Q: How much waste is present in today’s healthcare system?

A: Milliman's actuaries have concluded that the amount of waste in the U.S. healthcare system is in excess of 25% of total healthcare spending, or more than $600 billion in 2008 dollars. These estimates square with the numbers put forward by other prominent sources.

Q: How does Milliman define waste?

A: Milliman has defined inefficiency or waste within the healthcare delivery system as unnecessary, redundant, or ineffective treatment (and the costs associated with such treatment). This includes treatment that is contrary to, or not demonstrably associated with, healthcare quality and outcomes. Looking beyond the care delivery system, inefficiency also includes costs that are not demonstrably associated with a sound approach to enabling full access for everyone to appropriate healthcare coverage.

Q: How can inefficiency and waste be identified and reduced in the current system?

A: There currently is a great deal of unfounded variation in the approach that physicians take when recommending care, which can lead to inferior outcomes and higher-than-necessary costs. Setting standards and using them as a means to reducing variation is one of the best opportunities today for the convergence of higher quality and greater efficiency in our medical system, goals that traditionally have been viewed as mutually exclusive.

The consistent application of evidence-based best medical practices can be used to establish higher standards of care and help reduce variation among providers, reducing waste and inefficiency while improving quality. We have addressed this at greater length in my research report, "The Convergence of Quality and Efficiency and the Role of Information Technology in Healthcare Reform." But endorsing such best practices by itself is not enough. A number of systemic changes that embrace and enable the convergence between quality and efficiency are needed.

Q: Why is there so much variation in care among providers?

A: The amount of scientific information and published articles created each year has grown enormously in the last couple of decades. In 1989, the MEDLINE database reported 372,806 new published citations per year and 2,888 journals annually;¹  in 2006, MEDLINE reported 623,000 citations and 5,020 journals.²  It is almost humanly impossible for physicians to stay abreast of all the most current information.

In addition, there are cultural or style influences that can go unquestioned and simply become habit. Numerous studies, including the Milliman Medical Index, have shown significant geographic variations in healthcare costs and utilization in the United States. It is important to note, however, that higher costs do not equate to improved outcomes.

Further, the way in which we reward physicians and other providers of care is reflected in large part by the form of our compensation for their services. Recognition in physician compensation of adherence to best practices and of the outcomes produced is often missing but clearly needed in order to simultaneously pursue quality and efficiency.

Finally, the medical malpractice environment in the United States incentivizes physicians to practice defensive medicine, which inevitably results in a layer of overuse of certain types of services. In particular, physicians sometimes feel compelled to conduct otherwise unnecessary diagnostic testing, oftentimes with hefty pricetags, so that they are not second-guessed in the event of a lawsuit. While the cost of medical malpractice premiums is around 1% of all healthcare dollars, the resultant waste is far more expensive.³

Q: How can the use of electronic health records (EHRs) support the delivery of evidence-based medical guidelines?

A: EHRs provide immediate access by attending physicians to comprehensive patient information—thereby improving the input for physician decision making and enabling the real-time application of evidence-based guidelines. They afford the promise of bringing up-to-date information and decision support to physicians on the phone, in the office, and at the bedside. This can help encourage more efficient care and reduce quality deficiencies. Because EHRs can capture clinical data, they can also be used to gather information with significant research potential, empowering a kind of evidence-based feedback loop.

Q: Does the financing of healthcare play a role in promoting the practice of evidence-based medicine?

A: A fee-for-service approach to paying providers creates an incentive for added utilization, because physicians are paid according to the volume of services patients consume rather than for the delivery of care that is consistent with quality standards and for producing good outcomes. Some efforts are already under way to better align payment with the value provided, with examples including episodic payment, where all care received for a given condition is grouped under a single payment, providing an incentive for the best outcome achieved in the most efficient fashion. Also, pay-for-performance initiatives can index payment to certain quality measures.

Further, Medicare has taken steps to discourage "never events"—hospital-acquired conditions that should never occur, and will never again be reimbursed, including hospital-acquired infections, wrong-side surgery, and hospital accidents. Although very basic and limited, this is at least an example of beginning to recognize outcomes in compensating providers.

The efforts to date are encouraging, but the healthcare system of payment that is used still remains largely fee for service; and the financial incentives in many cases have yet to be aligned with value or evidence-based medicine. Developing a financial system that ties compensation to best practices and guidelines is an important contributor to achieving greater efficiencies and improved outcomes.

Q: How can the evidence-based medicine help reduce waste caused by defensive medicine?

A: In a reformed system, evidence-based guidelines could be expected to offer physicians a safe harbor to insulate them from liability uncertainties and associated risks. Rather than simply looking to excess lab work to prove the appropriateness of treatment, for example, physicians should be incentivized to turn to guidelines for a scientifically-proven approach to diagnosis and treatment. Guidelines should also help inform better care, thereby reducing inappropriate care.
    An effectively reformed system could help roll back much of the litigiousness that has crept into our culture as it pertains to the practice of medicine, and contribute to restoring trust between physicians and patients. Indeed, states that have passed so-called "I'm sorry" laws, which allow a physician to apologize for a mistake without admitting guilt, have begun to seek a less contentious medical liability environment. Perhaps some basic civility can reduce acrimony.

Q: Can evidence-based medicine help educate physicians and patients?

A: There seems to be agreement over the need for better transparency in healthcare, but in many instances there remains a disconnect between effective information and both patients and physicians. A recent Manhattan Research study⁴indicated that a number of physicians use Wikipedia as a source of medical information—even though most physicians do not contribute to the information community that manages Wikipedia entries. This finding suggests the need for identifying reliable sources of health information that can be publicly accessed as go-to sources. Web sites such as WebMD may have more credibility but there seems to be inadequate identification or roadmaps pointing to reliable sources of information. By better equipping patients and physicians with reliable information from sources that they know they can trust—based on the latest and best clinical research—we can encourage increased efficiency and healthier populations.

Q: Is the convergence of healthcare efficiency and quality the direction we see the system taking today?

A: In many ways, yes. So far, EHRs have gotten most of the press, but they are only part of the larger goal: an automated engine of quality and efficiency that can minimize disparities in care across the entire U.S. system. Creating this engine will require advancements in the implementation of available technology, refocus of the underlying drivers of healthcare financing, and the empowerment of physicians to deliver care securely when following best medical practices.With $600 billion of wasteful spending at stake, not to mention an unsustainable healthcare cost trend that doubles the rate of inflation, we have plenty of motivation to pursue the benefits of this convergence.

Dr. Helen Blumen MBA, and Lynn Nemiccolo RN, work for Milliman Care Guidelines

1 National Library of Medicine annual report of programs and services, Washington, D.C.: National Library of Medicine 1989. Retrieved May 4, 2009

2 National Library of Medicine annual report of programs and services, Washington, D.C.: National Library of Medicine 2006. Retrieved May 4, 2009

3 Milliman analysis of national underwriter insurance data services from Highline Data. Self-funding volume based on mid-range of industry estimates.

4 the healthcare blog,  Wikipedia for condition info,  Taking the pulse brochure