A groundbreaking research study released Monday by Humana reveals that $1 out of every $4 spent on health care in the U.S. annually is being wasted. It's a situation that needs to be addressed by the industry at a time when consumers are grappling with spiraling medical costs.
The cost of health care should never be top of mind for patients — not when they are facing emergencies, nor when they are living with multiple chronic conditions. For this ambition to become a reality, we must evolve the health-care system to more efficiently deliver personalized care for our patients.
Yet rising health-care costs are a reality and cause stress for many people. If we are to successfully confront the issues of cost and efficiency in care, we first need to fully understand the systemic problem of wasteful spending.
Our researchers at Humana recently completed this multiyear study, published this month in the Journal of the American Medical Association. The study puts a spotlight on the nearly 25% of our country's annual total health-care spending that can be deemed as waste, or between $760 billion and $935 billion each year.
Dr. William Shrank, Humana's chief medical and corporate affairs officer, led the study identifying the extend of waste in the system. But he also found a silver lining in the results. Dr. Shrank said this study shows that "in the national debate about health reform, we don't need to start over. We can build on the strengths of today's system … while also producing the necessary savings to expand coverage to all Americans."
So why is this all happening?
Our researchers examined and ranked the contributing factors. Failures in care delivery, care coordination, overtreatment/low-value care and pricing failure topped the list. We identified administrative complexity as the greatest source of waste.
Administrative complexity causes $265 billion to be misspent annually. We all want our doctors carefully credentialed and our information systems to work seamlessly. Processing medical claims and payments are also a necessary cost of operating and require some administrative effort and expense.
But the cost of complexity can become waste when clinicians and health plans work separately, despite our common goals — not the least of which is the desire to allow patients to focus on care before cost — or, in broader terms, value. We are aligned on the importance of care that provides a patient with real value, but the traditional model has not incentivized us to help each other.
That is why the value-based care model is making headway when it comes to reducing health-care costs and improving value. Value-based care recognizes physicians' dedication to their patients' health by reimbursing the provider when their high-quality service leads to better health outcomes. It is not about the amount of services they provide or the number of patients they see; it is about using an integrated approach to improve health outcomes. This integrated approach — which includes behavioral health, pharmacy, social determinants of health, home health and primary care — becomes the common framework in which caregivers and health plans can meet.
As a health plan, we realize that we have a role to play. A physician's administrative complexity may be the result of a health plan's efforts to coordinate care and assist in reducing redundant or unnecessary clinical costs — for example, when a health plan requires prior authorization. However, no one wants to produce this waste, and we all want clinicians to have the time to focus on what matters, caring for patients.
According to a survey by the American Medical Association, for every hour a physician spends with patients, they spend nearly two additional hours on administrative tasks throughout the day. We know we have a role to play in alleviating this burden, and we are already partnering with providers to do just that.
At Humana we are helping providers in our value-based networks access services that increase interoperability. Or, to put it in simpler terms, we are making it easier to align and collaborate.
Currently, multiple providers can only share electronic medical records with each other by paying exorbitant fees. To disrupt this model, we are empowering patients to access and share their own health information. Instead of redundant forms and procedures, patients can keep caregivers updated in a seamless, cost-effective way.
So far, the results of this movement toward value-based care are promising. Our annual report on value-based care found that preventive care is on the rise, while re-admissions and hospitalizations are falling. This trend clearly reduces costs for patients, as we've seen costs for our Medicare Advantage value-based agreements almost 16% lower than original Medicare fee-for-service.
Humana receives more than 1 million provider calls each month. Unlike member calls, these are transactional, such as checking on benefits or claims for patients. Earlier this year, Humana and IBM launched a pilot program with more than 120 providers and a Watson-powered virtual agent.
Statistics and efforts like these make it easy to be an optimist. But what I'm really inspired by is the potential to address systemic waste across the health-care system, through providers, payers and governmental agencies partnering on improving the efficiency of the system — ultimately improving the affordability of health care for Americans, without having to start over.
We know where the leaky faucets are. Now it is time for repair.