Reduce health costs by reducing waste

There is enormous waste in American healthcare delivery. One estimate is anywhere from 20% to nearly 50% of total expenditures are frankly unnecessary. What is this waste?  Is it real? Could it be eliminated or at least reduced? How difficult would such a reduction be to achieve? And what would be the unintended consequences?

Donald Berwick, the former administrator for the Centers for Medicare and Medicaid Services, along with Andrew Hackbarth of the Rand Corporation presented six areas of waste in a recent Journal of the American Medical Association article. Here I’ll review three of their categories and add in some patient examples to bring them to life.

Failure of care delivery included not using well defined evidence-based care (leading to patient injury). A good example is the huge number of hospital-acquired infections estimated to kill 100,000 individuals per year in the United States and add 6-7 billion dollars to costs. Insertion of an intravenous catheter can be life saving but there is a very specific procedure which, if not followed meticulously, can lead to serious infection originating in and around the catheter. Using a checklist may seem onerous but it assures that th3 procedure is followed correctly. Transmission of microorganisms, now increasingly antibiotic resistant, from patient to patient is also all too common. Proper hand washing and effective room and equipment cleaning can dramatically reduce transmission – but only if done properly and done every time. (There is a more extensive discussion of the implications of hospital acquired infections and the other issues in this post in The Future of Health Care Delivery- Why It Must Change and How It Will Affect You.)

A failure of care coordination is all too common, especially for those with complex chronic illness such as diabetes or heart failure. Consider the man who told me he was taking 23(!) prescription medications, many multiple times per day. The culprit was not having a single primary care physician coordinating all his care. Instead he had four different doctors, each getting involved in each of his medical problems. Once he found a new primary care physician who accepted the role of care coordinator, his medications soon dropped to seven. He felt much better; he was saving a lot of money; and his insurer for Medicare Part D was saving even more money.

In my experience the problem of lack of care coordination is very common. Indeed most patients with chronic illness – the ones who desperately good coordination of care – simply are left to their own devices in dealing with their various providers. This is poor medical care and grossly inflates the cost of medical care. But when care is well coordinated, the quality goes up dramatically, the patient is much more satisfied and the costs are greatly reduced.

There is a lot of overtreatment. Here is an example.  An elderly lady had a pacemaker inserted because she was having intermittent episodes when her heart rate dropped precipitously such that she blacked out and fell down. The pacemaker turned on whenever her heart rate dropped preventing further blackout episodes. But when she saw a different cardiologist, it was recommended that she needed a new, more complex multi-lead pace maker. These are placed in certain patients with heart failure but she did not have heart failure. This is simple waste that can be prevented by a primary care physician who actively coordinates the patient’s care.

Medicine has become administratively complex. One estimate is that a primary care physician (and presumably specialists as well) must spend $58 per patient visit on coding, billing and administration. No wonder it costs so much for a ten minute doctor’s visit! Ultimately we all pay for this in our direct payments, our insurance premiums, or our taxes that support Medicare and Medicaid.

So, what can be done? As to failure of care delivery, hospitals can enforce rules about hand washing and proper line insertion techniques. When a physician transgresses, after appropriate first time warning, it is more than appropriate for that physician to be economically penalized, with, for example being barred from the operating room or from admitting patients for a week. This is tough medicine but it is effective because it gets the physician’s attention.

Lack of care coordination is a problem for two reasons (at least). Primary care physicians are in the best position to coordinate but they find themselves in a financial bind due to low reimbursements per visit yet high administrative expenses. Assuming no relief from the insurers, the fix is to no longer accept insurance and charge a modest yet sufficient fee per visit, thus saving the ($58) administrative expense. An alternative is to switch to a retainer-based approach, where for a fixed annual charge the PCP reduces his or her population from 1,500+ individuals to about 500. This frees up the time needed for not only good care coordination but also for effective preventive care.

As to reducing overtreatment, here is one step that could have a major rapid impact as suggested by Dr. Howard Brody in the New England Journal of Medicine a few years ago. Each physician (and specialty organization on behalf of their members) needs to assess what tests, images or specialist visits/procedures they order that are not really necessary. For PCPs, it might include prescribing an antibiotic for a viral sore throat. For an oncologist it might be not administering chemotherapy to a patient too sick to benefit. For an orthopedist it might be to not order an MRI for shoulder impingement syndrome unless the patient’s symptoms are so disabling that surgery is in the offing. For the gastroenterologist, it might be not doing an endoscopy for “heartburn” without very specific indications.

These are all steps that providers, especially physicians, can do to lower healthcare costs. It means changing how medicine is practiced but it also means offering higher quality and lower costs – and that equals greater value.

Reduce health costs by reducing wasteStephen C. Schimpff, MD is an internist, professor of medicine and public policy, former CEO of the University of Maryland Medical Center and consults for the US Army, medical startups and Fortune 500 companies. He is the author of The Future of Medicine – Megatrends in Healthcare and The Future of Health Care Delivery, published by Potomac Books. 

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  • Michael Mank

    Is the retainer-based approach a form of concierge medicine?

    Also, how can PCP’s decrease their patient population by two-thirds in a time when their is a PCP shortage?

  • futuredoc

    I prefer the term retainer-based to concierge but they both refer to the same basic model. But this is just one model that PCPs are testing to try to give better care. For some of the others look at my earlier post at
    As more PCPs find ways to exit what is the non-sustainable current business model and find ones that are both high quality and affordable, it hopefully follows that more medical graduates will want to enter primary care, thus reducing the shortages.
    Stephen Schimpff MD

  • James deMaine

    The Medial Home Model used in pre-paid settings like Kaiser and Group Health Cooperative offers a coordinated way to allow the primary care physician to handle a panel of patients in the 2000 range.  These systems have no shortage of primary care applicants because the practice style is so satisfying.  Rather than restrict panels to 500, it would seem much more wise to construct more medical home models:  see

  • petromccrum

    Costs will continue to increase until this issue of waste is addressed.  The amount of supplies,services, and time wasted in most hospitals is phenomenal. Unfortunately patients and insurers companies are going to have to pay higher costs to cover a lot of incompetance.

  • Dorothygreen

    All reform ideas are good and should be done. Most you discuss are in the ACA. What isn’t being reformed is the US eating culture. Big Ag and Big Food, in the name of feeding the world with cheap and plentiful food have become “pushers”. Pushers of cheap (subsidized) highly platable, addictive, nutrition poor products which comprise about 80% of the SAD – standard americian diet. – sad indeed.. The addictive substances are processed sugar, processed vegetable oils, added sodium, refined grain and corn fed animals. Our DNA can not handle more than small amounts of the substances.
    How much more time and money do taxpayers have to spend studying every nuance of what is called the obesity and diabetic epidemic with the end result ” well it’s complex” – we eat too much (yes) there’s the genes,(yeah) the hormones(yep we all got em). Big Food companies deny their particular product has anything to do with overweight and poor nutrition. It is well known that over 50% of our health care dollars are for preventable chronic diseases., most by Excess Adipose Tissue – how this damages our bodies is complex. To prevent it’s accumulaton is to goal.
    Tobacco is addictive. Alcohol is addictive. Our brains are wired to like the taste of sugar, fat and salt. But it is only in our recent history have we had unlimited amounts readily available and cheap rendering these substances (in unnatural forms and in excess) – addictive.
    Tobacco smoking has decreased from 65% to 17% – COPD and lung cancer from tobacco are declining. Let’s deal with our eating culture – tax all proceessed sugar, unnatural fat and added sodium to processed food – call it a RISK tax. Put a message of RISk on the packages. Stop the ads. Improve access to subsidized fruits and vegetables to all. If unhealthy products cost more than natural foods, if revenue from RISK goes into preventive measures and to care of those who have chronic preventable diseases from this addiciton, and to reduce taxpayers contributions to healthcare, THEN we will be the country with unequalled health care with the best indicators in the world. Until THEN, we are on the slippery slope of unsustainable health care costs and a declining economy.

  • DrJoe Kosterich

    Waste is an issue in Australia too. There needs to be a systemic review of how we do things in health. Sadly this will not happen anytime soon

  • kholt16

    One population that is very difficult and costly to care for is the dually-eligible, those that qualify for both Medicare and Medicaid. Currently, both programs are paying and caring for these beneficiaries. Medicare covers inpatient hospital admissions, physician services and prescription drugs. Medicaid covers long-term care as well as helps supplement paying for the expensive cost sharing that is part of Medicare. Medicare and Medicaid already have administrative difficulties and trying to coordinate the care of beneficiaries in both programs has led to dual-eligible beneficiaries receiving inappropriate and unnecessary care. A better way to address the care coordination needs of the dual-eligible would be to have an option for states to place dual-eligibles in a Medicaid managed care program. Medicare would continue to pay for the services it currently covers but would instead reimburse Medicaid. Shifting decisions to a state-run Medicaid program allows each state to best utilize the providers and long-term care options in their state while reducing the administrative burden placed on coordination. Please see this report for more information on the dual-eligible population.

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