The many facets of waste in health care

March 9th, 2018 / By Steve Delaronde

The Institute of Medicine estimates that 30 percent of healthcare spending is attributed to waste. Waste in health care not only has a financial impact, but also robs patients of their time, safety and well-being. Ideally, the U.S. healthcare system would consistently deliver services with the highest probability of a positive outcome and lowest likelihood of patient harm, resulting in high patient satisfaction at the lowest possible cost. But the reality is somewhat different.

Waste is defined as “an act or instance of using or expending something carelessly, extravagantly, or to no purpose.” This means that a healthcare procedure, inpatient stay, medication, therapy, or test that does not meet the objectives of the Triple Aim—lower costs, better outcomes, and high patient satisfaction—meets the criteria for waste. However, the acceptable threshold for determining the likelihood of an intervention leading to a positive outcome is determined by the condition that is being treated, the clinician treating the condition and the environment in which the care is delivered.

The financial impact of waste is probably the most prominent, though certainly not the only, consequence. Prices that are too high, not transparent, or vary within and across markets lead to waste. The patient is never sure if they are receiving a treatment at the lowest possible price, and the physician is often unaware of the price of the medication, referral, or treatment being rendered. Even more concerning is when the provider is encouraged to keep services within their healthcare system without regard to the financial impact on the patient. Some pharmacy benefit managers prevent pharmacists from telling patients when a prescription would cost less with cash than under the insurance plan.

When patients receive unnecessary medical treatment, it exposes them to wasted money, wasted time, as well as unnecessary risks to their health and well-being. Medications typically require a patient to physically visit the prescriber and then pick up the medication from the pharmacy, which wastes their time. Medications expose patients to side effects, which impact a patient’s well-being. Medications are also expensive, and many prescriptions are either unnecessary, have lower-priced alternatives, are filled but never taken, or get discarded when reaching an expiration date. The same principles apply to unnecessary diagnostic tests, lab tests, and procedures. Particularly concerning are those tests that lead to procedures which harm patients, such as unnecessary prostatectomies, mastectomies and cardiac stent implants.

Even when treatment is medically necessary and produces a positive outcome for the patient, there can be waste in the delivery process. Unused medical supplies used during surgery are often discarded. One hospital estimated that it discarded supplies worth $2.9 million during neurosurgery operations in just one year. Hospitals can be incented to reduce waste by taking financial risk for the entire procedure rather than be paid for supplies that were ordered, but never used.

There is also an impact of waste on patient safety. Hospital visits put a patient at risk for infection, anesthesia-related “brain fog,” memory loss or dementia, as well as other potentially preventable complications and “never events.” Medical errors are the third leading cause of death in the United States behind heart disease and cancer. Medical errors can result from systemic issues or individual carelessness. Identifying and addressing these issues at a systemic level is often the best approach for long-term waste reduction and patient safety. Removing the perverse incentive that allows hospitals to benefit financially from avoidable readmissions or complications has had a positive impact.

Understanding the circumstances and stakeholders that benefit from waste in health care is critical. Waste is like trash, such that one organization’s waste may be another’s treasure. There are organizations, manufacturers, suppliers and providers that benefit in the current system from what most would consider waste. It is imperative to understand the incentives that exist which promote waste and implement ways to address them. Price transparency, identification and reduction of potentially preventable events, and the use of cost-effective alternatives are the cornerstones of waste reduction in health care.

Steve Delaronde is director of consulting for populations and payment solutions at 3M Health Information Systems.

Make value-based health care a reality.