A Prescription To Reduce Waste In Health Care Spending

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Earlier this year, the Gallup organization set out to identify the top concerns everyday Americans have about money. Researchers asked more than a thousand people across the country, "What is the most important financial problem facing your family today?" Their top answer: the cost of health care.

Increases in medical costs have substantially outpaced economic growth for decades. In recent months, ProPublica has shown that it doesn't have to be this way. It's been estimated that the U.S. health care system wastes about $765 billion a year — about a quarter of what's spent. We've identified ways that tens of billions of dollars are being wasted, some of them overlooked even by many experts and academics studying this problem.

It's possible to reduce or eliminate some of the waste, but there are also formidable forces that benefit from it. Excess spending generates revenue and profit for what some have called the "medical industrial complex," said Dr. H. Gilbert Welch, professor of medicine at the Dartmouth Institute for Health Policy & Clinical Practice. "There are a number of people who can imagine ways to solve things," Welch said of the wasted spending. "But the political will and the forces at work can stop them pretty easily."

Still, wasting fewer health care dollars could drive down insurance premiums and out-of-pocket costs and maybe even free up resources for education, retirement and wage increases, among other things.

Here are the ways ProPublica found the medical industry is needlessly gobbling up money, along with steps health care leaders or policymakers say we could take right now to reduce the waste.

What Hospitals Waste: The nation's health care tab is sky-high. We're tracking down the reasons. First stop: A look at all the perfectly good stuff hospitals throw away.

What ProPublica found: Hospitals routinely toss out brand-new supplies and gently used equipment. Most of it goes to the dump, but some gets picked up by nonprofit organizations that ship the goods to the developing world.

How much money is wasted: No one tracks the total, but one charity in Maine had about $20 million worth of discarded goods filling its warehouses. Similar nonprofits operate around the country. The University of California, San Francisco Medical Center studied how much it wasted during neurosurgery operations in one year. The discarded supplies were worth $2.9 million.

How to stop the squandering: UCSF reduced waste by reviewing the lists of supplies each surgeon wanted prepped for an operation. Many items could be taken off the lists. That reduced the number of supplies opened to set up each procedure, said Dr. R. Adams Dudley, director of the UCSF Center for Healthcare Value.

Hospitals could reduce wasted supplies by tracking everything thrown away, said Dr. Robert Pearl, former CEO of The Permanente Medical Group, the country's largest medical group and author of the book Mistreated. The amount of waste could be reported when each patient is discharged, he said. Seeing the waste quantified would motivate people to prevent it, he said.

Several experts said paying hospitals a lump sum for everything involved in a particular procedure , instead of a la carte for each item, would mean they make more profit by cutting the amount of wasted supplies and equipment.

Health Care ProPublica Investigation Finds Nursing Homes Waste Tons Of Prescription Drugs ProPublica Investigation Finds Nursing Homes Waste Tons Of Prescription Drugs Listen · 3:34 3:34

America's Other Drug Problem: Every year nursing homes nationwide flush, burn or throw out tons of valuable prescription drugs. Iowa collects them and gives them to needy patients for free. Most other states don't.

What ProPublica found: Nursing home patients typically have their drugs dispensed a month at a time. So whenever a drug gets discontinued – if a patient dies, or moves out, or has a reaction – there's excess. Most nursing homes throw away the leftover drugs. They flush them down the toilet, put them in the trash or pay to have them incinerated. Iowa started a nonprofit organization to recover the excess drugs, inspect them and dispense them for free to patients.

How much money is wasted: It's estimated that hundreds of millions of dollars a year are wasted by throwing out nursing home medications. The CEO of a long-term care pharmacy in Florida said his company incinerates about $2.5 million in valuable medication every year. He estimated the total is $50 million statewide. Colorado officials said the state's long-term care facilities toss out 17.5 tons of potentially reusable drugs each year, worth about $10 million. Iowa is on pace to recover $6 million in drugs from nursing homes this year.

Other harm to the public: Flushing drugs down the toilet contaminates the water supply. Trace levels of pharmaceuticals have been detected in water throughout the country.

How to stop the squandering: Many states have laws that allow drug donation, but they have not invested in a program to help the process. ProPublica's story prompted lawmakers in Florida and New Hampshire to introduce legislation to create a program like Iowa's. Leaders in the Vermont medical community have also shown interest in starting a drug donation program.

How Two Common Medications Became One $455 Million Specialty Pill: After I was prescribed a brand-name drug I didn't need and given a coupon to cover the out-of-pocket costs, I discovered another reason Americans pay too much for health care.

What ProPublica found: A drug company combined two over-the-counter drugs, naproxen, which goes by the brand name Aleve, and esomeprazole magnesium, also known as Nexium, to create a new pill called Vimovo. My doctor prescribed it to me. The company that makes it, Horizon Pharma, marketed the single pill as an innovation because it was easier to take one pill than two. A month's supply of the two inexpensive drugs costs about $40. The company billed insurance $3,252 for the Vimovo.

How much money is wasted: My insurance company rejected the bill, but Vimovo has net sales of more than $455 million since 2014. Horizon brought in $465 million more in net sales from a similar drug, Duexis, which combines ibuprofen and famotidine, aka Advil and Pepcid.

How to stop the squandering: Spurred by ProPublica's story, Connecticut now requires doctors to get prior authorization to prescribe Horizon's drugs to the 200,000 public employees, retirees and their dependents covered by a state insurance plan. The Connecticut comptroller also urged the attorney general's office to investigate Horizon's relationship with pharmacies and physicians. Other insurers have removed the drugs from their formularies.

Welch, the Dartmouth doctor, suggested tongue-in-cheek "warning labels" on drugs that aren't actually big innovations. In the case of Vimovo, the warning could say that the "specialty" pill is actually just a combination of two cheaper ingredients. "There may need to be public service advertisements that counter the advertising that says everything is the best thing since sliced bread," he said.

In cases where there are dramatic price increases, state lawmakers could require pharmaceutical companies to justify the higher costs, said Dr. Steven Pearson, president of the Institute for Clinical and Economic Review.

Secret deals and rebates currently cloak the actual price of drugs. Drug companies should have to publish the real prices of their products, said Linda Cahn, an attorney who advises corporations, unions and other payers on how to reduce their costs. Cahn recently proposed in an op-ed in The Hill what she calls a "bid day," where any drug company that wants to sell its products to Medicare beneficiaries would be required to submit the net cost of each medication. All the companies would be required to submit their price at the same time, say twice a year, and then stick with the price, which Medicare would make public for all to see. The bidding would inform consumers and force competition, she said. The same process could be used for all insurance plans, she said.

The Myth of Drug Expiration Dates: Hospitals and pharmacies are required to toss expired drugs, no matter how expensive or vital. Meanwhile the FDA has long known that many remain safe and potent for years longer.

What ProPublica found: The term "expiration date" is a misnomer. The dates on drug labels are the point up to which pharmaceutical companies guarantee their effectiveness. But that does not mean the drugs are ineffective or dangerous the moment after they "expire." The Food and Drug Administration and Defense Department created the Shelf Life Extension Program to test the stability of drugs in the federal government's stockpiles and then extend their expiration dates, when possible. A 2006 study of 122 drugs tested by the program showed that two-thirds of them were stable every time a lot was tested. Each of them had their expiration dates extended, on average, by more than four years. But the same type of drugs in hospitals or pharmacies get thrown away when they "expire."

How much money is wasted: The total is unknown, but one mid-size hospital in Boston had to destroy about $200,000 in expired drugs in 2016. If hospitals nationwide throw out similar amounts of drugs annually, the total would be about $800 million trashed each year by hospital pharmacies alone.

Other harm to the public: Some expired drugs are in short supply and difficult to replace. On occasion, a pharmaceutical company will extend the expiration date of drugs for which there are shortages, but they are not required to do so.

How to stop the squandering: Drug companies could be required to do studies to determine how long their products actually last, and report the information, said Lee Cantrell, a pharmacist who helps run the California Poison Control System. Also, the government could publish data from the Shelf Life Extension Program, which is funded by taxpayers. The information would help people see "many types of medications are safe and effective much longer than their original expiration dates," Cantrell said.

Drug Companies Make Eyedrops Too Big - And You Pay for the Waste: The makers of cancer drugs also make vials with too much medication for many patients. The excess drugs are tossed in the trash — another reason health care costs are so high.

What ProPublica found: Drug companies make eyedrops much larger than what the eye can hold. That means patients pay for the excess from each drop, which runs down their cheeks. Vials of cancer drugs are also larger than necessary. The leftover cancer medication is billed to the patient - and thrown in the trash can.

How much money is wasted: It's unknown how much it costs to waste a portion of each eyedrop, but the industry is huge. Last year, drug companies brought in about $3.4 billion in the U.S. alone for dry eyes and glaucoma drops, according to the research firm Market Scope. A 2016 study estimated that, of the top 20 cancer drugs packaged in single-use vials, 10 percent of the medication is wasted, at a cost of $1.8 billion a year.

How to stop the squandering: Citing ProPublica's story, two U.S. senators introduced legislation that would require federal agencies to stop the waste associated with eyedrops and single-use cancer drug vials. Drugmakers could reduce the waste of cancer medication by making vials in varying sizes, so that less would be left over from each patient, said Dr. Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center in New York. Bach led a team that estimated the waste associated with vials of cancer drugs.

A Hospital Charged $1,877 to Pierce a 5-year-old's Ears. This is Why Health Care Costs So Much: An epidemic of unnecessary treatment is wasting billions of health care dollars a year. Patients and taxpayers are paying for it.

What ProPublica found: It's common for medical providers to deliver care that's not needed, or that costs more than necessary, and patients get stuck with the bills. In one case, a Colorado mom said her surgeon offered to pierce her daughter's ears as an add-on to a different operation. The mom agreed, assuming it would be free. But the hospital stuck her with a bill for $1,877 for "operating room services." ProPublica also highlighted unnecessary imaging tests, like extra mammograms and ultrasounds, and found it's common for hospital intensive care to be delivered to patients who are too sick or too healthy to benefit.

Enlarge this image toggle caption Jenna Schoenefeld for ProPublica Jenna Schoenefeld for ProPublica

How much money is wasted: Unnecessary or needlessly expensive care wastes about $210 billion a year, according to the National Academy of Medicine. The cost of false-positive tests and overdiagnosed breast cancer is $4 billion a year, according to a 2015 Health Affairs study. Unnecessary intensive care costs about $137 million a year for about 100 hospitals in two states, one study estimated. That would put the tab of non-beneficial intensive care in the billions nationwide.

How to stop the squandering: Medicare has a fee schedule that sets prices and makes them public, said Welch, the Dartmouth physician who advocates against overtreatment. States could pass laws that establish similar fee schedules, he said, or insurance companies could implement them. Establishing set prices would reduce administrative overhead, he said, and allow patients to shop for the best deals.

Several experts said policymakers need to move medical providers from payment based on volume of services to payment based on value. Right now "fee for service" payment is common, so providers get a fee for everything they do. This gives them the incentive to do more, sometimes more than is necessary, or to provide care that's more expensive than it has to be. If providers were paid a lump sum to care for individuals or a group of patients, and the outcomes of their performance were measured to ensure quality didn't suffer, they would cut the waste. "You want to empower organizations to be responsible for improving patient health and reducing costs," said Dr. Elliott Fisher, director of The Dartmouth Institute for Health Policy and Clinical Practice.

ProPublica is a nonprofit newsroom based in New York. You can follow Marshall Allen on Twitter:@marshall_allen. Have you seen examples of wasted health care spending? Share them with Marshall here.