Employers Struggle to Reduce Wasteful Health Care Spending

By Rita Pyrillis

Jan. 9, 2020

Employers have found ways to manage health care costs, but need to step up their efforts to tackle a more vexing problem — eliminating wasteful medical care spending.

A recent Journal of the American Medical Association study found that 20 to 25 percent of medical spending is unnecessary.

“As long as we are in a fee-for-service world we will get services whether we need them or not,” said Mike Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions. “We need to shift from paying for volume to paying for value, and employers need to put pressure on providers to get this right. They should be asking for spending reports from vendors, like Blue Cross Blue Shield, and they should be analyzing claims and identifying waste. The problem is not new and neither is value-based medicine, but there are new efforts to address wasteful spending.”

The estimated waste hovers between $760 billion and $935 billion, with administrative costs such as claims processing, billing and transferring medical records making up the largest share at $266 billion annually, according to the JAMA study.

Yet, more than half of employers aren’t actively doing anything about it, according to a 2018 report by the NAHPC. While the first step for employers should be identifying the problem, nearly two-thirds of businesses surveyed don’t collect or analyze data to track waste.

“Employers should be asking for reports from the vendors and analyzing claims data to identify waste,” he said. “Part of the reason why vendors don’t offer this information is because they’re responsible of getting rid of it.”

Employers need to take a more proactive role in tackling wasteful spending, according to Daniel Wolfson, executive vice president and chief operating officer for the American Board of Internal Medicine. He urges them to speak not only to health plans but also to health care providers about what they are doing to minimize the problem. Wolfson leads Choosing Wisely, an ABIM initiative designed to encourage patient-doctor dialogue around the overuse and misuse of medical services. The program, which was launched in 2012, publishes a list of more than 400 recommendations on treatments that patients and physicians should question.

The Washington Health Alliance looked at 48 common medical treatments, tests and procedures and found that an estimated $341 million was spent on unnecessary health care in the course of a year.

“I think employers are absent from the conversation,” he said. “They have not used their leverage to impact this problem. Employers have had a tremendous influence on quality issues but they are not using their leverage, their power, their influence and their thinking when it comes to wasteful health care spending. They should be saying ‘If we’re going to be purchasing health care services from you we want to hold you accountable.’”

Also read: The 4 Myths of Health Care Cost Reduction 

Some employers are using the Choosing Wisely recommendations, which were created by 17 national medical specialty societies. Each list offers information on when tests and procedures, such as imaging for lower back pain or breast cancer treatments, are appropriate.

In Washington state, the Washington Health Alliance looked at 48 common medical treatments, tests and procedures and found that an estimated $341 million was spent on unnecessary health care in the course of a year. Of the 2.9 million services examined, nearly half were found to be unnecessary.

The prescription of opioids for lower back pain was the most wasteful treatment, followed by the use of antibiotics for upper respiratory and ear infections, annual EKGs for low-risk patients and imaging tests for eye disease.

In Missouri, the St. Louis Business Health Coalition partnered with the Midwest Health Initiative in 2016 to identify unnecessary care. It found $303 million in wasteful spending to vision screenings, imaging tests, EKG services and pre-op lab studies in 2016.

In 2017, the coalition examined emergency room use for upper respiratory infections and found that $2 million a year could be saved if patients went to an urgent care clinic instead of a hospital emergency department.

Louise Probst, executive director of the employer coalition, said that benefit plan design can help through increased copays for ED visits.

“We all have a problem with low-value care,” she said. “It’s important to ask employees to think about that as an individual and then as a company. Look at incentives in your plan design, look at contracts, look for partners. Get the best data that you can and keep track of it. Employers, hospitals, physician organizations, labor unions, and other community partners need to come to together with a single focus of improving value in health care.”






Rita Pyrillis is a writer based in the Chicago area.

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