Bi-Weekly Update Value Health Partners

1.     Administrative Waste
Some administrative spending is valuable. International comparisons can highlight differences among countries in levels of administrative spending. When the United States was compared with Canada's (both countries are culturally comparable) single-payer system, it calculated that the US could save money on administrative costs if it used a Canadian-style single-payer health care system.

Some analysts contend that some of the spending by private health insurance companies is wasteful. Between the years 2000 - 2005, the administrative overhead for health insurance grew 12 percent a year, more than the average health expenditure growth of 8.6 percent. Forty percent of total costs for individual and non-group health insurance policies are attributable to administrative activities whereas up to 18 percent are attributable to group policies. Enrollment barriers for entitlement programs can reduce administrative costs of enrolling by 40 percent.

2.     Operational Waste
Operational waste refers to the inefficient and unnecessary use of resources in the production and delivery of health care services and episodes of care to individuals with the primary goal of improving health. Inefficient production of services imposes unnecessary financial and non-financial burdens on all elements of the health care system. The US's higher spending seems to only point to operational waste in the system. Interventions focused on to reduce levels of waste are "Lean-Thinking" and "Health Information Technology."

3.     Clinical Waste
Clinical waste is defined as spending to produce services that provide marginal or no health benefit over less costly alternatives. There is considerable overlap between clinical waste and operational waste. A procedure-specific clinical waste analysis revealed that the costs for the wasteful clinical procedures evaluated were only 2 to 3 percent of total spending on US health care.

Next Steps in Reducing Waste

Waste in the U.S. health care system contributes to the high cost of medical care and deflects resources from other desirable societal goals. Waste will not change unless behaviors change. Policy proposals in financing or quality improvements could improve the market for health insurance and health care and thereby generate incentives for better efficiency.   Only a system-level and integrated approach can allocate resources efficiently by aligning incentives, guidelines, and processes of care with high-quality clinical care.

Some reforms might be aimed at lowering high U.S. health care prices. Societal goals and preferences may emerge from efforts to improve efficiency and decrease waste in the U.S. health care system. If health is very broadly defined, health care may be exceedingly expensive.

Policy proposals such as developing national goals for quality improvement and implementing a system of quality measurement, quality reporting, and evidence-based clinical decision-making could improve the market for health insurance and health care and thereby generate incentives for better efficiency.

If you would like a copy of the entire study, please Kristina Harrison by phone at 616.486.6540 or email at kristina.harrison@valuehp.org.