Business owners are keenly focused on eliminating waste from their processes to save money. Now the health care system is waking up to the issue. Experts say there are millions of dollars — perhaps even $1 trillion — wasted in health care each year. Working to eliminate this waste is a real step toward making care more affordable for employers and individuals.

A Health Policy Brief published by the Robert Wood Johnson Foundation identified six key issues:

  1. Care delivery failures. This includes poor execution of care or ignoring best practices, such as effective preventive care or safety issues.
  2. Coordinated care failures. This refers to unnecessary hospital readmissions, avoidable complications and worsened health status for those with chronic conditions.
  3. One example is defensive medicine, in which providers order unneeded tests or procedures to guard against malpractice lawsuits. Overtreatment also includes using higher-priced services when less-expensive alternatives are equally effective and using medical interventions at the end-of-life when the patient would have preferred a different approach.
  4. Administrative complexity. This includes bureaucratic procedures and forms that create time-consuming work for physicians and their staff.
  5. Pricing failures. This type of waste could be corrected with better health care transparency. For example, magnetic resonance imaging screenings (MRIs) are several times more expensive in the United States than in other countries. Within the U.S., prices also vary significantly between facilities.
  6. Fraud and abuse. This not only includes fake medical bills and scams, but also the cost of additional inspections and regulations to catch wrongdoing.

Steps in the right direction

An article published in Harvard Business Review identifies how the U.S. can reduce waste in health care spending. It focuses on two approaches:

  • Demand-side options like consumer-directed health care plans
  • Supply-side options, which include alternative payment plans for providers

According to the research, both approaches have approximately the same financial impact on spending, and when combined they could reduce waste by 40 percent.

Hospitals and regional health care systems have also been improving internal processes to eliminate waste. Internationally recognized expert Mark Graban, the author of Lean Hospitals and Healthcare Kaizen, has identified many issues that parallel the causes of waste in manufacturing: defects, over-production, transportation, waiting, inventory, motion, over-processing and wasted human potential.

Americans can also thank the federal government for putting a renewed emphasis on waste reduction. For example, Medicare can penalize hospitals for excessive readmissions caused by underlying issues in care delivery and care coordination. In August, the Centers for Medicare and Medicaid Services (CMS) announced plans to penalize more than half of the nation’s hospitals — a total of 2,597. This penalty will total more than half a billion dollars in payments in the upcoming year.

As this issue gains momentum, expect to hear more about eliminating waste in the healthcare system. It’s an essential step toward making employer-based health care coverage, individual coverage and government-sponsored health plans, more cost-effective.

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