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CCH® BENEFITS — 03/12/09

Waste-Reduction Strategies Can Improve Health Care Quality With Reduced Costs

from Spencer’s Benefits Reports: President Barack Obama’s goal of improving health care quality while reducing costs and covering the uninsured is achievable, a team of actuaries from Milliman has indicated through actuarial modeling. In Imagining 16% to 12%: A vision for cost efficiency, improving health care quality, and covering the uninsured, Bruce Pyenson, Kate Fitch, and Sara Goldberg set forth “actuarial insights to help health care reformers develop better proposals” while reducing health care’s share of the gross domestic product (GDP) from the current 16% to 12%.

The Milliman team’s strategies support those of the Obama Administration to reduce costly waste in health care by relying more on evidence-based medicine, using comparative effectiveness evaluations of new and existing treatments to identify those that are the most cost effective, setting quality standards and measures, making providers accountable for outcomes, encouraging informed patient choice, and promoting electronic medical records, among other steps. “Much spending in our health care system goes to services or administration that could be done more efficiently or that do not bring value to patients,” the authors explained. “Even worse, some spending also goes to services that may harm the patient, or to fix mistakes that should not have been made. We believe rationalizing care is far superior to rationing it.”

The Milliman authors stated that they are not necessarily suggesting that the health care share of GDP should be further reduced, but that “health care payers (governments, employers, and individuals) could reallocate more than $500 billion realized each year from reduced health care spending, using the money for increased wages, infrastructure investments, or allocate the savings to deficit reduction, reduced taxes and prices, or funding Medicare.”

Applying “best performance utilization metrics” to 17 major health care service categories, the Milliman authors identified the potential for waste reduction through shifts in utilization involving a total of $1.8 trillion to attain 12% of GDP. They found the greatest potential for waste reduction in inpatient visits (47%) and inpatient services (43%), followed by outpatient facility services and other professional services (40% each). Prescription drug waste could be reduced by 28%. Changed utilization would include reduced unnecessary inpatient hospital stays or imaging and a shift of care to lower-cost settings such as from the emergency room to an office visit.

An ideal “reformed” health care system will change the main components as follows, according to Milliman’s actuaries:

For patients:

• care according to evidence-based treatment plans “openly communicated;”
• streamlined administrative systems, expanded office hours, and e-mail and telephone access to “clinical advice and health care educational resources;”
• ready access to comprehensive and “credible” cost and quality information to enable informed provider choices;
• medical provider focus on patient safety (“avoiding errors of commission or omission”);
• medical provider team approach to care across the spectrum of care with shared clinical information; and
• “fewer medical errors, shorter hospital stays, and better outcomes.”

For health care professionals:

• simplified and standardized paperwork along with electronic transactions, at least for prescriptions;
• shift to evidence-based practice (from the current practice-based practice);
• collaboration with primary care physicians whose practice scope will be broader, and with providers across the whole spectrum of care;
• compensation for services currently not reimbursed such as telephone or e-mail consultations, care coordination, and disease management and performance-based compensation;
• barriers to and increased scrutiny of overused services; and
• focus on primary care.

For hospitals:

• round-the-clock every day, including weekends, operation for diagnostic and treatment services;
• hospitalists (specialists in in-hospital care) in charge of medical patients and focused on urgent treatment;
• evidence-based care aided by physician decision-support tools to guide care and allow performance evaluation;
• computerized order entry for physicians for medications, tests, and other services, and reporting of diagnosis results;
• “effective emergency room processes to avoid medically unnecessary admissions, and discharge to appropriate levels of care;”
• “effective” discharge planning and “appropriate” follow-up care;
• “inform, educate, and engage” patients and families during a hospitalization; and
• coordinate post-discharge care at nursing homes and home care to reduce readmission.

For prescription drugs:

• faster Food and Drug Administration approvals, including appropriate use of measures obtained from “biochemical markers” and outcomes data other than from the drugmaker tests;
• more financial transparency throughout the entire distribution chain;
• improve medication compliance through aligned interests of drugmakers, providers, payers, and patients;
• evidence-based prescribing along with personalized medicine to optimize treatment effectiveness; and
• extend prescribing rights to nurse practitioners (some states already allow this).

Efforts also must be made to reduce payer administrative costs that, according to Milliman models, represent approximately 6.9% of total health care costs, or nearly $170 billion. This figure does not include medical providers’ administrative costs. The total waste, including payer and provider, for administrative operations is estimated to range between $126 billion and $315 billion, derived from inefficiencies in claims processes, ineffective use of information technology, unnecessary staff turnover, and paper prescriptions. Movement to improve population health also will be an important part of health care reform, the Milliman authors acknowledged.

For more information, visit http://www.milliman.com.

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