25% of Health Care Spending Is Waste — But Home-Based Care Can Help

About a quarter of all U.S. health care spending — $760 billion to $935 billion per year — can be categorized as waste. But home-based care has already helped cut those costs in the past few years — and has even more potential to so in the future.

That’s according to new research from Humana Inc. (NYSE: HUM) and the University of Pittsburgh School of Medicine published Tuesday in the Journal of the American Medical Association (JAMA).

Specifically, researchers reviewed 71 waste estimates from 54 unique sources, including peer-reviewed publications, government-based reports and other research channels.

During that review, they identified six areas where waste commonly exists: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity.

Overall, the team of researchers projected that interventions could save $191 billion to $282 billion in those areas, barring administrative complexity for which no interventions have been previously studied.

“This research is so important because our industry is wasting money that could be used to improve the care experience so people can lead healthier lives,” Humana’s President and CEO Bruce Broussard said in a statement. “Each of the domains studied may require a different kind of action, and the drive toward data interoperability and value-based care payment models can reduce this wasteful spending. But if we collaborate as health plans and providers, in conjunction with the government, we can deliver more effective care and improve health.”

Home-based care could be a useful cost-saving intervention in many of those six categories. While not directly addressed in the research findings, Humana has often lauded the importance and potential of home-based care in the recent past.

“[With home-based care,] you have this holistic view of the customer, so you can create an intervention based on personal needs, clinical needs and [personal] preferences,” Broussard said at a Medicare Advantage conference earlier this year. “All of those, I think, will make a great health care system a decade from now.”

And with the more frequent usage of home-based care, that health care system will likely be less expensive and less wasteful, too.

First of all, home-based care delivery is less costly than institutional care. It can help prevent hospital-acquired conditions and adverse events, clinician-related inefficiencies and lack of adoption of preventive care practices — all of which fall into the “failure of care delivery” category. 

For example, one study found that home health care saves an average of $7,313 per patient compared to in-patient hospitalization following an emergency room visit.

Plus, home-based care adds value in the form of cost avoidance. This falls into researchers’ “failure of care coordination” category, which includes unnecessary admissions or avoidable complications and readmissions.

Study after study has shown that home health and home care reduce seniors’ risk of being admitted to the hospital or visiting the emergency room, which are both comparatively much more expensive alternatives.

To some degree, home-based care has already helped the health care industry make great strides in reducing waste, researchers from Humana and the University of Pittsburgh School of Medicine acknowledged in the JAMA article.

They pointed to an analysis of 2011 data published in 2012. Back then, researchers found that 34% of health care spending could be identified as waste — a full nine percentage points higher than the 25% researchers found in their most recent study. 

Several factors went into cutting waste, including an increased focus on addressing drug costs and administrative complexity, the researchers wrote. But they also gave a subtle nod to home-based care, which is characterized by its unique form of delivery along with its high-value and low cost.

“In the intervening years since the previously published estimates of waste in health care, a burgeoning body of research on low-value health care services has emerged,” the JAMA article reads. “In addition, initiatives to help control health care spending, including both payment reform (eg, accountable care organizations, bundled payments, and value-based payment arrangements with primary care physicians) and delivery reform (improved care coordination, patient-centered medical homes, and the Partnership for Patients initiative) have evolved since previous estimates of wasteful spending.”