Value Defects In The Health Services Sector

Editor’s Note

This article is part of a Health Affairs Forefront short series, “Enhancing Value By Evaluating Health Care Services.” The series discusses ways to extend the use of tools for clinical and economic evaluation beyond medical technologies to the services and procedures that account for the bulk of health care spending; the goal is to create a more robust evidence base for the effectiveness and value of health care services. The articles in the series were completed with support for the authors from the Research Consortium for Health Care Value Assessment, a partnership between Altarum and VBID Health, through a grant from the Pharmaceutical Research and Manufacturers of America (PhRMA). PhRMA extended complete independence to Altarum to select researchers and specific topics. Health Affairs retained review and editing rights.

As of 2021, US health care expenditures exceed $3.8 trillion. It’s no secret that health care is nearly as wasteful in spending on value defects—behaviors that needlessly reduce quality, negatively impact the patient experience, or add to total costs of care—as it is in delivering clinical benefits. William Shrank and colleagues estimated one-third of health care expenditures are “waste,” and recent estimates suggest that this totals between $760 billion and $935 billion annually.

But what exactly are wasteful expenditures? Donald Berwick and Andrew Hackbarth broke waste down into failures in care delivery, care coordination, and pricing, as well as overtreatment, administrative complexity, and fraud and abuse. These scenarios represent complex aggregations of low-value, low-quality offerings that continue to persist as a result of variability in health care practices and reimbursements models that are rarely updated to better align incentives. Waste also results from poor management. Nicholas Bloom and colleagues demonstrate good management matters but is almost entirely absent in health care.

While it’s not entirely clear where these attributes of waste occur most often, a logical place to begin to correct wasteful spending would be in the health care services sector. Health care services, including inpatient, outpatient, emergency department, and diagnostic and procedural interventions account for more than 80 percent of health care expenditures; by comparison, the US spends about 10 percent of health care expenditures on pharmaceuticals. Thus, the majority of wasteful health care spending is likely to occur in services, and the more society can invest in the correction of wasteful spending on health care services, the more likely it is that society can reduce overall spending by focusing expenditures on quality improvement and solutions to high costs.

Opportunity Costs

Waste in health care services, or low-value care, is spending on provisions where costs don’t match the gains in quality and clinical benefits. Elevating the focus from the quality of care to the value of care will mean consumers will have greater demand for high-value care whereby excellent outcomes, including patient experience, will be achieved at reasonable costs. Providers and health systems have a critical part to play in this journey through their role in pricing care to meet expected value and also through their control of the pathways through which patients encounter health care services.

Reducing expenditures on low-value care presents enormous opportunity for growth and efficiency. Providers who depend on high volumes of low-value care pose a risk to both health system resources and patient health. As patients’ needs remain unmet over time, low-value care only generates more demand for correction through additional services. These services generate opportunity costs for health systems because scarce medical resources are exhausted to the detriment of future patients who may depend on these health systems for their own care. By phasing out low-value care that wastes expenditures and creates opportunity costs, health systems can introduce high-value care alternatives to ensure providers have the resources to treat all patients’ needs and maximize population health.

Therefore, the strategy to reduce elements of wasteful spending is clear. Phase out low-value care options and reinvest resources in high-value care alternatives. But where do we start, and how do we target wasteful spending that needs to be corrected? A more tactical approach to reduce opportunity costs would be to invest in solutions to address value defects in health care that most providers can agree are worth fixing because they are clearly defined. Value defects encompass a series of obvious deficiencies that would be straightforward to correct with minor reforms to reimbursement and related incentives, reforms that would place health systems and their providers in alignment with high-value care offerings. 

Value Defects In Health Care

Defects in health care value are common. Peter Pronovost and colleagues’ framework for defects in value show they could cost the US health care system $1.4 trillion annually—almost twice as much as wasteful spending on low-value care alone. Investment in quality improvement to eliminate value defects has shown the ability to reduce annual health care costs by 9 percent while improving quality; 2020 data show such investments reduced Medicare costs by another 12–21 percent over two years, while improving quality scores by 100 percent. While the perception that waste results from defects in value is innovative, practical, and actionable, the costs of defects are likely underestimated.

Correcting defects in value could reduce health care expenditures by 50 percent or reduce opportunity costs so patients can more easily access the high-value care options that become unavailable or prohibitively expensive when resources are exhausted. How might this play out over the range of value defects?

Developing And Maintaining Ineffective Habits

The National Academy of Medicine defines evidence-based medicine as “The integration of best research evidence, clinical expertise, and patient values in making decisions about the care of individual patients.” For excellence in practice to be the standard for care, providers must embrace evidence-based medicine as the norm; they cannot knowingly continue a clinical practice despite research showing that the practice is not helpful, and may even be harmful, to patients. Since John Wennberg and Alan Gittelsohn’s identification of this issue through small-area variation, the objective has been, and should continue to be, to replace outdated norms with novel approaches to high-value care—and furthermore, to create transparent measures of performance that demarcate outdated norms from high-value alternatives that drive consumer demand.

Underusing Primary And Preventive Services

Preventing escalation in health service costs requires upfront investment in evidence-based medicine that can prevent onset of chronic conditions and eventual rises in morbidity. Primary and preventive public health services are often deprived of resources, which go instead to fund the high costs of treating chronic conditions. Reversing societal focus, paying for prevention rather than treatment, is essential financially and in terms of health-related quality of life.

Inappropriate Care

Multiple studies suggest that out of virtually every procedure studied, 30 percent would not be needed if clinicians used rigorous appropriateness criteria. Yet, outside of a small number of centers of excellence (COEs) for specific procedures (for example, National Cancer Institute-designated cancer centers), appropriateness criteria are rarely used. Evidence indicates that when COEs use appropriateness criteria they indeed reduce the incidence of surgery 30 percent.

Using Suboptimal Sites Of Care

Many costly procedures are performed in expensive inpatient settings. However, these procedures could be performed in outpatient and ambulatory settings for up to 50 percent less, often with higher quality and better patient satisfaction. Knowing that iatrogenic injury isn’t uncommon in inpatient settings, the sooner we can exit the patient from the health system, the better off they will be.

Poor Care Coordination Leading To Avoidable Readmissions

After a procedure, patients are sent back to their primary care provider and often require home health, physical therapy, and durable medical equipment. Too many patients experience gaps in care transitions, increasing the risk for readmission and reducing the patient’s experience. Having a primary care provider who truly coordinates care with the specialist has been shown to lead to better outcomes and satisfaction, plus reduced use in the long run.

Difficulty Accessing Care

For most patients, accessing specialty care is difficult because of system complexity, cost, and geographical constraints. Patients are often confused about who to call and what tests they need to schedule. In addition, patients generally have little information about the quality of the provider or facility. Even information as basic as how many cases the provider and hospital perform each year can be difficult to obtain. While this defect may not drive-up cost, it compromises patient experience, thereby reducing value.

Difficulty For Patients In Navigating Care

When patients receive complex procedures, they often worry and have questions. Yet, fears remain, and questions go unanswered. While costs may not be a primary driver of low-value care here, deficits are generated from decreased patient experience, which in turn can deplete clinical benefits. Better outcomes can result from investments in models for shared decision making that facilitate multiway communication to better explain the benefits of procedures and understand patients’ preferences

Care At Low-Volume Facilities By Low-Volume Providers

For virtually every procedure evaluated, the annual volume of procedures performed by the facility and the provider correlate strongly with outcomes and complications. Moreover, for high-risk conditions such as invasive cancers, 70 percent of patients are treated at facilities that perform two or fewer related procedures per year; in the majority of cases, high-volume centers and facilities remain less than 30 miles away. Patients are rarely aware of these risks.

Solutions To Value Defects

Correcting these defects in value could reduce wasteful health care expenditures by half; it could reduce opportunity costs by avoiding the exhaustion of resources that can render high-value care options unavailable or prohibitively expensive. Part of the challenge of reducing wasteful expenditures is finding ways to phase-out low-value care alternatives, a process at which the US health care system has not proven efficient. Among the various options to reduce defects in value, there are several avenues that seem most practical.

First, the US remains the only Western nation that does not use health technology assessment (HTA) in its national health care decision making. Using HTA meaningfully would ensure that we explicitly know which offerings are high value versus low value, which would empower patients and providers to seek out options based on both value and personal preferences. A US panel recently urged that the federal government fund an independent HTA body to provide recommendations for coverage and formulary status based on value, and that the methodology should be applied equally to health care services and biotechnologies. That said, the economics of value defects in health services create more need for HTA than is true in biotech.

Second, COEs should not only be a model funded by the National Institutes of Health but rather a permanent and widespread part of our system. COEs should be organized by procedure, by profession, by geography, and by the diverse people they serve. If well designed and well executed, COEs can address all value defects by providing straightforward access and frictionless navigation; and by offering objective appropriateness criteria and criteria to ensure that the procedure is performed in the highest-value setting, at sites and by providers that are high volume. COEs use standard protocols to reduce unwarranted variation and complications, yet, personalize care to the individual when needed.

In addition, COEs should have disciplined care transition programs and coordinate these transitions. These transitions should be accessible to all patients so that there is equitable distribution of resources across the spectrum of primary, secondary, tertiary, and quaternary care. If we are to finally improve the value of care, we will need to make visible and eliminate all defects in value in health care services.

Additionally, the US should invest in systems of excellence to care wholistically for the most complex and costly patients, with multiple chronic conditions. These systems would design care around patients’ needs, coordinating the entire care team, across primary and specialty care, in a manner similar to COEs to make outcomes transparent. 

Third, the US needs to invest in its public health infrastructure. Investment and use of preventive services today obviates the matter of applying resources to low-value care alternatives since population health improves and reduces the need for chronic disease management.

Fourth, reimbursement reform could be a key factor in reducing use of low-value services that lead to defects in value. If payments for low-value services were eliminated, providers will be better positioned to offer high-value alternatives that benefit patients as well as sustain health systems.

Fifth, better management and accountability systems are needed. While physicians drive most of the decisions around value, most either work for or have a value contract with a health system. Yet, these systems have underdeveloped management systems and virtually nonexistent accountability systems. The use of a robust management system contributed greatly to the 12–21 percent reduction in Medicare spending mentioned earlier.

Ultimately, the solution to value defects is not as simple as withholding spending on low-value care for the US to save a trillion dollars. US health care services operate on a production function of health care spending that is fixed to the extent that at this point, additional spending does not equate to gains in clinical benefit; likewise, reductions in spending fail to help patients with complex clinical needs. To repair our spending on wasteful services that increase opportunity costs, we have to pay for solutions that move health care delivery over to a new production function. Solutions that lead to quality improvement cost money but represent fractional spending relative to the waste they stand to avert. Investing in an infrastructure for quality improvement would reduce variable spending that results in waste, perhaps by as much as 50 percent.

Authors’ Note

William Padula consults for Monument Analytics.


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