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Opinion

EDITORIAL

Toward Evidence-Based Policy Making to Reduce Wasteful
Health Care Spending
Karen E. Joynt Maddox, MD, MPH; Mark B. McClellan, MD, PhD

In this issue of JAMA, Shrank and colleagues report a thorough
review of studies published over the past decade to provide
updated estimates on the proportion of US health care spending
that is wasteful, defined in 6 broad categories: failure of
care delivery, failure of care coordination, overtreatment or
Editorial
low-value care, pricing failure,
fraud and abuse, and adminisRelated article and Audio
trative complexity.1 The authors estimate total annual
waste to be $760 billion to $935 billion—smaller as a share of total
spending than previous estimates, yet clearly showing that a gulf
remains between the current efficiency in the US health care system and what may be possible. But the authors go further than
previous studies to assess evidence on how much of this theoretical gulf could potentially be closed, and they conclude that
approximately a quarter of that total ($190 billion to $282 billion)
could be eliminated if evidence-based strategies to reduce waste
were scaled nationally.
The 3 “clinical” categories of waste identified by Shrank
and colleagues (failure of care delivery, failure of care coordination, and overtreatment or low-value care) collectively account for as much as an estimated $345 billion in waste. Together, these categories represent the waste associated with
suboptimal quality of care.
The remedies for poor-quality care, outlined by the authors, could be considered as being in 2 interdependent categories. The first is clinical care redesign, which includes approaches such as care pathways, care coordination, and
delivering the right primary, secondary, and tertiary preventive care for those who qualify. The second is composed of the
policy initiatives that are meant to incent and support those
care redesign activities, which include approaches like the
Hospital Readmissions Reduction Program, Center of Excellence designations, and bundled payment programs. These
policy initiatives entail using financial or recognition incentives to nudge clinicians, hospitals, and health systems to improve care and reduce costs, as well as new payment structures to sustain them.
However, many of these policy initiatives have not led to
major shifts in costs of care. Bundled payments, for example,
have demonstrated approximately 4% savings in 90-day episode costs for joint replacement, but no significant savings for
the broader group of medical conditions.2,3 The Medicare
Shared Savings Program showed modest savings for physician group–led accountable care organizations, but no savings on average for hospital-integrated participants.4
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Why have major policy initiatives led to limited financial
savings?
First, current value-based and alternative payment models are generally complex. For example, the Merit-based Incentive Payment System (MIPS), which focuses on physician
practices, evaluates cardiologists against dermatologists against
urologists, and it includes more than 250 quality measures from
which practices can choose.5 Such complexity renders performance “scores” difficult to interpret both for payers and consumers. Instead, focusing on a small number of specialtyspecific meaningful measures with a solid evidence base for
implementation could drive greater reductions in waste
through clinical interventions, while at the same time improving information for patients and families.
Second, and related, current models are inadequately
aligned across payers. A hospital may need to collect one type
of data on urinary tract infections for its Medicare programs,
another for Medicaid, and yet another for a private payer.
Greater alignment on which performance and utilization measures have adequate face and statistical validity to be used for
quality improvement and accountability would allow hospitals to redirect resources currently used for collecting unharmonized metrics toward improving patient outcomes. This
could reduce both administrative waste and clinical waste.
Third, the current “mixed” payment system fails to create the sustainable business case for truly redesigning care.
Most new payment models implemented to date represent only
a limited or modest shift away from fee-for-service, and they
are still dominated by financial incentives favoring admissions and more utilization.6 Hospitals must pursue a strange
calculus to determine the trade-offs between investing in readmission reduction to avoid penalties under the Hospital
Readmissions Reduction Program and the lost revenue from
those averted admissions. Most accountable care organizations similarly attempt to balance often incremental perepisode or per-person payments or shared savings against their
base fee-for-service revenues. As long as these groups are operating in a primarily fee-for-service environment with only
limited “value-based” payment, it is challenging to justify the
investment in care redesign and structural change that is likely
necessary to meaningfully reduce waste.
Fourth, there has been inadequate clinician buy-in to these
programs. Congress required CMS (the Centers for Medicare
& Medicaid Services) to conduct national programs with standard approaches for a wide range of health care organizations, and, consequently, CMS has implemented performance measures and alternative payment models that many
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Opinion Editorial

clinicians do not feel reflect their unique circumstances, capabilities, and patients’ needs. Therefore, even if measures are
reasonable, pushback from clinicians has likely impeded progress. Disagreements around the Hospital Readmissions Reduction Program have detracted from improving care transitions. Disagreements around patient safety measures like the
Patient Safety Indicators composite (PSI-90) have detracted
from reducing hospital-acquired infections and complications. While there will always be pushback, efforts that
assess clinician readiness for participation in reforms,
combined with more support and flexibility around how
to improve care, may be better received. A number of emerging examples offer promising paths forward, including
state-based multipayer initiatives that include support for care
improvement. CMS also aims to do more to support such
aligned efforts.7
Fifth, as some of these newer initiatives recognize, the cost
of implementing interventions to reduce waste remains large.
Due to a lack of data, Shrank et al were unable to include these
costs in their calculations, but if they had, the total achievable savings would certainly have been lower. For example, the
authors suggest that bundled payment models could save as
much as $555 million in Medicare spending, but hospitals participating in bundled payment programs are paying consultants millions of dollars for strategic, technological, and clinical support to participate. One prior study suggested that each
year, US practices spend 785 hours per physician and more than
$15.4 billion to report quality measures for existing quality
programs.8 Thus, the savings of any program should be measured not only as the Medicare costs averted, but as those costs
minus the investment made by each hospital in achieving them.
Programs that “save” money for CMS are not cost-saving at the
health system level if they require hospitals or practices to grow
their administrative overhead to employ analysts, financial experts, and administrators to oversee these quality programs.
In fact, these are likely significant drivers of exorbitant prices
for medical care: payments must support not only clinical care
delivery but also a large and growing administrative infrastructure. More efficient, data-rich systems to support clinical care improvement and accountability are needed.
Sixth, new payment models and related reforms must more
explicitly address the elephant in the room: prices. Steps to address high prices can be complementary and reinforcing to the
steps described above. While there has understandably been

ARTICLE INFORMATION
Author Affiliations: Washington University School
of Medicine, St Louis, Missouri (Joynt Maddox);
Institute for Public Health at Washington University,
St Louis, Missouri (Joynt Maddox); Associate Editor,
JAMA (Joynt Maddox); Duke University School of
Medicine, Durham, North Carolina (McClellan);
Duke Margolis Center for Health Policy, Durham,
North Carolina (McClellan).
Corresponding Author: Karen E. Joynt Maddox,
MD, MPH, Washington University School of
Medicine, 660 S Euclid, St Louis, MO 63110
(kjoyntmaddox@wustl.edu).

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a great deal of analysis on pharmaceutical prices, less attention has been given to hospital prices, where the growth in
prices and magnitude of excess pricing are perhaps even
greater.9,10 Some states have sought to tie private payer rates
to Medicare rates to control prices, although these approaches may not support shifts to more value-based care that
could address the other sources of waste; for example, acrossthe-board reductions in prices may encourage higher volumes of low-value care. Shrank et al suggest that all-payer
global budgeting, as is currently being expanded in Maryland,11
may hold potential for reducing hospital spending while providing revenue stability. Alternatively, making available consistent and reliable information on the price and quality of episodes of care at different hospitals may help clinicians and
patients make better decisions, especially as they shift to alternative payment models.
Collectively, these takeaways suggest a path forward. The
current piecemeal approach, which imposes complexity and
additional implementation costs on clinicians, hospitals, and
health systems, should evolve to a simpler and more holistic
approach to value-based payment. Primary care should move
toward a capitated payment system, with a streamlined set of
quality measures and financial supports for keeping people
healthy and out of the hospital. Specialty care will likely need
a combination of a primary care–like chronic disease management track and add-on “bundles” for procedures, with quality measures relevant to specialized care comprising the core
of quality measurement. Hospital care should be structured
within such bundles where feasible, with clear quality measures around safety, and the move of accountable care organizations from fee-for-service–based models to organizations paid on a person level should continue.
Such an approach could address 5 of the 6 domains of
wasteful health care spending outlined by Shrank et al,1 improving care delivery and coordination, decreasing the use of
low-value care, and reducing administrative complexity, and
could provide new tools and motivation to reduce prices for
care at the episode and person level. But it will require an approach that integrates strategies that have shown promise
across payers and programs, with more engagement and leadership from the clinical community so that they can be implemented fully and improved along the way. If so, perhaps the
next iteration of measuring waste in the US health care system will find that progress has been made.

Published Online: October 7, 2019.
doi:10.1001/jama.2019.13977
Conflict of Interest Disclosures: Dr Joynt Maddox
receives research support from the National Heart,
Lung, and Blood Institute (R01HL143421), National
Institute on Aging (R01AG060935), and
Commonwealth Fund, and previously did contract
work for the US Department of Health and Human
Services. Dr McClellan reports earning fees as an
independent board member for Alignment Health
Care, Cigna, Johnson & Johnson, and Seer
Biosciences. He co-chairs the Accountable Care
Learning Collaborative and the Guiding Committee
for the Health Care Payment Learning & Action
Network, and is an adviser for Cota and MITRE.

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3. Joynt Maddox KE, Orav EJ, Zheng J, Epstein AM.
Evaluation of Medicare’s bundled payments

JAMA Published online October 7, 2019 (Reprinted)

© 2019 American Medical Association. All rights reserved.

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Editorial Opinion

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(Reprinted) JAMA Published online October 7, 2019

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