Reducing Health Care Costs: Striving to Eliminate Excess Health Care Spending While Decreasing Administrative Spending

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By Nicholas L. Cavarocchi, Vice President

When attempting to get at the root of the problem of the rising cost of health care and what is causing it, the one major factor that comes to mind is waste.  This can include high administrative and overhead costs or medical tests, services, procedures, or medications that a patient doesn’t need.  Waste consumes about one out of every three of the dollars the U.S. spends on health care, and drives up premiums and coinsurance for all Americans.  Therefore, it is important to find ways to maintain high quality health care for patients while drastically reducing administrative costs and unnecessary services. 

For a clinician to provide safe, effective, efficient care, he or she needs access to patients’ medical history and other records that can affect diagnoses and treatment.  This access can reduce administrative costs associated with arcane record production, as well as the high costs that stem from providing unnecessary or ineffective care.  That is why the federal government must continue to facilitate providers’ move to electronic medical records that are interoperable between health care systems and clinicians.  

Health care delivery has not systematically managed which drugs are administered to patients to optimize value, along with results.  Federal investments in outcomes research can help determine whether less expensive medications and treatment options can produce similar results. 

Administrative costs account for eight percent of all health care spending in the U.S. and tend to be much higher than in other countries, largely the result of the costs of compliance with federal and state regulations and insurance billing requirements.  By eliminating half of the administrative cost burdens of billing and insurance, medical spending in the U.S. can be reduced by up to 15 percent.

While categorizing waste may help identify and measure general types and sources of waste, successful reduction strategies must integrate the administrative, operational, and clinical components of care, and proceed by identifying goals, changing systemic incentives, and making specific process improvements.  Unfortunately, instead of trying to resolve the problem of waste in health care spending, some proposals under consideration threaten to make it worse by allowing insurance companies to offer junk plans that impose strict coverage limits, leave people with preexisting conditions unprotected, and otherwise diminish quality of care. . 

A possible solution to reduce costs in the American health care system would be to make data trans-parent to the public while providers compete on their ability to successfully help their patients get the care that they need.  Purchasers and individuals must be able to choose their treatments and their providers based on useful information about outcomes and cost.  Therefore, there needs to be better aligning and applying regulatory requirements within and across federal agencies and programs.

Even if the United States implemented all the approaches to waste reduction whose effectiveness has been measured, only 40 percent of the estimated $1 trillion of wasteful spending would be curtailed.  While the scale of the issue is massive, effective means to address it offer a huge opportunity to both improve care and reduce the cost of health care.