This posting is brought to you thanks to a note I received on Sunday from a loyal “Interested Reader.”
Hi Gene,
I thought of you upon reading this clearly-written article in the NYTimes this morning:
I hope all is well and that you are enjoying this beautiful Fall.
I had not read the article, though I have read many excellent articles by the author, Austin Frakt. What I did not realize until I opened the article and began to read it was that it was a report on a recently published piece from JAMA, “Waste in the US Health Care System: Estimated Costs and Potential for Savings,” written by William H. Shrank, MD, MSHS, Teresa L. Rogstad, MPH, and Natasha Parekh, MD, MS. To my further delight there were several associated editorials that expounded on the findings. Dr. Farkt reviews the article and some of the editorials. One editorial was written by Don Berwick which he entitled “Elusive Waste:The Fermi Paradox in US Health Care.” What follows will be my take on the New York Times article, The JAMA article, and Don Berwick’s editorial. I highly recommend that you follow the links and read these three pieces which certainly deserve your attention.
If you follow these notes, you know that one of my recurrent themes is the idea that our system of care is too expensive. That is an easy sell. It is where every discussion of healthcare begins these days. What is not so easy to sell is that much of the expense is the result of waste that is an inherent part of practice and administrative methodology that we have the power to correct. As the article points out, “price” is also a huge problem. We seem to have a distorted concept that “better” has to be more expensive. Drug prices are perhaps the best example of the lack of connection between value and price that exists in healthcare today.
I have also alluded to the fact that while I was a healthcare administrator the major strategic objective of our organization was greater quality in all of its domains. In previous posts I have described our strategic plan which was capsulized in one brief phrase, “rescue and reallocate.” That concept was built on the belief that relative to the total economy healthcare would never have more resources, and it should not. 18% of GDP should be more than enough, and it was perverse to ask for more. Our leadership team totally believed the assertion that as much as 35-40% of our revenue was wasted. We concluded that it was our responsibility to “rescue” the assets that we were wasting, and our opportunity was to reallocate some of the “rescued resources” to practice improvement, and simultaneously return value to the community by being prepared to absorb the lower relative reimbursements that we expected would be coming in the future.
We embraced Lean as a methodology for a system of waste removal and practice improvement through innovation. We knew at the outset that it would be a multi year journey filled with challenges. The ultimate goal was to be a high quality, patient centered system of care that could survive on Medicare and Medicaid levels of reimbursement.
We challenged our organization to deliver higher quality for 20% less in five years than our year over year increases of 6-8% would have been. It was a huge goal. I was surprised by the push back that the challenge created. I remain convinced that reducing our expense by 20% through waste reduction and more efficient practice was the right strategy. The numbers were staggering. Our annual expenses were around 2 billion dollars. 20% was 400 million. That is a lot of money to be rescued from waste and inefficient practice which is waste.
It did not take long to realize that to eliminate waste we had to be able to see it. To see it we needed to know where to look for it. Berwick and Hackbarth identified several “buckets” of medical waste in an important JAMA article in 2012. Their categories—overtreatment, failures of care coordination, failures in execution of care processes, administrative complexity, pricing failures, and fraud and abuse—correspond nicely to the broader descriptions of waste in the Lean literature. We also thought that there was huge waste in operations, especially in the deployment of human resources and a lack of teamwork that Lean was particularly good at helping us identify. I spent a lot of time traveling around preaching the gospel of waste elimination that I had learned from our Lean consultants. The picture in today’s header is from the “dump in my town.” I often think that when we talk about “waste” some people think about what they don’t want anymore. True, there is a lot of “waste” in our “disposable” consumer economy. I found that we needed to be more explicit about what we were talking about when we talked about waste. Is “overpricing” a source of waste? In healthcare it is. Is a lack of teamwork waste? Not participating in team based care and not working at the “top of your license” are certainly forms of waste.
When you begin to understand what waste is, you can see it everywhere. “Industrial” examples of waste from Lean thinking have direct correlates in the typical medical practice. I was convinced that if you put together a desire for optimizing care and waste elimination great things were possible. You can imagine my delight and sense of confirmation when I read the JAMA article. They used a literature review to look for waste using the criteria of Berwick and Hackbarth:
A search of peer-reviewed and “gray” literature from January 2012 to May 2019 focused on the 6 waste domains previously identified by the Institute of Medicine and Berwick and Hackbarth: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity. For each domain, available estimates of waste-related costs and data from interventions shown to reduce waste-related costs were recorded, converted to annual estimates in 2019 dollars for national populations when necessary, and combined into ranges or summed as appropriate.
I can proudly interject here that Don Berwick was the VP of Quality and Safety at HCHP in the eighties before he left to found IHI, and that Glenn Hackbarth was the first CEO of Harvard Vanguard, and was later for many years the chairman of MedPac. I was very fortunate to have had both as colleagues and mentors.
The conclusion of the study was:
The review yielded 71 estimates from 54 unique peer-reviewed publications, government-based reports, and reports from the gray literature. Computations yielded the following estimated ranges of total annual cost of waste: failure of care delivery, $102.4 billion to $165.7 billion; failure of care coordination, $27.2 billion to $78.2 billion; overtreatment or low-value care, $75.7 billion to $101.2 billion; pricing failure, $230.7 billion to $240.5 billion; fraud and abuse, $58.5 billion to $83.9 billion; and administrative complexity, $265.6 billion. The estimated annual savings from measures to eliminate waste were as follows: failure of care delivery, $44.4 billion to $93.3 billion; failure of care coordination, $29.6 billion to $38.2 billion; overtreatment or low-value care, $12.8 billion to $28.6 billion; pricing failure, $81.4 billion to $91.2 billion; and fraud and abuse, $22.8 billion to $30.8 billion. No studies were identified that focused on interventions targeting administrative complexity. The estimated total annual costs of waste were $760 billion to $935 billion and savings from interventions that address waste were $191 billion to $282 billion.
With the findings, we can now look at what Frakt and Berwick think this data means. I love the way Frakt began his article:
Even a divided America can agree on this goal: a health system that is cheaper but doesn’t sacrifice quality. In other words, just get rid of the waste.
It’s gritty. I don’t like “cheap,” and as a goal it doesn’t have the symmetry of the Triple Aim which speaks to the higher objective of improving the health of the population, but I will take Frakt’s summation of a goal we can all agree on as a start. “A health system that is cheaper but doesn’t sacrifice quality…” is a worthy current objective.
Frakt and Berwick point out that the authors did not come up with ideas for reducing administrative costs. Berwick advances some theories to explain this finding that we will review.
The largest source of waste, according to the study, is administrative costs, totaling $266 billion a year. This includes time and resources devoted to billing and reporting to insurers and public programs. Despite this high cost, the authors found no studies that evaluate approaches to reducing it.
I would disagree that there has not been work in with the objective of lower administrative costs. Berwick agrees and advances some theoretical explanations for Shrank’s and his colleagues’ conclusion. In our organization we had multiple successful “finance” projects. There are many ways to make the “revenue cycle” more efficient even if we continue “fee for service” payment which is the root cause of much of the administrative waste. What is not counted in the estimates of the waste in administrative processing is the angst and loss of time suffered by patients. There is no question that much of the waste of professional resources, and one of the root causes of burnout, is in the necessary compliance with documentation of services for reimbursement. I know from personal experience the cost in time to professionals when they move from a “prepaid” or “capitated” finance mechanism based on principles of population health to a “fee for service” payment structure.
Don Berwick begins his editorial by describing the problem of finding waste somewhat metaphorically utilizing a story about Enrico Fermi:
In 1950, at lunch with 3 colleagues, the great physicist Enrico Fermi is alleged to have blurted out a question that became known as “the Fermi paradox.” He asked, “Where is everybody?” referring to calculations suggesting that extraterrestrial life forms are abundant in the universe, certainly abundant enough that many of them should have by then visited our solar system and Earth. But, apparently, none had.
Berwick applauds the paper but has additional comment about why they found no effective studies on the reduction of administrative waste. He focuses on the total picture and asks a question that pertains to all of our lost opportunities to eliminate waste, “Why?” He wants to know why we tolerate waste. His question becomes another form of the accusation that I imply when I suggest that we will never lower the cost of care until we, individually and collectively, have the will to do it.
But, to paraphrase Fermi, “Where is it?” Shrank and colleagues, like the prior studies they channel, examined 6 categories of waste: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity; they estimated the amount of each. In one sense, “There it is!”
But that is not the proper analogy to Fermi’s paradox. The paradox is that, in an era of health care when no dimension of performance is more onerous than high cost, when many hospitals and clinicians complain that they are losing money, when individuals in the United States are experiencing financial shock at absorbing more and more out-of-pocket costs for their care, and when governments at all levels find that health care essentially confiscates the money they need to repair infrastructures, strengthen public education, build houses, and upgrade transportation—in short, in an era when health care expenses are harming everyone—as much as $800 billion in waste (give or take a few hundred billion) sits untapped as a reservoir for relief. Why?
Don postulates that there are four possible answers to his question.
There are at least 4 plausible explanations. First, maybe the waste is not really there. Second, maybe the waste cannot, technically, be extracted. Third, maybe it is not interesting enough, yet, to reduce waste. And fourth, maybe politics paralyzes change.
Don quickly discards the first and second explanations. Waste does exist. There is also evidence that it can be extracted, as demonstrated by the findings in the paper. The real explanation lies in possibilities #3 and #4.
For #3 he writes:
What about the third hypothesis: that waste reduction is just not interesting or a priority to the people and organizations that can, technically, achieve it? This is a far more plausible explanation. A telltale line from the article by Shrank et al is this one: “The administrative complexity category was associated with the greatest contribution to waste, yet there were no generalizable studies that had targeted administrative complexity as a source for waste reduction.” In other words, no one has seemed interested enough in this high-potential change to do something about it.
His explanation related to the fourth postulate is disturbing, it is about greed, the power of the status quo, and the political power of money:
The fourth explanation, politics, is the most plausible explanation of all. What Shrank and colleagues and their predecessors call “waste,” others call “income.” People and organizations (for-profit and not-for-profit) making big incomes under current delivery models include very powerful corporations and guilds in a nation that tolerates strong influences on elections by big donors. Those donors now include corporations whose “right” to “free speech” as “persons” has been certified by the US Supreme Court, conferring on them an unlimited license to support political candidates financially. When big money in the status quo makes the rules, removing waste translates into losing elections. The hesitation is bipartisan. For officeholders and office seekers in any party, it is simply not worth the political risk to try to dislodge even a substantial percentage of the $1 trillion of opportunity for reinvestment that lies captive in the health care of today, even though the nation’s schools, small businesses, road builders, bridge builders, scientists, individuals with low income, middle-class people, would-be entrepreneurs, and communities as a whole could make much, much better use of that money.
Don does not come out and say it, but I think that I know him well enough to read between the lines before he moves into a discussion of political realities. Many medical professionals think that they too are profiting by the status quo. Yes, let’s be frank with one another. There are many professionals making seven figure salaries. Many more take home compensation in the mid to high six figure range. Why would they be enthusiastic about eliminating waste?
What Shrank and colleagues and their predecessors call “waste,” others call “income.” People and organizations (for-profit and not-for-profit) making big incomes under current delivery models…
As professionals we often shrug our shoulders and say, “Not my job” when waste in healthcare is presented as a problem.There is real disagreement that is rarely discussed around the question of whether our job includes more than treating the conditions managed in our individual specialties. There is not a consensus that we collectively have a professional responsibility to care enough about about how costs and waste impact our individual patients and our communities. It is rare to find a group or an institution where all of the professionals agree that waste is a problem that they have a moral obligation to address together. I have no doubt that there is more, much more, that we could do as individuals and collectively as practices and institutions to reduce the waste in healthcare. If we did seriously take waste elimination as our individual and collective responsibility we would tap into a huge new financial opportunity that would be beneficial for all of us. It’s been Don’s message for a long time.
