.

They note that the National Priorities Partnership Program of the National Quality Forum has created a list applicable to reducing overtreatment, which suggest that the next step is for stakeholders to “adopt the waste-reduction goals for that wedge and combine efforts to change practice accordingly.”

The authors continue by discussing the $670 billion of gross savings that provisions in the ACA will generate for CMS between 2011 and 2019, according to estimates from the CMS Office of the Actuary. Noting that these estimates focus on direct savings that will be realized without changes from physicians, hospitals, insurers, and other stakeholders (“they neither assume nor require reducing waste”), the authors contend that the “estimate of total savings theoretically achievable through waste reduction, as opposed to direct cuts, far exceeds that figure; it is more than $3 trillion for CMS in the same period and roughly $11 trillion for all payers.”

In conclusion, the authors state that “if the United States is to reconstruct a healthcare industry that is both affordable and relentlessly focused on meeting the needs of every single patient and family, waste reduction (that is, the removal of nonvalue-added practices in all their forms) is the best strategy by far.”