Invisible Waste in U.S. Health Care

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Kate McGovern
May 13, 2022

The United States spends a far greater percentage of GDP on health care than any other country. The high cost must be worth it, right? No. The adage “you get what you pay for” does not apply to U.S. health care. Quite the contrary. 

In a study of 11 high income countries, The Commonwealth Fund reported that the United States ranked last in access to care, administrative efficiency, equity and health care outcomes such as life expectancy and infant mortality. Ten of the countries spent 9-12 percent of GDP, while the United States spent 16.8 percent. Why this inverse relationship between cost and quality?

As a practitioner of Lean process improvement principles, I will start by examining the factor of administrative efficiency. The Commonwealth Fund’s report ranked the United States last in “how well health systems reduce documentation (paperwork) and other bureaucratic tasks that patients and clinicians frequently face during care.” Such administrative obstacles lead to higher costs and lesser quality.  

To understand these inefficiencies, we look to W. Edwards Deming’s work in the field of quality management. Deming’s observation, uncontrolled variation is the enemy of quality describes one of the fundamental flaws in U.S. health care.

Hundreds of insurance companies market a myriad of policies. Employers and individuals shop for policies, attempting to balance price and coverage. The Exchange, Healthcare.gov, characterizes choices using color codes of bronze, silver, gold or platinum, indicating the levels of deductibles. Plans may be in an HMO, PPO, POS or EPO with specific in-network providers.

Lean practitioners would find layers of waste in the variation of policies. The use of insurance companies and medical offices as intermediaries between providers and patients creates layers of administrative complexity unrelated to medical care. Significant resources are devoted to reconciling patients’ medical needs with their available coverage.  

A Visible Waste: Medical Expertise  

The visible waste includes the time and effort expended by medical personnel for non-medical purposes. A study published in Health Affairs found:

• Physicians were spending 3.4 hours per week interacting with multiple payers, including to obtain prior authorizations.
• Nurses and medical assistants were spending 20.6 hours per physician per week interacting with health plans.

An Invisible Waste: Sludge

Sludge is described in the study Magnitude and Effects of “Sludge” in Benefits Administration: How health insurance hassles burden workers and cost employers published by the Academy of Management Discoveries. The study explains how dealing with insurance policies to obtain medical care creates “sludge” with spillover effects on employee attitudes and job satisfaction. Efforts by employees to resolve coverage issues occurred primarily, but not exclusively, on work time.  

One can look to other data to understand why the impact of “sludge” is so consequential. The Kaiser Family Foundation (KFF) reported that although 90 percent of the population has some form of health insurance, one in 10 adults owed significant medical debt. High deductibles and other forms of cost sharing were factors in “individuals receiving medical bills that they are unable to pay, despite being insured.” The study noted “that people with unaffordable medical bills are more likely to delay or skip needed care in order to avoid incurring more medical debt, cut back on other basic household expenses, take money out of retirement or college savings or increase credit card debt.”  

Pricing the Waste

While a comprehensive analysis of the macro-economic impact of medical debt, ill health, the downward pressure on wages and profits and the market distortions created by productivity losses is beyond the scope of this column, the studies cited here provide cost estimates for specific wastes:

• Administrative costs per physician per year are estimated to be $82,975
• Medical debt was estimated at $195 billion in 2019
• Sludge:  The cost of time spent by employees dealing with health insurance administration on and off the clock approached $33 billion. The consequent productivity impact on employee job satisfaction was estimated at $95.6 billion.  

Overview  

Employer-sponsored plans cover nearly 155 million people. The premium for employer-sponsored family health coverage exceeded $22,000 in 2021, with employees on average paying nearly $6,000. While the price of health insurance policies can be measured, it is far from the whole story. Beyond the visible and invisible wastes of administrative complexity, insurance company profits, executive salaries, lobbying and advertising further inflate the price tag. 

Economist Jeffrey Sachs testified to the Congressional House Oversight Committee, explaining that U.S. health care is not a system, it’s “a hodgepodge of overpriced monopolies whether for profit or not for profit.” Dr. Sachs priced the waste at $1 trillion per year.

Lean practitioners seek to add customer value by reducing waste. We design processes to make optimal use of the resources necessary to produce a quality product. Lean management can make products better, faster and cheaper. Better always comes first. While cost reduction is not the primary goal, it is often a by-product of waste reduction.

Other nations have shown that better outcomes can be obtained using fewer resources. Could waste be reduced in U.S. health care and reallocated to improve quality? We’ll consider those and other issues in future columns.

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Author: Kate McGovern, MPA, Ph.D. is a Lean trainer and practitioner in the public sector. Formerly a professor for the State of NH, Kate is an instructor at College Unbound and a consultant with Daniel Penn Associates. She is the author of A Public Sector Journey to Lean: Fighting Muda in Times of Muri. [email protected] @KateMcGovern_

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