Health systems try to trim waste to reduce healthcare spending

Amid the debate about how to slow rising healthcare costs, a group of 54 healthcare organizations—many of them health systems—are working together to develop a strategy to reduce waste 50% by 2025.

As part of the Institute for Healthcare Improvement’s Leadership Alliance, which includes C-suite executives from MemorialCare, Providence and HealthPartners, the leaders are calling on healthcare organizations nationwide to rethink how they do business and to remove services that don’t add value for the patient.

The alliance’s bold waste-reduction goal for the U.S. healthcare system would save about $500 billion. Recent estimates about the cost of waste ranges from $760 billion to $935 billion annually.

The alliance members are of the mindset that healthcare organizations have a responsibility to decrease waste rather than waiting for regulatory changes requiring them to do so.

“All of the talk and all of the rhetoric that is going on in Washington … we are just moving the bag of money around and no one is striking (the money) inside that bag,” said Helen Macfie, chief transformation officer at MemorialCare who is also leading the IHI’s focus on waste. “Who best to help with that than those out here in the real world doing the real work? We can wait for someone to try to legislate it or pay us less, in which case that results in unfortunate side effects … or we can take these savings and return the money to society, to people.”

Dr. James Leo, chief medical officer of MemorialCare and another leader of the IHI’s effort, said the alliance wanted to establish a bold goal to elicit attention and hopefully action from healthcare organizations.

“It requires we think differently. We are not going to get there by doing things the way we always have,” he said. “By the alliance choosing that as a goal, it would require transformative work.”

To monitor progress, the group is going to track overall U.S. healthcare spending. In 2018, $3.6 trillion was spent on healthcare, up 4.6% compared with the year earlier. Healthcare accounts for 17.7% of the gross domestic product.

“We actually know about a year later how much we spend as a nation on healthcare. If we are successful at this, we are going to see that (GDP) for healthcare come down by half a trillion,” Leo said.

“There is waste in the system and if we can take it out, the prices can drop,” Macfie said. “Helping to solve that problem is what we can do.”

The IHI Leadership Alliance was formed in 2013 but it only began its focus on waste about two years ago. The alliance is intended to be a opportunity for healthcare organizations to come together and share ideas.

“It’s a member-driven network,” said Jill Duncan, IHI executive director. The organizations determine the goals, and the IHI acts more like a facilitator, she added.

Although the alliance is mostly made up of providers, Humana and Scan Health Plan, a Medicare Advantage insurer based in California, are also members.

Macfie and Leo came up with the idea for the group to begin addressing waste after hearing a talk from economist David Cutler during one of the alliance’s biannual meetings.

The group has since laid out seven primary and 15 secondary drivers of waste that organizations can tackle. That involves a systemwide approach to reducing waste and includes decreasing harm and safety events, actively soliciting staff and clinician ideas, engaging leadership and redesigning care to achieve the triple aim.

A 53-page analysis, called Trillion Dollar Checkbook, lays out how addressing each of the drivers can cut nearly $900 billion in waste per year. Macfie and Leo were co-authors of the report.

Not everyone agrees with the report’s ranking of the causes of waste in healthcare. Prices and administrative costs, which are recognized among the biggest drivers of waste, are included but are “not focused on,” said Dr. Karen Joynt Maddox, an assistant professor of medicine at Washington University School of Medicine in St. Louis. “Because this is a provider group, they have the least control there, so that decision is understandable, but those are obviously huge sources of waste.”

Maddox added that the alliance is also “incredibly optimistic” in its calculation about how much focusing on certain areas can reduce costs. She pointed to the estimated savings from alternative payment models as an example. The checkbook estimates $49.7 billion to $82.9 billion annually in savings by extrapolating the experience at MemorialCare with alternative payment models.

“The savings projections they use for alternative payment models, for example, have not been seen in any current” alternative payment models, she said.

Macfie said the figures in the checkbook aren’t meant to be optimistic but conservative. “We weren’t trying to go big, that’s why we had ranges,” she said. “In the beginning (of the checkbook) it says these are all estimates. Until you start saving, it’s a prediction.”

Health system executives who are participating in the alliance like its broad approach to waste, saying that’s needed to tackle the problem.

Waste “is not just one thing. It’s clinical variation; it’s operational waste,” said Cara Hull, chief quality officer at HealthPartners, an IHI alliance member. “I think sometimes the word waste has been difficult for people to accept. Calling it waste but having such a broad scope is very helpful. It encompasses all of the things we are looking at in terms of total cost of care and accountability and the Triple Aim.”

Hull and her colleague Kelly Logue, senior director of care affordability, went through the checklist from IHI and found other areas they could focus on such as waste tied to billing systems. Logue said she doesn’t think HealthPartners has too much administrative waste, but it’s an area they’ll be focusing on more closely for opportunities to improve. A recent JAMA study found administrative services was the main culprit of waste, but there wasn’t much understanding of how to address it.

Health plans also have a role to play in waste reduction, although some of their tactics have been controversial.

Humana declined an interview request, but the organization has been involved in some of the IHI alliance’s resources on waste. Dr. William Shrank, Humana’s chief medical officer, also was an author of the recent JAMA study on waste.

Long Beach, Calif.-based Scan Health Plan got involved in the IHI Leadership Alliance because its partners MemorialCare and Providence were part of it. “It made sense for us to do it together so we could impact the whole healthcare ecosystem,” said Dr. Romilla Batra, chief medical officer of the insurer.

Scan Health already tries to cut waste by holding meetings and conferences with provider partners to discuss practices that have led to lower spending and improved outcomes. Batra said presenters at the meetings include C-suite leaders.

The alliance wants more health plan members to get involved. “The members see and IHI sees an opportunity to partner with payers as they are a key piece of the flow of money” in healthcare, Duncan said.

Although alliance members are embracing the focus on waste, Macfie said the goal is for the message to spread so all healthcare organizations are doing this work. She said the alliance is working on getting a grant focused on bringing more organizations to share what’s working and what isn’t. “The only way we can get at waste is for everyone or nearly everyone to get on board,” Leo said.

All alliance materials are also public so health systems that aren’t members can access them easily.

One barrier to more participation could be the still-widespread fee-for-service model that doesn’t directly give incentives for reducing waste. But health system alliance members argue that the status quo is changing even under the current payment structure, pointing to shrinking reimbursement and implementation of programs that ding them for their performance.

The incentive to reduce waste “might not come straight from fee-for-service, it comes from these programs that penalize you for your non-value activity and your fee-for-service payment ultimately gets reduced,” said Jim Dietsche, chief operating and financial officer of Green Bay, Wis.-based Bellin Health system. “Organizations that are still in fee-for-service have to look at managing waste and variation because their payments are being reduced.”