Waste Not, Want Not – Smart Ways to Reduce Healthcare Costs


altWith Washington embroiled over whether to cut entitlements, it can be easy to lose sight of sensible ways to cut major healthcare waste. Here are six cost-cutting solutions presented by Donald Berwick which could save the healthcare system upwards of a trillion dollars.

With Washington embroiled over whether to cut entitlements, it can be easy to lose sight of sensible ways to cut major healthcare waste. Here are six cost-cutting solutions presented by Donald Berwick which could save the healthcare system upwards of a trillion dollars.


Since the election, two stories have permeated the media news – the fiscal cliff and how to fix our seriously broken financial system. The Republicans don’t want to raise taxes on the wealthy and the Democrats say the wealthy should pay more. The Republicans say entitlements have to be reduced, while the Democrats want to protect entitlements. 

Cutting entitlement programs and paying less to individuals who provide services under those programs seems to be a very straightforward means to save money. With regard to health care, however, this is not particularly feasible. In California, it is estimated that 50% of the hospitals operate in the red. Physician reimbursement for Medicaid patients is the lowest or second lowest in the country. Physicians in large numbers decline to accept Medicaid patients due to the unreasonably low rates of payment causing emergency departments to be overwhelmed with all manner of patients.

Physicians are not just rejecting Medicaid patients (a study published in Health Affairs found that about 33% of primary care physicians were not accepting new Medicaid patient; 30% of all physicians and 28% of specialists), but that physicians were also closing their practices to patients with private insurance and those with Medicare.


So, what is going to happen when we have the perfect storm – a bolus of “baby boomers” coming into the ages of heavy medical care consumption and 30 million more individuals receiving Medicaid level coverage via Obamacare. Access to providers should be anticipated to be extraordinarily limited. Now is the time to be thinking of substantive ways to address these enormous challenges.

As I’ve noted in past columns, these challenges call for physician leadership. Only physicians can drive and address the fundamental challenges that American healthcare is facing. One respected thought leader who’s offered some options other than the usual cutting of programs and paying less to providers is Donald Berwick, MD. For a brief period, he was the administrator for CMS, and he gained his most notoriety as the CEO of the Institute for Healthcare Improvement. Dr. Berwick’s work in pointing out the huge variability in clinical practice throughout the country has made it clear that there are substantive opportunities to improve care by narrowing variability through determining and disseminating best practices, which will be most successfully accomplished if driven by physicians.

In the April 11, 2012 issue of JAMA, Dr. Berwick and Andrew Hackbarth (from the Rand Corporation) took the position that there is an enormous amount of money to be saved by addressing six areas and doing so would not compromise care or access.

1. Failure of Care Delivery
Lack of widespread adoption of known best care processes, including initiatives to improve the safety of care and efforts to prevent expensive debilitating diseases result in ineffective care and suboptimal outcomes. They propose that better care can save money. How much? In 2011, based on their research, the figure is $102 – $154 billion. And certainly, this is an area where only physicians can lead the charge to embrace evidence-based medical practice and the scrutiny of “business as usual.”


2. Failure of Care Coordination
Fragmented, inconsistent care can result in needless duplication of testing, inadequate monitoring of the effects of treatment, unnecessary declines in healthcare and preventable readmissions. The concept of the “medical home” is an attempt to address this opportunity, yet the shortage of primary care clinicians will make this a daunting challenge. Clearly, consideration of the incorporation of advanced practice clinicians will be essential.

3. Overtreatment
There is an article in our database about the huge number of women who have had hysterectomies for noncancerous causes who continue to get annual Pap smears. Subjecting patients to care that cannot possibly help them is rampant – and truly nutty. Care that is driven by “outmoded habits, supply-driven behaviors and ignoring science” is enormously expensive and puts patients at risk. Examples include unwanted intensive care at the end of life, excessive use of antibiotics, unnecessary imaging that is unlikely to change treatment, unjustifiable preoperative testing, etc…

It’s estimated that overtreatment wastes in the range of $158-$226 billion annually. Physicians are the drivers of overtreatment which only reaffirms that nothing of substance will be accomplished in this area without strong and committed physician leadership and motivation. Clearly, the fee-for-service system is one of the biggest culprits in perpetuating overtreatment. And the recurring plea for tort reform, with the implied promise that physicians will be less wasteful if the fear of a malpractice suit were largely removed, is a delusion. Extensive tort reform in Texas in 2003 dropped physician malpractice premiums by 50% but per capita utilization of Medicare services exceeded the national average in 2009 and access to care was no better. Bottom line – there were just as many visits, tests, procedures as before the reform, if not more.

4. Administrative Complexity
No one will argue with the idea that getting paid is way too cumbersome in the United States. This is one area where providers can breathe a sigh of relief; this problem is not of their making. Billing is too complex and is not standardized. In addition, healthcare providers are encumbered by more and more rules imposed by government regulators and accreditors that are either misguided or that create inefficiency. Payment is often based on complex charting rules that are often clinically irrelevant and seem to be designed to deny payment.

In addition, look at the overhead and profit of insurance companies compared with Federal programs. According to the Kaiser Family Foundation, administrative costs in Medicare are only about 2% of operating expenditures. Defenders of the insurance industry estimate administrative costs at 17%. Insurance industry-funded studies exclude private plans’ marketing costs and profits from their calculation of administrative costs. Even so, Medicare’s overhead is dramatically lower and Medicare administrative cost figures include the collection of Medicare taxes, fraud and abuse controls, and building costs. Then, add in the fact that many of the insurance companies are paying huge salaries and bonuses (even the non-profits). According to a recent report by NPR, the CEO of Blue Cross Blue Shield earned more than $8 million in 2010. That year, nine Blue Cross executives earned above $500,000 and 7-figure salaries could be seen at the tops of multiple insurance company payrolls. 

5. Price Failures
Charges for medical equipment, drugs and procedures seem to have little relationship to their true cost plus the addition of a fair profit. Charges for MRIs and CTs are several times more than in other countries. A CT pan scan for trauma at UCLA is billed out at over $17,000 and only takes minutes to perform, and a friend’s routine, two-day stay vaginal delivery was billed out at over $25,000. It’s estimated that this category represents $84 – $178 million.

6. Fraud and Abuse
Medicaid mills, fake bills and all manner of abuse regarding durable medical goods remain rampant.  Articles regarding huge amounts of Medicare fraud are routine, with whistle blowers often collecting millions.

Taking the sums of just the lowest estimates of all six areas, this totals $558 billion (21% of national health expenditures), and if the midpoint of the figures was taken it would come to $910 billion (35% of healthcare expenditures).

The authors go on to discuss implementation of a multifaceted approach to simultaneously address, in a progressive manner, each of the areas noted above. Readers are encouraged to obtain and review the original article. The bottom line is that while our current modus operandi is unequivocally unsustainable, there is hope. Courageous leaders need to step up to the plate and make the tough choices.

Richard Bukata, MD
Editor of Emergency Medical Abstracts (www.ccme.org)


  1. That Medicare has but a 2% administrative cost is misleading. CMS does not need a premiums or collections dept. Those functions are handled by the IRS. Similarly, claims depts are spared excessive work by simply using the doctors themselves as coders & billers. Suspected irregularities are handled by independent contractors w RAC audits. These functions as well as other Medicare administrative functions are hidden in other budgets.

  2. Debra Mathias on

    If you check out California’s OSHPD data you’ll find numerous reports regarding hospital profitability. As of 2010, 80% of non-profit and investor owned hospitals were profitable (positive net income). Many city/county (47%) and district hospitals (71%) were profitable. Why? In 2009 California’s hospitals and the CA Hospital Association pursued the federal Medicaid match program. Essentially, due to federal match funds Medicaid patient days are paid at about the same rate as a Medicare day. It’s critical to use accurate data when you are recommending changes to the health care system. Good idea to use a fact checker.

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