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October 25, 2019

The 7 key factors driving $1 trillion in wasteful health care spending

Daily Briefing

    The Institute for Healthcare Improvement recently released a call to action aimed at an audacious goal: identifying and eliminating 50% of all non-value-added waste in the health care system by 2025.

    To figure out how the system could actually eliminate this waste, IHI convened a workgroup chaired by Helen Macfie, chief transformation officer at MemorialCare Health System, and James Leo, chief medical officer at MemorialCare.

    The group identified seven primary drivers of waste in the system, the steps leaders can take to address them, and the estimated financial impact of these changes. All told, they estimated health care leaders could cut almost $1 trillion in unnecessary spending per year—a figure quite similar to the range of $760 billion to $935 billion of potential savings recently estimated by a separate study of wasteful spending in JAMA. They challenged all leaders to begin taking action to cut at least 50%—approximately $418 billion in waste—by 2025.

    Let's dive deeper into the report to understand how its authors measure and define waste, and to explore the drivers they identify.

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    What is waste?

    The report defines waste as "the inverse of value," or the "resources expended in services, money, time, and/or personnel that do not add value for the patient, family, or community."

    Consider wait times. Waiting, the authors argue, could potentially be valuable if patients were able to use their wait times doing something like participating in education or adding information to their medical record. However, if patients simply wait because providers are running behind or because waiting is the norm, then their time has been wasted.

    "When we tolerate [this] waste at every level of the health care system," the authors conclude, "We create a rising burden of out-of-pocket costs, delays in care, and side-effects that harm the patient's care and life experience."

    In order to "systematically and proactively identify and eliminate" 50% of this waste, the report says health care leaders must focus on seven primary goals:

    1. Reduce harm and safety events by conducting regular reviews of adverse events and setting bold organizational goals for eliminating them;
    2. Reduce non-value-added operational workplace waste by improving operational efficiency through redesign and prioritizing a culture that does not tolerate this waste;
    3. Reduce non-value added clinical variation waste by engaging clinicians in activities to reduce unwarranted clinical variation and using "smart alerts" in EHRs;
    4. Actively solicit staff and clinician ideas for waste reduction and equip them to use key tools to do so;
    5. Involve patients in identifying what matters to them so they can identify what steps in the care process add value versus which ones do not;
    6. Redesign care to achieve the Triple Aim by redesigning processes across the transitions of care; and
    7. Engage leadership to provide ongoing sponsorship by prioritizing waste reduction in strategic plans and monitoring it through an organization-wide visual management system.

    The authors note that the last imperative, engaging leadership, is key to achieving all others, and that leaders must be willing to "face the tough questions" in order to succeed.

    Specifically, leaders will inevitably face trade-offs where lowering avoidable expenses will involve reducing income. Therefore, they explain, leaders must ask, "Do we value the health of our patients and the nation more than our own individual and institutional profitability?"

    How leaders can make waste-reduction successful

    The authors offer five suggestions to health system leaders to aid their waste-reduction projects. First, they propose that leaders begin prioritizing the drivers and items that will be easiest to affect in order to get early wins and build "systematic local approaches to identifying and eliminating waste."

    Second, they advise that leaders adopt a Lean or other improvement approach methodology to "address the necessary evolution of mindset, methods, and management systems to focus waste reduction efforts."

    Third, they encourage leaders to engage CFOs to make sure that initiatives have the upfront investment they need to be successful. They note that finance leaders are not only able to "identify waste that clinicians miss or are not aware of," but they may be more able to weigh the "balance of long-term gain with short-term loss" that will come with waste reduction. This may involve new creative contracting in models for shared savings or other value-based models like direct-to-employer contracting.

    Fourth, they encourage health system leaders to join together in their waste-reduction efforts through "various kinds of collaboratives" or local, national, and other regional or global partnerships. They also encourage these collaboratives to advocate for legislative and regulatory reforms to address the payment and legal barriers that perpetuate waste.

    Finally, and most notably, the authors encourage leaders not to try to accomplish waste-reduction on their own. They explain that, "the audacious aim create[s] opportunities for managers, staff, and clinicians at every level of the organization, as well as patients and families, to participate in reducing waste." Saving $1 trillion, they contend, will involve every participant in the health care system.

    Learn more about waste reduction

    To dive deeper into the IHI report, read their condensed "Call to Action" report for leaders and the longer "Trillion Dollar Checkbook" report for more detailed calculations and improvement initiative suggestions. Then to learn more about the JAMA study's estimates of waste in the health care system, view our coverage of the study.

    To learn more about best practices your organization can employ to cut operational waste, view our report on moving Toward True Sustainability, which provides eight lessons on how to build a cost-disciplined organization. Then to learn from the organizations that have successfully reduced clinical waste at scale, view our report on the 80/20 of Care Variation Reduction.

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