Mark Pearson: Tackling Wasteful Spending on Health

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  • Posted:Tuesday 10 January 2017

Mark Pearson, Director for Employment, Labour and Social Affairs at OECD, presents findings from OECD’s report Tackling Wasteful Spending on Health and discusses ways of reducing waste in health care spending.

This presentation was recorded at our conference on Delivering high value health care on 10 January 2017.


Good morning everybody and thanks very much to The King’s Fund that’s really, really kind of you to be hosting us today. We also want to acknowledge right from the start the work that was presented yesterday at the Lancet I know they had a big event on the waste paper stuff they’re publishing yesterday probably didn’t get quite as much attendance as they were perhaps expecting or hoping for given the strike, these timings are very bad.  So I hope we have another chance to maybe talk about some of the findings of those papers too today.

Chris has already told you the background to this. We have a health ministerial meeting next week.  We don’t have that many health ministerial meetings at the OECD we tend to do them every five or six years and so they’re quite a big deal when we do them and we do indeed have something like 35 or so ministers coming to the meeting next week.  I mean this is actually a very good attendance of ministers and it does tend to set the framework for an awful lot of work by the OECD and others over the coming years.  So it’s quite an important topic and that means that discussions about what should be discussed by ministers are also quite difficult.  One of the issues we’ll be talking about is new technologies and how health systems should be dealing with it and the other main theme is this one on wastes and Chris is already I think slightly uncomfortable maybe about the use of the term waste.  This is shared by an awful lot of people.  Indeed there was a fair bit of division amongst the countries about whether it should be talking about waste or by vale.

I think it’s right that we talk about waste and this is based on many, many meetings at high level with ministers that have gone on over the past decade, fifteen, 20 or so years. I think when you talk about value you get a very, very different sort of discussion from when you talk about waste.  In particular you ask virtually any health minister or person who is responsible high up in a health service how they could make their health system better if they had an extra five billion or something and they have fantastic ideas, very sensible ideas, nearly always it makes some sort of sense based on evidence and so on.  You ask them how to take five billion out of their health system that’s much harder and we saw it in the crisis.  During the crisis when some countries had to cut their health spending very, very rapidly indeed they did not do it particularly well in many cases, they often did cut high value services.  Why?  Because they didn’t have the mechanisms to actually target wasteful spending.

So that’s really the background to why we’ve ended up talking about waste and not value, but I absolutely do agree it makes a lot of people uncomfortable, to some extent myself included, talking about waste. There are obvious risks in doing that, will we actually be able to motive a continuing flow of funds if we admit how much waste there is in the services that we provide?  I mean I think the answer there is that if you prove that you are an efficient service you’re much more likely to be able to make a good case for funding.  Similarly I would say much wasteful spending is actually bad for patients.

So let me go through what I’ll be saying. I mean, yes, this is an overview I will be talking about these three main areas, wasteful clinical care,  operational waste and governance related waste, but let me start with some of the sorts of facts that have come out not in a systematic way.  I wish I could have lots of classic OECD charts which show all the countries ranked by different measures of waste in all these different areas, but in many cases we are relying on studies grabbed from different countries to give some idea of what’s going on.  None of these I suspect will be of particular surprise to you but they do add up to quite a significant story.

Talking about adverse events happening in one out of every ten hospitalisations, maybe 15% of hospital spending due to dealing with those adverse events, many … most of which could be avoided.  Huge rates of geographic variations in all sorts of procedures largely unwarranted.  Evidence that maybe 50% of antimicrobial prescriptions are unnecessary.  Obviously the fact that you have such a wide variation from 12% to 56% of emergency department visits deemed inappropriate says something about the difficulties of measuring this.  I see our health minister has come up with one in three as his guess this morning it’s roughly in the middle of that so probably is not an unreasonable estimate.  Generic spending, best country spends about 80% of its budget on generics and the worst countries in the OECD spend only 10% of their budget on generics.  Huge variations in administrative expenditures and to the extent that we can identify fraud and error we’re talking about maybe 6%.  You add that all up a significant share of health spending is ineffective or wasteful.

Let me come up with the best possible estimate, which is a guesstimate, probably about a fifth of health spending could be channelled to better use. I think that’s a defensible number.

We’ve already said it’s a difficult admission, but why do we need to admit that? Firstly the obvious one if you eliminate waste you’re releasing resources for more useful spending but I think it’s  more than that.  I think if you do actually target waste the best way of doing that is to put value at the core of the policy debate and that means much more than just tackling waste and I think that then has also implications for how we structure our health systems, the move towards patient centeredness and a streamlined hospital infrastructure.  Much more could be said about that but I don’t want to spend too long.

So let me now talk a little bit more about our definition of waste because so far I’ve skated over to some extent what we mean by waste. Essentially it is the services and processes which are harmful or do not deliver benefits and those excess costs which could be avoided by replacing them with cheaper alternatives for the same benefits.  That sounds quite general, it does exclude some sources of value and efficiency, but it does suggest two strategic principles for tackling the problem of waste.  If there are processes and services which are harmful or don’t deliver benefits we shouldn’t be doing them and if there are excess costs which could be avoided by replacing them with cheaper alternatives then we should be doing the cheaper alternatives.  So the stop and swap is the fundamental story of our report.

So the point is that we’re looking for money that could be spent better rather than better uses for that money or the economists in the room we’re basically ... our definition of waste here is technical and productive efficiency. We’re not looking at allocative efficiency.  For sure you could probably get better outcomes by stopping doing low value care and spending in high value care but that’s a bigger story.  So we’re just focusing here on those two issues of services and processes which do not deliver benefits and when there are cheaper processes to give you the same benefits.

In a little more detail the areas that we run through in our report patients who do not receive the right care due to duplication of tests and services, ineffective care, the avoidable adverse events and then benefits which could be obtained with fewer resources things like discarded inputs, overpriced inputs and high cost inputs which are used unnecessarily and then the resources which are taken away from patient care due to administrative waste or fraud abuse and corruption. These are the issues that are covered in the report.

So let me go through the three main areas not covering everything that we talk about but giving some sorts of indications of what’s in the report.

Wasteful clinical care. Now this first one is one which is probably one of the more difficult issues.  Is it really wasteful to say that yes the best estimates of course from the independent UK panel on breast cancer screening are that for every 100,000 British women who are going to be screened 43 deaths will be prevented but 129 cases will be over diagnosed and treated?  To the extent that we can reduce those 129 cases we’re reducing wasteful spending.

I think more to the point the UK has, so far as we can tell, very similar patterns to other countries who have looked at adverse events in the hospital sector, this figure of about 10% keeps coming up in countries which manage to look at adverse events. Some estimates of the cost is given there and of course hospital acquired infections still remain quite an issue in the UK.  So there are some UK numbers.

It goes broader than that. Another area that we look at in this is the variations in the volume of services which cannot be medically justified, but the Dartmouth Atlas story.  Each dot there is a different subnational unit in each of the countries and this is looking at knee replacements.  So you can see in some countries these very large differences in knee replacement rates after you’ve standardised for population structure and so on.  In particular you’re basically showing a fourfold difference in the number of knee replacements across countries which it’s difficult to believe is due entirely to differences in country need for knee replacements and even within countries you are getting a threefold variation on average between different regional units rising to a fivefold variation in countries like Canada or Portugal or Spain.  Huge variations there.  Obviously that’s a whole research agenda in itself but must be a sign of some wasteful clinical care.

Here’s another area which again in itself would be … is the topic of many conferences, inappropriate use of antibiotics by a type of healthcare service. We’ve taken here and looked at the studies which show inappropriate use the least versus the highest level in studies in all these different areas with the number of studies listed at the bottom there.  So it’s showing that in paediatrics for example the best case scenario is only 5% of antibiotics are being prescribed when they shouldn’t be rising to 45% in the most pessimistic study.  In general practice across countries we’re looking at something like 45% in the most optimistic study reaching 90% in the most pessimistic study.  So huge examples of inappropriate care being given there.

I could go on, there are many, many more areas where we could be looking at wasteful clinical care and there’s some obviously in the publication.

I think the more interesting thing, and I suspect I don’t really need to persuade this audience at least, that all these things are issues that need to be addressed. The interesting thing though the most difficult thing is what we can do about it and there are examples across countries of fairly effective policies.  The first one is to identify the low value care to develop information systems which address this and by far and away the country that stands out here is New Zealand which has a fantastic system for example of adverse event reporting which goes way beyond the hospital sector includes long term care sector, ambulance sector, all areas of the health system and I think when you actually look at some of the issues around patient safety and so on and you can see an inflection in the New Zealand figures which I think reflects the fact that they put a huge amount of effort into their information systems.  Just bringing the issue of poor care, low value care to the attention of clinicians and people in the health service had a huge effect and more generally I think the development of atlases, geographic atlases, is taking off.  We know have about ten countries in the OECD that have those geographic atlases, we’re expecting several more in the next few years.

Clinical guidelines and protocols. Yes, I won’t say anything more than it’s fairly obvious why they play a role.  I think the behaviour change campaigns we can be a little bit sometimes … economists at least a bit sniffy about this behaviour change campaigns as if somehow just telling people, encouraging them can have a big effect, but the evidence is very, very, clear.  The growth in Choosing Wisely, Chris already mentioned that this is likely to be talked about a lot today so I won’t say much more, but it’s certainly taking off.  We’ve got something like twelve OECD countries currently having Choosing Wisely campaigns going on.

Antimicrobial stewardship. Yes, I always feel a bit annoyed when I have to resort to saying Kaiser Permanente as my example of doing fantastic things.  I mean nearly always we can find something that Kaiser is doing in virtually every area of health which is impressive.  It is true that their campaign on antimicrobial stewardship had a huge effect on inappropriate prescriptions, but we could also point to what’s going on in for example Belgium or Finland where I think they’ve managed to have huge changes in inappropriate prescribing and of course the Clean Your Hands campaign.

Financial incentives and nudges. There’s a general move I think in countries now towards not … considering at least not paying for the never events in terms of adverse events.  So this is beginning I think to take off in a few countries.  Certainly much more rapidly there’s a move towards this not paying for re-admissions to hospitals after there’s been an adverse event or in the event of excessively early discharge but I think it’s moving beyond that.  So I think there’s this use of financial incentives and nudges is taking off.

Let me move on to the second area looking at operational waste. This is just to describe what I mean by operational waste.  To what extent can we talk about unnecessary hospital attendances, inefficient processes within hospitals and then delays in discharging patients?  That’s really very hospital focused.  The report talks a lot about pharmaceuticals.  I won’t talk about pharmaceuticals today I’ll focus really on the hospital sector and we know an awful lot about hospitals admissions which are avoidable.  This is showing comparative numbers for diabetes admissions and you can see actually the UK does pretty well there.  The UK is slightly strange because it does do quite well on diabetes admissions, it does a lot less well when you get to things like asthma and COPD but we don’t quite understand why one area of primary care stands out as being one of the good performers in the OECD and in another area it’s below average and maybe you have some insights on that, but certainly trying to control avoidable admissions, as the Secretary of State has been talking about, is clearly one example of waste.

The other one is looking at delays in transferring hospitals and here we unfortunately have only three countries where we can do comparable information. So this is people who should be transferred out of hospitals but who aren’t because of some reason, inappropriate facilities being away outside of the hospital.  It’s not a pretty story for England there we have twice as many delays than in Norway, three times as many as in Denmark and the direction of change is not a good one.  Another that’s a fairly straightforward example of waste if people are remaining in the expensive hospital sector rather than being discharged for cheaper care elsewhere.  Again our main focus actually isn’t so much on the evidence here but on looking at what countries are doing to target operational waste.  Much of this again I think fairly familiar to most of you.  Yes promoting day surgery clearly many countries have much further to go in moving towards day surgery.

Bundled or population based payments. I mean we know we’re not there yet in designing how best to bundle together our payments in order to encourage care to take place in the best possible environment, but nevertheless I think we need to keep on experimenting there to see if we can get that right.  Again the role of clinical guidelines and I think pushing the self-management by patients as a way of getting better care in a more appropriate setting has been proven to be very effective.

The strengthening of alternative services. This is probably where there’s been most policy action in recent years with out of hours care being provided, lots of efforts in different countries on how they can build up out of hours care.  Facilities, yes we have the SOS médecins in France which is a longstanding approach but there’s also now the hospital at homes initiative within France.  You have the deliberate move to creating larger primary healthcare facilities in Norway and indeed many other countries throughout especially in Scandinavia, the rapid access clinics in the United States.  So this attempt to find a way of providing services primary care services outside of the hospital sector out of hours.

Let me move on to the final area that we look at in this report which is governance related waste and there’s two different areas that we look at here, the first one is administrative costs. Yes, despite everybody’s impression that health services are ridiculously bureaucratic in fact our best estimates are they’re only actually about 3% of total health expenditure which given the complexity of the services being provided doesn’t strike me as an outrageous number.  Of course we’d like it to be less but it certainly doesn’t seem to be a huge issue in terms of waste.  What we can say across countries despite all our measurement problems the multiple payer systems cost much more than single payer systems, the more choice you give people in multi payer systems the more expensive they become and private insurance has higher administrative costs.  So no surprise that you find that the countries with the highest administrative costs are countries with very large private free choice payment systems.

Nevertheless, whilst I won’t go into huge details about this because clearly less relevant for the UK, there’s a lot of work been going on in some of these countries in order to eliminate some of the processes which are unnecessary in Australia, Germany, Netherlands. Of course the Affordable Care Act had limits on the levels of administrative spending that private insurance companies can actually spend on administrative costs is one of the things that will be interesting if it survives the new administration.

Perhaps more difficult but definitely getting a lot more attention internationally is the role of fraud and corruption. This is perhaps a strange and maybe surprising chart looking at what citizens think about their health sector.  Maybe it’s not massively surprising to find that approaching 75% of Greeks believe that their health sector is corrupt.  Maybe it is a little bit surprising that around … approaching 50% of Americans, Japanese people and Germans think that their health system is corrupt.  This is UK does pretty well internationally, people don’t seem to think that it’s corrupt.  When you try and relate that to the evidence that does fraud actually exist of course we do struggle.  There are studies in places like Hungary and the United States which have tried to pick up fraud and we are coming out with moderately large numbers certainly somewhere between 5% and 10% of health spending that’s in some way being affected by fraud and corruption and when you get to maybe some of the Latin American countries particularly when you’re talking about procurement much, much larger numbers than that.

Increasingly, therefore, fraud is getting much more attention across countries. There’s a move to create specialised departments away from the ministry whose job is to identify fraud and corruption and in particular there’s an attempt to start using data mining techniques to identify cases of fraud.  The most advanced country in doing this believe it or not is Hungary which does some incredibly impressive things in terms of identifying anomalies in the payment structure largely due to a vice minister who was particularly interested in this as a topic and made enormous progress on this, but of course we do have a problem in tackling fraud and corruption in that the health sector for very good reasons does rely so much on self-regulation and we obviously have some tricky issues about how far we go in imposing some regulation from outside the professions in order to regulate and to what extent that should be necessary.  We do have … you’ll probably all know the Sunshine type regulations in the United States which mandate disclosure of financial ties.  These are gradually being extended to more and more countries - France being one of the most recent countries in that.

I’ve certainly used up my 20 minutes and I feel in many respects what I’ve done is only skate over very thinly the surface of a very, very wide set of very complex issues. Obviously the idea is that we spend the rest of this meeting today going in more detail in some of these issues and actually get down into the details, but in sum I think the message that we’re trying to get across is that the first issue we  must do is acknowledge that the problem exists.  I think sweeping it under the table and saying, “Our systems are so fantastic there's no waste in them so please give us more money,” is just not a credible approach that we do actually have to acknowledge there is a problem of waste and show that we are addressing this.  In terms of tackling it three main messages inform, persuade and pay generates the indicators that show waste.  The New Zealand case being a classic example, just show what’s going on and amazing sometimes how much of an impact that has on clinical behaviour.  Obviously persuading clinicians and healthcare providers through campaigns, through changing the systems, the regulations will be necessary many times and pay.  Start taking into account the provision of right care in the right setting as part of our payment systems in order to nudge people towards less wasteful spending.

I’m going to stop there, thank you very much, looking forward to the discussion. Thank you.


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