Physicians Leading Change in Healthcare Economic Reform: Estimates of Waste

By Ellis M. Knight, MD, MBA
December 9, 2021

An excerpt from Healthcare Economic Reform: How and Why Physicians Must Lead Change Within Our Evolving Healthcare Economy by Ellis M. Knight, MD, MBA.

 

Studies estimate that between $760 billion and $935 billion of cost expenditures in healthcare can be considered waste!1 Most of us who work in the industry can easily identify a lot of that waste. Given that the healthcare economy is around $3.5 trillion a year, it stands to reason that if we were to eliminate even 5% of this waste, that is $175 billion that could be put to good use, such as lowering costs to consumers, increasing payments to essential providers such as primary care physicians, and increasing government funding of critical services like education and infrastructure, or paying down the debt. 

CASE STUDY — ELECTRONIC MEDICAL RECORDS 

In my opinion, there is perhaps no better example of waste in healthcare than the mandated use of cumbersome electronic medical record (EMR) systems in clinical care delivery. This mandate came about through the Health Information Technology for Economic and Clinical Health (HITECH)Act, a part of the Final Omnibus Rule updating the Health Information Portability and Accountability Act Security Rule that became effective March 26, 2013. 

These systems, which are extremely expensive and difficult to learn to operate, have not been embraced by providers or patients. Providers resent the onerous documentation requirements that payers, including CMS, now require to be entered into the EMR in order for providers to be reimbursed for services rendered. Patients resent the time providers spend entering information into the EMR, as it takes from their face-to-face time with the providers.

As a healthcare consultant who has had the privilege of meeting thousands of providers across the country during the past 10 years or so, I can confidently say that no provider I have ever met genuinely likes their EMR. The providers I know consider it a waste of resources that could have been spent on activities that did much more to improve patient safety and quality of care.

Don’t get me wrong, I am not suggesting that we go back to the days of paper charts, but we should re-examine the way in which EMRs are currently designed and the purpose for which they have been utilized in the U.S. healthcare delivery system.

From my perspective, they do not foster communication between caregivers; instead, their primary purpose is to document information for billing purposes. In fact, as someone who regularly reviews medical records as an expert witness for medical malpractice cases, I can unequivocally state that clinically relevant information in the electronic record is almost impossible to find and most of the documentation in these records is extraneous and irrelevant to patient care delivery.

In addition, each EMR vendor has a different way of organizing the record, which makes it even more difficult to find information of clinical value. Finally, each system stands alone; interoperability is an unfulfilled promise made by almost every vendor.

Therefore, I conclude that EMRs, as currently contrived, are an excellent example of waste in the healthcare system. For example:

  • Dollars are spent on these inordinately expensive systems and the support staff needed to maintain and operate them.
  • Productivity suffers as providers try to continue to see large volumes of patients and document their activities in the EMR as mandated.
  • Time is lost as providers spend hours learning to operate these systems.
  • Effort is misdirected as clinical care improvements fail to materialize or, even worse, as patients are harmed as a result.

 

CASE STUDY: ONE PROVIDER’S EXPERIENCE WITH AN EMR

One of my physician colleagues, who is about my age, never learned how to type; therefore, when her private internal medicine practice implemented an EMR system, she struggled to keep up with her notes. Voice dictation was also a problem for her in that her native language is Spanish, and the automated voice dictation system could not accurately translate given her accent. Most of her workdays stretched into the night as she hunted and pecked through her documentation requirements.

Soon after her practice implemented the new EMR system, a large hospital system bought the practice and switched it to another EMR vendor, requiring my colleague to learn a new system. When the hospital decided to change EMR vendors a couple of years later, she finally threw up her hands and retired from clinical practice rather than go through the EMR transformation process a third time in almost as many years.

This clinician is not alone. Many providers find their productivity drops precipitously when they start using an electronic record system, and although it usually then rises, except in some specialties, it rarely reaches pre-implementation levels.

Remember, most employed providers are paid on a productivity-based compensation model. These drops in productivity might be worthwhile if the benefits of using these systems were evident; however, most studies have not reported improvements in clinical care outcomes, declines in error rates, and other advantages of using an EMR.2 In brief, most users now consider EMRs to be a massive waste in the system.

HOW TO ELIMINATE WASTE

The question then is, if there is a huge amount of waste in the system, how do you eliminate this waste? First, you must identify and track costs — something very few healthcare organizations know how to do effectively.

The billing and collections process, the revenue cycle in most healthcare systems, is highly sophisticated and occupies nearly all of a hospital finance or a physician practice billing department’s time. In contrast, the majority of healthcare organizations spend very little time or effort on cost accounting. Instead, most healthcare organizations, especially hospitals and health systems, execute cost accounting by using poor proxies for actual costs, such as relative value units (RVUs) or charge-to-cost ratios. Peter Drucker famously said, “You can’t manage what you don’t measure.” This argument is certainly valid when it comes to eliminating waste by cutting unnecessary costs.

Many financial managers in healthcare claim that it is not beneficial to spend significant dollars on implementing cost accounting systems. This perception was probably accurate in the past when a focus on top-line revenues allowed most organizations to remain solvent and some were able to reap enormous profits without considering cost controls.

As with many other aspects of the healthcare system, however, the COVID-19 pandemic has shown that providers’ dependence on revenue growth makes them especially vulnerable to times when revenue growth is not possible or when revenues drop precipitously.

This decline occurred during the pandemic, as exemplified by many hospitals having to cease their elective surgical services. They were overwhelmed by COVID patients and fewer patients wanted to go to the hospital for services they could safely postpone. Those organizations with large cash reserves could weather this storm for a while, but smaller and especially rural organizations could not.3 Once the pandemic abates, even large, resilient organizations will need to reconsider their reliance on a volume-based, revenue-optimizing strategy and incorporate cost control into their strategic plans.

SUMMARY

Given the enormity of the healthcare economy, even small successes in eliminating wasteful expenses can be well worth the effort. This theory has proven to be especially true during the COVID-19 pandemic when hospital and health systems’ historic reliance on revenue growth has led to financial strain in many organizations.

Providers must identify, eliminate, or lower costs rather than continue to rely on continued growth in volume and revenues. They can begin by implementing proper cost accounting processes in healthcare delivery systems that go beyond inaccurate proxy systems to measure actual costs.

 

ENDNOTES

  1. The enormous size of the healthcare economy means even small reductions in waste can amount to huge savings. Shrank WH, Rogstad TL, and Parekh N. Waste in the U.S. Health Care System: Estimated Costs and Potential for Savings. JAMA. 2019; 322(15): 1501–1509.
  2. Given the tremendous expense of these systems and their failure to deliver on many of their promises related to improved quality and patient safety, I think we can consider the broad implementation of EMRs in healthcare a good example of waste. Zhou L, Soran CS, Jenter CA, et al. The Relationship Between Electronic Health Record Use and Quality of Care Over Time. Journal of the American Medical Information Association. 2009; 16(4): 457–464.
  3. Rural and smaller hospitals that don’t have the cash reserves on hand to shore them up when revenues have dropped have borne the brunt of the financial effects of the COVID-19 pandemic. Barone E. Rural U.S. Hospitals Are on Life Support as a Third Wave of COVID-19 Strikes. Time. October 20, 2020. https://time.com/5901656/coronavirus-hospital-closures.

 

 

Healthcare Economic Reform: How and Why Physicians Must Lead Change Within Our Evolving Healthcare Economy by Ellis M. Knight, MD, MBA

Excerpted from Healthcare Economic Reform: How and Why Physicians Must Lead Change Within Our Evolving Healthcare Economy by Ellis M. Knight, MD, MBA.

20211209 Knight_photo

 

 

 

 

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