60% of Employers Fail to Address Healthcare Spending Waste

October 30, 2018 - Sixty percent of employers don’t capitalize on opportunities to address healthcare spending waste, even though they say wasteful spending is a key concern, according to a new survey from the National Alliance of Healthcare Purchaser Coalitions.

Fifty-seven percent of employers believe at least one-fourth of their spending on primary treatments is wasteful, yet many employers do not feel equipped with the right data and insights to tackle the problem.

“While waste has long been identified as a key concern and cost contributor, employers are operating blind and need to look at a more disciplined approach to address top drivers that influence waste,” said National Alliance President and CEO Michael Thompson.

Many employers don’t receive data from their health plan vendors to make informed decisions about reducing waste.

The survey found that only 34 percent of employers use their health plan, pharmacy benefit manager, or another administrator to collect data that could detect healthcare waste. Only seven percent of employers have internal systems to specifically identify healthcare waste data. Twenty-two percent of employers also said that they don’t have a vendor or contractor to collect data that can help identify wasteful healthcare spending.

Healthcare waste is driven by a mix of factors, according to the survey.

Fifty-three percent of employers said medical imaging tests contribute to wasteful spending, but only 29 percent actively took steps to address the problem, the survey found. Forty percent of employers identified prescription drug spending as a contributor to waste, but just over half of these employers said they attempted to address wasteful drug spending.

In 2018, the Washington Health Alliance found that unnecessary imaging tests comprised 38 percent of all wasteful healthcare services. The St. Louis Business Health Coalition attributed $303 million in wasteful spending to vision screenings, imaging tests, EKG services, and pre-op lab studies in 2016. And the National Alliance found that their employer members identified fraud and administrative costs as contributors to healthcare waste.

Employers tend to rely more on patient education and benefit design than reimbursement mechanisms to make headway against unnecessary spending, the team found.

Twenty-six percent of employers that actively address medical imaging waste said patient education is the primary tool to reduce waste, while 36 percent said benefit management design helped to contain imaging waste. Notably, 21 percent of employers said value-based contracting helped contain medical imaging costs.

Only 30 percent of employers used benefit design to help reduce wasteful spending on prescription drugs, the survey found. Twenty-six percent of employers used patient education to reduce wasteful drug spending, but only 11 percent used provider education or value-based insurance design to reduce drug spending.

The survey authors emphasized that employers’ reliance on patient education and benefit design may not be effective in reducing waste in key spending categories.

Only 25 percent of employers addressing imaging waste said their efforts made an impact. Thirty percent of employers said their efforts to reduce prescription drug spending waste were effective.

In order to make headway against unnecessary spending, employers should start by gathering data  from health plans and vendors to inform health plan benefit designs, the team advised.

Employers could request data from health plans to identify high volumes of unnecessary services, and then use those data points to create new health plan designs. The team suggested that employers could design health plans that prioritize high-quality providers, encourage beneficiaries to utilize lower cost services, and implement prior authorization to reduce unnecessary procedures.

Employers can target providers with a history of unnecessary prescribing or utilization requests and create new payment incentives to reduce waste. Employers may also experiment with bundled payments and other emerging payment models to help cut wasteful spending.

“The idea of reducing waste in the healthcare system can be overwhelming,” said Laura Rudder Huff, senior consultant for Benfield, a third-party organization that helped sponsor the survey.

“While employers ask themselves: ‘Where to start?’ this is an issue where even small steps matter. Employers can begin by collecting data to identify where the inefficiencies are in their workforce and community, and use assets such as vendors and organizations like coalitions to realize market improvements.”