Posted: 04 May 2021 10 min. read

Affordability in health care: Ripping off the bandage to reduce waste

By Kulleni Gebreyes, M.D., principal, life sciences and health care leader, and Paul Lambdin, managing director, Deloitte Consulting LLP

The COVID-19 pandemic has driven many health plans and health systems to reflect and evaluate the rules they impose. They are taking a fresh look at how they communicate, how they deliver care, and how they work together.  As the industry rebuilds from the pandemic, health care organizations have an opportunity to reduce waste and make health care more affordable.

Health plan and health system chief financial officers (CFOs) agree that the financial impact of the pandemic is significant, and recovery will be a long road, according to the results of a survey conducted by Deloitte’s Center for Health Solutions. Nearly half of health system CFOs (47%) and 53% of health plan CFOs said financial viability and planning were their biggest concerns.

Waste contributes to health care costs

Eliminating waste could help reduce the financial impact of the pandemic and help health plans and health systems rebound and make health care more affordable. However, dramatic change is likely needed to have a real impact on total spending. Waste makes up as much as 25% of total health care spending in the US. That translates to about $1 trillion a year, according to a recent Deloitte report on future health care spending. The major contributors of waste include administrative complexities, duplicative services, unnecessary treatments, high drug prices, and hospital readmissions, according to a study produced by researchers at Humana Inc. and the University of Pittsburgh School of Medicine.

Consider this: A patient was recovering from surgery and was required to take a special dietary supplement intravenously. While the patient’s surgery was covered by her health plan, the dietary supplement was only covered if it was administered in the hospital. While the patient wanted to be discharged, the health plan would not cover the supplement if it was administered in the patient’s home. As a result, the patient wound up being unnecessarily hospitalized for three additional months, at an average cost of $3,000 per day. That translates to $270,000 in avoidable waste for just one patient.

This story is unfortunate, but probably not unfamiliar. While we can point fingers, all players in the health sector contribute to waste. While many health care stakeholders can point to inefficiencies, it can be difficult for them to make any fundamental changes on their own. Health system leaders, for example, typically have little incentive to reduce the length of a patient’s stay, or even to prevent the need for a hospital stay in the first place. The pandemic, however, is pushing health systems to adapt to an evolving health care landscape, such as the shift to more outpatient and virtual services, which could help reduce overall costs.

Other factors that could make health care more affordable

Eliminating or substantially reducing waste could help to make health care more affordable, but it isn’t the only tool in the toolbox. Pushing care to other settings (e.g., in the home or virtual), for example, could have a significant impact on costs. While the fee-for-service model remains highly profitable for some health systems, the COVID-19 pandemic pointed out weaknesses of that model. This could create more momentum for value-based care models where revenue is captured indirectly by keeping members healthy.

Organizations that thrive in the future will likely be the few incumbents (and likely many disruptors) that can fundamentally challenge and change industry norms. Here are a few other factors that are likely to impact the affordability of health care.

  • Automation: Instead of spending countless hours tweaking prior-authorization lists, health systems and health plans are likely to invest in AI-powered technology to fully automate manual transactions. AI could be used to automate answering the phone, medical record review, population-health trending and analytics, therapeutic drug and device design, reading radiology images, clinical diagnoses and treatment plans, and even talking with patients, according to our report on the future of artificial intelligence in health care. AI is already being used to increase convenience and efficiency, reduce costs and errors, and generally make it easier for more patients to receive the health care they need.
  • Interoperability: Health data generated by consumers is typically fragmented across the health care ecosystem, with different players having only pieces of the puzzle that makes up each person’s health history. Add in mental, emotional, spiritual, social, and financial health data, and you’ve got an exponentially complicated the puzzle. This contributes to the cycle of reactive care, duplicative services, and unnecessary treatments. Centralizing all of a consumer’s data elements in one place can provide clinicians with a truly complete picture of their patients’ needs. It can also remove the need for duplicative services and reduce the amount of time and money spent on paperwork and medical documentation. Last spring, the US Department of Health and Human Services (HHS) Office of the National Coordinator for Health Information Technology (ONC) and the US Centers for Medicare and Medicaid Services (CMS) released final rules aimed at promoting interoperability. Increased interoperability could help to improve communication and data exchanges between health plans and health systems. That could mean it might finally be time to unplug the fax machine, as our colleague Wendy Gerhardt described in a recent blog.
  • Real-time payment exchange: Payment platforms could enable automated, real-time pricing and payment of services, which could help decrease expenses related to collections, manually process claims, and manage payment inquiries and disputes. Post-service claims denials could become a thing of the past.
  • Tailoring the network to the person: Some health plans spend tremendous amounts of money determining whether providers are in-network or out-of-network. This can lead to complicated benefit designs and confusion among members. It can also lead to frustration and unexpected costs when certain clinicians and their services are not covered. The health delivery model of the future should meet patients where they are and deliver care on their terms. Health plans and health systems will likely use consumer-preference information, health data, and predictive analytics to understand the unique needs of consumers. That can help them tailor their care team and care pathways to best meet those needs. We expect that health care organizations will likely be hyper-focused on simplifying the navigation of the health care system and helping consumers get the right service at the right time. This could dramatically reduce duplicative services and unnecessary treatments. Moreover, wider adoption of virtual health might prompt health plans to rethink provider networks, particularly for areas such as behavioral health and primary care.
  • Price transparency: Health care is the only industry in which consumers don’t understand the cost of services before they receive them. Some of them can’t afford to pay for the services after they’ve been provided. Beginning on January 1, 2022, health plans will need to comply with the Transparency in Coverage Rule (see Deloitte's complete analysis). Health plans will be required to publicly share machine-readable data on pricing information, such as negotiated rates with in-network providers, payments to out-of-network providers, and covered drug costs. Beginning in 2023, they will also be required to maintain online cost-comparison tools. Since January 1, 2021, hospitals and health systems have had to comply with the Hospital Price Transparency Rule. The combination of these rules could help make health care costs completely transparent amongst health plans, health systems, clinicians, and consumers. Not only is this expected to help consumers select lower-cost alternatives, it also will likely reduce the cost of checking eligibility before services are provided.

In the future, the convergence of automation and the redesign of the industry’s legacy rules can lead to an unstoppable shift in our health care system. The first step may be to rip off the bandage and re-imagine our decades-old heath care system.

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Kulleni Gebreyes

Kulleni Gebreyes

Director of the Health Equity Institute

Kulleni is a US Consulting Health Care Sector Leader and director of the Health Equity Institute. She holds an MD from Harvard Medical School and an MBA from Johns Hopkins. Dr. Gebreyes has developed and implemented strategies for population health management and value-based care, physician alignment and patient activation, diversity, equity and inclusion, and the drivers of health. She is an active advocate for vulnerable and underserved communities. She is also a physician leader with more than 20 years of experience in the health care industry across the commercial and public sector. She drives care delivery transformation for health care organizations pursuing financially sustainable strategies for consumer centric care models that are data driven and digitally enabled. She has also developed strategies for population health management and value-based care that address payment reform, physician alignment and patient activation. In partnership with providers, payers, and employers, Kulleni has successfully developed and implemented clinical analytics tools and applications that reduce operating costs and promote appropriate utilization of resources.

Paul Lambdin

Paul Lambdin

Managing Director | Life Sciences & Health Care

Paul is the Regional Segment leader for Health Plans in Deloitte Consulting LLP, focused on expanding our relationships with regional health plans, as well as the Distribution and Insurance Exchanges practice leader. He has more than 25 years of industry distribution and P&L experience and focuses on growth through effective distribution across all lines of business, including helping clients to optimize the market impacts of public and private exchanges. His recent engagements include public exchange go-to-market planning, private exchange strategy, and retail business and distribution strategy.