Health care spending waste? Analytics is the answer

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142535507We have all heard many times about how much the US spends on health care each year. But let’s hear it again . . .  because it is staggering: According to Centers for Medicare and Medicaid Services (CMS), in 2013, the national health expenditure (NHE) grew to $2.9 trillion. That is nearly $10,000 per person and a whopping 17.4 percent of US GDP. Several estimates expect it to grow more than 5 percent year over year for the next 10 years. If that holds true, in 2025, the US will spend nearly $5.5 trillion on health care.

That's a lot of health care. Further, this will outpace GDP growth putting a bigger strain on an already huge problem. Is the US a particularly unhealthy country or are we doing something wrong?

It turns out we are doing something wrong, a lot wrong in fact. A large number of estimates put the percent of waste in the US health care system at 30 percent. This means that in 2013, about $870 billion was effectively wasted. But what does that mean exactly, and where are these dollars going when they are wasted? A 2012 article in the Journal of the American Medical Association outlines six key categories of waste in the US health care system:

Pricing Failure: This is indicative of a dysfunctional market and occurs when the prices for drugs and other health care services drastically deviate from those in better functioning markets. An example of this is when prices for drugs in the US run 30 to 100 percent more than the same drugs in Germany and the United Kingdom. Consumers of health care in the US rarely see the price leading to the dysfunctional market. The JAMA article estimated this portion of waste to be about $140B.

Fraud and Abuse: Fraud is essentially unauthorized benefits or payments while abuse is medically unnecessary or improper care. Estimates put this type of waste at about $200B.

Failure of Care Delivery: A good example of this is poor execution of preventative care that results in a worse clinical outcome and higher costs, such as not receiving a routine vaccine and then getting very sick. Estimates put this type of waste at about $130B.

Failures of Care Coordination: This is essentially fragmented care that results in significant inefficiencies. For example, there exists weak communications between outpatient and inpatient facilities resulting in ineffective or inappropriate care. Estimates put this type of waste at about $40B.

Overtreatment: This type of waste occurs when patients receive “defensive medicine” or excessive diagnostic tests. Defensive medicine is when practitioners order unnecessary tests out of fear of being sued for malpractice. Overall, this type of wastes accounts for about $200B

Administrative Complexity: This reflects the overly bureaucratic processes that reside in the US payer ecosystem. More specifically, this refers to the amount of time a practitioner would spend interacting with a payer versus actually treating patients. The estimate for this type of waste nearly $300B.

How can analytics help with each type of waste?

Pricing Failure: The trend toward a consumer driven marketplace in health care should dramatically impact the multiple types of pricing failures as consumers of health care will make tradeoffs based on costs. Analytics can help payers better engage this community to explore, understand and predict consumer behavior while also reducing associated risk of the patient population.

Fraud and Abuse: SAS Fraud Framework can dramatically help with fraud and abuse by identifying fraudulent spending and upcoding among a payer’s population.

Failure of Care Delivery: More and better health care analytics can help in two ways. First, analytics can help improve outcomes by speeding the R&D process to get better care and treatments to patients faster. Second, analytics at the point of care can help practitioners better determine the most effective clinical option.

Failures of Care Coordination: Poor communication among practitioners providing care to a patient can cause higher readmission rates, missed appointments, poor medication adherence and thus worse clinical outcomes and higher cost. SAS Episode Analytics can help identify these failures for practitioners to fix.

Overtreatment: Again, SAS Episode Analytics can help to identify areas of consistent overtreatment and thus avoid it moving forward.

Administrative Complexity: This area of waste is not as addressable by analytics due to a variety of political and bureaucratic issues. However, a variety of analytical tools can help payers and providers identify certain inefficiencies in the ecosystem and thus provide rationale for fixing them.

All of these issues are certainly complex and there is no easy or straightforward fix. Yet using analytics to begin to identify the precise waste within each one of these categories is a great start.

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About Author

Lee Shirkey

Sr Industry Consultant

Lee Shirkey is a Sr. Consultant in the SAS Center for Health Analytics and Insights, a strategic research and incubation group focused on scalable applications of advanced analytics across the healthcare and life sciences industries. His responsibilities primarily include the identification, assessment and valuation of concepts for new software capabilities and solutions for these industries. Prior to joining SAS, Lee was VP of Business Development for PierianDx, a clinical genomics company.

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