The causes of medical waste lie mainly in high-tech practices (specialists), fee-for-service issues (physicians charging per medical service), and fraud. So, what effective strategies can we use to cut spending drastically? The addition of value-based care organizations and healthcare policy reform (such as the Affordable Care Act) will aid in reducing our spending for the better.  Research shows that alternative payer models outside of fee-for service have the potential to save millions of dollars by preventing over-utilization, whilst increasing transparency and patient outcomes, creating better spending habits, and providing better patient care in the long run.

In 2014, the United States spent eighteen percent of its gross domestic product on healthcare, compared to the Netherlands which spent twelve percent. Given that the United States GDP amounted to around $17 trillion last year, six percent  additional spending on healthcare is approximately $1 trillion dollars out of the US government budget. The estimated waste per household amounts to more than $8000 per family (through insurance premiums, taxes, out of pocket care, and other costs.)  The simple explanation for a big proportion of this spending, is that the United States has a large number of specialists that engage in high-tech practices like imaging and other diagnostics. On an international level, the Organization for Economic Co-operation and Development stated the following:

“Compared with the average OECD country, the U.S. delivers (population adjusted) almost three times as many mammograms, two-and-a-half times the number of MRI scans, and 31 percent more C-sections. Also, the U.S. has more stand-by equipment, for example, 1.66 MRI machines per 6,000 annual scans vs. 1.06 machines. The extra machines provide easier access for Americans, but add to cost”. 

While seemingly more thorough and convenient, these high-tech practices can contribute to waste and add to our expenses. In addition to spending twice as much, we also cannot control administrative pressures as our government doesn’t have strong tax supported healthcare with more government intervention.

The specialists that engage in more high-tech care make more money and also have a more considerable influence on policy. Also, we can safely assume that quite often those on public healthcare believe that more expensive care translates to better care.  Drug costs in the U.S.  are about twice as much as those in other countries. Specialist physician fees are also twice or even worse, three times as high. Lower prices abroad are found by governments who pay for up to seventy-five percent of medical care, whereas the U.S. government pays about fifty percent. 

A loss of patient-doctor transparency, increased unnecessary care, and comparatively worse patient outcomes are all caused by a major flaw known as fee-for-service (FFS), present in modern-day primary care practices and hospitals.  Under this system, patients are charged separately for each service provided to them at their doctor’s office or hospital, instead of otherwise bundling the procedures and increasing overall cost-effectiveness. Doctors and hospitals routinely cross the line between care that is critical (true preventative care), and care that should be done “just to be safe”. As a result, “[we] spend more than twice as much per person on healthcare as all other industrialized countries, despite being the only country that doesn’t provide basic health insurance for its citizens,” says Dr. Timothy Johnson, a senior medical contributor for ABC News.

In terms of national spending, the FFS concept was responsible for an estimated $750 billion dollars in unnecessary spending in the year 2009.  This roughly translates to thirty cents  of every American dollar contributing to medical waste and unnecessary care, which is, moverover, of low quality. The overall breakdown of waste is as follows: $210 billion for unnecessary care, $190 billion for excessive administrative costs, $130 billion for inefficient delivery of care, $105 billion for inflated prices, $75 billion for fraud (from insurance companies, clinicians and patients), and $55 billion from missed prevention opportunities.  Mark Smith, the chairman of  the Institute Of Medicine, said that our current state of healthcare is driven by a “maddening paradox”, in which patients are over-treated (creating medical waste) or under-treated (creating lower life expectancies).  This proves a strong point in the healthcare debate today: we are  unable to determine, as patients, which care is necessary and which is not. FFS practices create incentives for physicians to focus on quantity of care (as they bring in more profit with a higher number of tests and visits), rather than the quality of care. This may lead to medical fraud as the best doctors exist in the lowest socioeconomic areas, in which patients are often uneducated about the services that they may receive. Therefore, some doctors may become corrupt and exploit this loophole with such patients.

Local information compared to the national average from the Center of Medicare and Medicaid Services shows that inpatient costs (hospital admit/procedural costs) for various procedures can range from a fraction of the national average to more than twice the cost, depending on the severity of the procedure. The most recent data set outlines notable statistics for Lake Forest Hospital when compared to Northwestern Memorial in Chicago. For example, in 19 cases of surgery of intracranial hemorrhage or cerebral infarctions, Lake Forest Hospital billed Medicare an average of $38,318, which is 1.3 times the national average for this procedure. In return, Medicare paid $7,335, which is 0.9 times the national average paid to hospitals. When looking at the same procedure for Northwestern Memorial, we see an average amount for 56 cases of $110,418, which is 2.2 times the national average. In return, $23,337, a staggering 1.7 times the national average, is paid back by Medicare.  The cost of such FFS  practices is is extremely variable and dependent on quality metrics for medical care (risk adjusted by age, disability, socioeconomic status, geography, and chronicity). Therefore, in different socioeconomic areas, FFS costs may drastically vary, with those in poorer areas (such as the South side of Chicago) billing Medicare more for procedures. When compared to a financially sound area (Lake Forest), it is easy to see how costs can skyrocket with such complicated procedures (leading to low quality care).

The solutions to the medical waste problem and unnecessary spending in US healthcare are minimal as of now, but leave untapped ideas and potential for large savings nationwide. Perhaps the most widely accepted concepts are the ACA and the value based care organization.

The Affordable Care Act is a law that was put into place on March 23rd, 2010, by President Obama, set on creating new mechanisms for reform over time. These new changes include a Patient Bill of Rights to protect from insurance abuse, cost-free preventative care, the creation of accountable care organizations, open enrollment in the health insurance marketplace, and affordable care for those in low or middle class families.  It will provide billions of previously  uninsured people insurance coverage and tax credits towards their healthcare cost, and will definitely aid those in lower income communities. The most notable and perhaps useful addition to recent healthcare policy is the idea of a value-based care organization.

An interesting new initiative by three alumni of Harvard University has taken the challenges in healthcare faced by Americans head on.  Their brainchild, Oak Street Health, is a value-based care organization that has a network of insurance providers (Blue Cross Blue Shield, Humana, etc), that furthermore contains managed care models (preferred provider organizations, also known as PPO’s, and health maintenance organizations, or HMO’s). Seventy five percent of Medicare relies on the FFS model, and the remaining twenty five percent on these alternative models(PPO/HMO). Furthermore, research suggests that HMO’s are more able to cut unnecessary care by 20 or 30 percent when compared to typical FFS models. “[These] findings demonstrate that the more managed plans do not compromise quality. [They do] just the opposite: they deliver higher-quality care than fee-for-service medicine and thus do a better job of improving health care value. 

The Oak Street Health clinical model is focused on those primarily with Part B Medicare, accepts traditional Medicare (FFS) and Medicare Advantage as well (Part C), and privately contracts with varied insurance providers. After finding that “complex, chronic older patients drive the cost of Medicare” (20% of 65+ patients create 75% of the cost - an estimated $350 billion)  , a tier system was created for the sickest patients based on need and acuity. The tiers 12 are assessed during the first two visits and are assigned as good (0-30% sickness), fair (31-70% sickness), serious (71-95%), or critical (96-100% sickness), which dictate how frequently patients are seen (anywhere from every 3-4 months or up to twice a month). Those in serious or critical condition are given priority with 24/7 MD’s as well as transportation and home visits, etc.  Another advantage is smaller scale care.

Instead of the typical Medicare approach (where a patient would see 7 physicians, 2 primary care physicians, across 4 different practices), a patient is surrounded by a small managed care team (an MD and 4 other members) with Oak Street acting their primary care doctor. This clinical model leads to improved health, for patients using emergency response (41% FFS compared to just 20% for Oak Street), undergoing diabetic amputations (1.2% FFS compared to just 0.03% for Oak Street), and open heart surgery (3.7% FFS, compared to just 1.9% for Oak Street) . The core preventative care model tries to reduce emergency response need with home 14 visits, 24/7 consultation, connecting emergency response with Oak Street MD’s, and working with hospital staff to facilitate discharge in the event that patients need to go to the hospital. As Oak Street has such a groundbreaking alternative payer model, tiered patient systems, and a small scale managed care ideology, they are left to focus on patient satisfaction and outcome, which is perfect for the effective creation and expansion of their business.

To end, we see that the medical waste issue in healthcare today can be attributed to a multitude of factors, sheer profiteering, high technology, lack of transparency, over-utilization, and disregard for patient well being. Given updated alternative payer models, patient tiering, and value-based preventative care, we see an effective solution to minimizing the waste in healthcare costs. So, can value-based organizations like Oak Street Health become a long term solution to the healthcare cost crisis in the United States? They definitely reduce the amount of medical waste and increase overall patient health, reducing hospital readmissions, and providing stronger care to patients. If the future of American healthcare models adopts updated administrative technologies, more emphasis on acute care for patients and focuses on preventative care, our country will definitely cut back on spending and be taking steps in the right direction to resolve the healthcare crisis.

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