Just-published research finds that one out of every four dollars spent on healthcare in the U.S. is wasted. In a system fraught with inefficiencies, some healthcare providers are taking steps to reduce waste, improve patient experiences and brighten their financial outlook.
In startling new research published just this week by the Journal of the American Medical Association (JAMA), researchers from Humana, Inc. and the University of Pittsburgh School of Medicine estimated that the cost of waste in the U.S. Healthcare system amounts to between $760 billion and $935 billion in healthcare spending annually. That’s approximately one in four of every dollar spent on healthcare in America.
The study references findings from 54 unique peer-reviewed publications, government-based reports and other sources. It focuses on six sources of inefficiency in the system and identifies “opportunities to address those inefficiencies, and underscore several key solutions to make health care more affordable for all Americans”. The six sources of inefficiency, or “waste domains”, identified and the estimated annual savings achievable through intervention according to the researchers are:
- Failure of Care Delivery - $44.4 - $93.3 billion in savings through intervention
- Failure of Care Coordination - $29.6 - $38.2 billion
- Overtreatment or low-value care - $12.8 - $28.6 billion
- Pricing Failure - $81.4 - $91.2 billion
- Fraud and Abuse - $22.8 - $30.8 billion
- Administrative Complexity - Researchers found no studies that focused on interventions targeting administrative complexity, however this category represents the greatest source of waste.
Of these six, two of the waste domains listed in the research can be directly impacted through interventions affecting patients’ financial experiences - Pricing Failure and Administrative Complexity. Together, these two categories represent potential savings of between $329.4 - $339.2 billion annually when using the $248 billion in waste attributable to administrative complexity calculated earlier this year in a report from the Center for American Progress.
The JAMA research report calls out a number of inefficiencies and suggests interventions that include more seamless data interoperability and improved pricing transparency, particularly as it affects the price of prescription medication. But price transparency has a much broader relevance when considering the industry as a whole and the patients’ increasingly prominent role as a revenue source to the healthcare industry.
Pricing Failure and Healthcare Price Transparency - The Big Picture
Many of healthcare’s inefficiencies stem from the industry’s freedom from market pressures faced by the rest of the American economy. For decades, the financial dynamic in healthcare was driven by the relationship between healthcare providers and the health insurance plan companies who covered them.
For most of that time, patients didn’t care much about how much their care cost. Their health plan premiums and copays were low, and the plan covered the rest. Then, starting in the early 2000s, high deductible health plans were introduced by employers who could no longer afford to absorb outsized annual increases of their employees’ coverage. These increases were due in large part to government policy and U.S. lifestyle changes, as described in in-depth analysis by online publication The Balance.
Since then, costs have continued to soar, affecting not just out-of-pocket expenses associated with higher deductibles and copays, but higher patient premiums too. Recent research from the Kaiser Family Foundation reported that average annual family premiums for healthcare topped $20,000 in 2018 for the first time. That’s $20,000 per year, per family - plus their deductibles and copays.
American healthcare consumers are struggling as a result. In a report published this summer by Kaiser Family Foundation, the cost of care “ranks at the top of things Americans worry about. It also plays a significant role in the patient experience from decisions on whether or not to get care to the impact of medical bills after receiving care.” But patients aren’t the only ones struggling. Providers, too, are feeling the adverse effects of today’s dysfunctional patient payment system as they deal with mounting patient bad debt.
This challenging financial scenario is driving a number of fundamental changes to the way patients perceive and select healthcare providers. More than ever before, patients are beginning to research their healthcare options, with a decided preference for those who present reliable cost estimates and convenient access to care. This is particularly true among younger consumers as reported in Loyale Healthcare analysis published earlier in the year.
Today’s environment has also opened the door to innovative new competitors and care delivery models. Haven Healthcare, the joint healthcare venture formed by Amazon, Berkshire Hathaway and JP Morgan Chase, Walmart Health, CVS Health and Walgreens Health are examples. All of these ventures bring a proven, customer-centric perspective to the business of delivering care, and the assurance that it will be easier to access and - most importantly - more affordable.
Finally, Patient Consumerism Has Arrived
When high deductible plans were introduced, it was believed that patients’ higher out-of-pocket expenses would motivate them to be more selective about when and where to get care. What was missing in this calculation was the fact that patients didn’t have access to the price and quality information they needed to make informed decisions. Instead, they kept doing what they had always done, with one glaring exception - according to a patient survey conducted by westhealth institute and NORC at the University of Chicago in 2018, nearly 40% of respondents reported skipping a recommended test or treatment and 44% said they didn’t go to a doctor when they were sick or injured.
More recently, however, several important new trends have been noted. A report published by TransUnion Healthcare found that 75% of patients research costs on provider and payer websites and other sources, and that the information they find impacts their decisions. 62% said that knowing out-of-pocket expenses in advance impacts the likelihood that they’ll seek care, and 49% said that clear information on healthcare out-of-pocket expenses impacts their decision to use a healthcare provider.
Patients are making it clear. After ten years of waiting for the healthcare industry to voluntarily join the market, the market is forcing healthcare to join in. Price transparency, once considered too difficult and variable to estimate, is fast becoming a business imperative for healthcare providers who intend to remain relevant in what PwC describes as The New Health Economy. Topping off this market pressure are regulators and legislators who are responding to the concerns of angry constituents who can no longer endure the high cost of care, as explored in a recent Loyale article.
As participants in the consumer economy, healthcare providers that empower patients with price transparency are experiencing some surprising, positive outcomes. By presenting reliable estimates upfront, they’re attracting more patients. Even more importantly, because the conversation about price occurs early in the care interaction, the hospital and patient are able to collaborate on strategies to ensure a favorable outcome for both parties.
Additionally, the platform that enables improved transparency and more consumer-friendly financial engagement also reduces the second “waste domain” defined in the above-mentioned JAMA research report, administrative complexity.
Patient Financial Engagement to Reduce Administrative Costs and Complexity
After nearly thirty years of developing digital tools to influence positive consumer payment behavior in their interactions with complex corporate ecosystems, Loyale Healthcare developed Loyale Patient Financial Manager™, the healthcare industry’s most widely deployed end-to-end patient financial engagement platform. With it, healthcare providers are delivering the information their patients need to make important care decisions and to partner with their provider to find the surest path to care and payment.
For providers, Loyale’s technology is completely interoperable with all major technology systems currently in use as well as several emerging technologies. Further, using sophisticated data analytics, the platform automatically segments patient populations. This segmentation drives personalized communications at the right times over the right channel (email, text, chat, phone, paper), and collection workflows to improve the probability of payment.
Lastly, because the system tracks elements of the care-and-payment experience from beginning to end, its data-gathering and analysis capabilities are unparalleled, giving providers better visibility into their patients’ experiences and payment behavior than most have ever had. With better intelligence, providers can then plan to continually improve their care and operating efficiencies.
The Convergence of Waste Reduction and Consumerism
Working with healthcare providers across the country, Loyale is proving that by embracing more retail-like operating practices, health systems and hospitals can reduce costs, improve employee morale, ease administrative burdens and deliver better patient experiences.
The transition to a more market-based approach is not an easy one, culturally or operationally, but with the right tools and partner it can be achieved more quickly than most providers imagine. And - by combining improved efficiency with better collections and a more competitive consumer profile, the dividends are compelling, even game changing. We at Loyale are privileged to work with healthcare’s game changers to help accelerate the transition.