Administrative Complexity Ups Spending Despite Value-Based Care
Administrative complexity is the main contributor to the nation’s high healthcare spending, which remains high despite the transition toward value-based care.
Source: Getty Images
- The American healthcare industry unnecessarily spent over $250 billion on tangled administrative complexity, out of the $760 billion to $935 billion that healthcare professionals consider wasteful each year, according to Humana’s recent study.
“This study highlights the opportunity to reduce waste in our current healthcare system,” asserted lead author William Shrank, MD, Humana’s chief medical and corporate affairs officer.
The study analyzed 54 peer-reviewed literature and federal and nonfederal reports from January 2012 to May 2019 which provided 71 estimates on national healthcare spending. Working off of six major categories identified in 2012, Humana’s researchers delved into how America’s healthcare system spends 18 percent of the country’s gross domestic product (GDP).
The six areas covered the industry’s major spending areas, outlined by the Institute of Medicine:
- Administrative complexity
- Pricing failure
- Failure of care delivery
- Failure of care coordination
- Overtreatment or low-value care
- Fraud and abuse
“Each of the domains studied may require a different kind of action, and the drive toward data interoperability and value-based care payment models can reduce this wasteful spending,” explained Bruce D. Broussard, Humana president and chief executive officer. "But if we collaborate as health plans and providers, in conjunction with the government, we can deliver more effective care and improve health.”
READ MORE: BCBSTX’s New Medical Centers Seek Multicultural Value-Based Care
Of all six areas, administrative complexities and inefficiencies swallowed most of the unnecessary expenditures, at more than $250 billion. The fact that not one of the studies reviewed centered on administrative complexity, however, could indicate a disconnect between the industry’s problem-solving focus and the true cause of overspending.
As Broussard hinted, the study recommended greater interoperability and a value-based care approach to resolve administrative issues.
The study affirmed CMS’s efforts toward interoperability, naming the Blue Button 2.0 initiative released in early 2018. The initiative’s ability to automate prior authorization, billing, and information transfer should relieve health systems of some administrative burden.
More than interoperability, however, administrative complexity will lessen with the successful implementation of value-based care models. Through interdisciplinary collaboration and by reducing unnecessary steps, value-based care will restructure and simplify the administrative process.
Apart from administrative barriers, spiraling drug prices are the secondary cause of immense healthcare spending waste. A value-based care model would have little power to change the course of high spending and drug pricing, the researchers acknowledged. Value-based care has no authority over pharmaceutical companies, which go untouched by care delivery and reimbursement strategies.
READ MORE: Fast-Tracking Value-Based Insurance Design on Exchange Marketplaces
Instead, to undermine the effects of soaring prices, the study suggested supporting increased competition and price transparency. The conflict to resolve competition and price transparency issues is currently underway in the political and legal spheres, resulting in various proposals such as the Senate Finance Committee’s Prescription Drug Pricing Reduction Act.
However, it will take more than one policy to deescalate rising drug prices, the researchers contended.
Lastly, the study found that care delivery, care coordination, and overtreatment inefficiencies led to around $300 billion in overspending. The researchers were confident that better delivery and care models exist and, if expanded to a national level, that 50 percent of unnecessary spending could be put to constructive use.
Care coordination is a rising priority for the health payer industry. As payers chose tools to help them with utilization and care management this year, care coordination was a major factor in their vendor selections, according to the KLAS Decision Insights Report 2019. They are backing away from manual services and looking to automate processes to center their payer-provider team around the member.
Some payers have been disappointed by the savings associated with value-based care arrangements, the researchers noted. However, they added, as payers embrace the value-based care model and take steps like selecting vendors that enable care coordination, growing adoption will lead to growing savings.
READ MORE: Cigna and MSK Start Value-Based, Coordinated Cancer Care Program
Ultimately, the study concludes that value-based care is not the final answer, but rather only a part of the answer to cutting down on healthcare overspending. In fact, value-based care creates interdependency between different waste categories. For example, as payers try to decrease overtreatment, they may multiply administrative complexities to handle the new, lower cost processes.
While this interdependency could serve to compound spending, it can also make it easier to decrease it. By bettering the industry’s approach to value-based arrangements, both overtreatment and administrative complexity could be diminished simultaneously over time and as payers and providers start to excel at care coordination, care delivery results could improve.
“By focusing on these opportunities, we could make health care substantially more affordable in this country,” Shrank said. “In the national debate about health reform, we do not need to start over. We can build on the strengths in today’s system to deliver higher quality care and reduce costs, while also producing the necessary savings to expand coverage to all Americans.”
