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How Healthcare Fraud and Waste Increase Cost of Care

A Chronic Condition: How Healthcare Fraud and Waste Increase Cost of Care

Published 11/18/2020

Virtually any healthcare provider would agree that even a chronic condition that is likely to be well managed needs to be first diagnosed and treated. It’s something that might not seem emergently life threatening – but that can ultimately put the patient in grave peril. In the same way, chronic unnecessary healthcare spending might not seem significant at first glance but can soon become unsustainable.

In some cases, healthcare fraud and waste are to blame. On average, employers in the United States lose between 6% and 25% of their healthcare spend on fraud and waste, money that could be redirected to help grow the organization. The National Health Care Anti-Fraud Association estimates that the financial losses due to healthcare fraud are in the tens of billions of dollars each year, while the Journal of the American Medical Association estimated in 2019 that the cost of waste in the U.S. healthcare system ranges from $760 billion to $935 billion annually. The result is higher costs for both employers and their employees.

But this wasteful spending is avoidable, rather than simply inevitable. Organizations today are becoming increasingly savvy in how they allocate funds – and understanding how and where healthcare fraud and waste happens may help improve your chances of avoiding this all too common slow bleed.

There are countless ways fraud and waste can materialize in the healthcare industry, but several practices are among the worst offenders:

  • Lack of coordinated care – Physicians order duplicate tests and diagnostics multiple times due to a lack of coordination.
  • Use of high-cost medications – The OECD1 says that prescribing higher-cost or brand-name drugs when generics or lower-cost options are available and appropriate results in an unnecessarily higher healthcare spend.
  • Unnecessary treatment – Treatments or procedures that offer little to no benefit, like spinal fusion, according to Harvard Men’s Health Watch, are costly, in many cases ineffective, and may cause more long-term harm than good.
  • Inappropriate level of care – Both providers and patients access the wrong level of care for treatment, such as when a patient seeks care for a minor ailment in an emergency room or when a surgeon performs a procedure in a hospital setting rather than in an outpatient setting. Shoulder surgeries, knee surgeries, and kidney stone treatments are too commonly provided in a higher level of care than necessary.
  • Durable medical equipment – Sellers of durable medical equipment, such as motorized wheelchairs, back braces, and CPAP machines have been known to pressure patients into ordering equipment they don’t need.
  • Fraudulent billing practices – According to the Centers for Medicare and Medicaid Services, fraudulent billing practices including billing for no-show appointments, submitting claims for more complex services than were actually rendered, billing for services not provided, or paying for referrals.

You may be thinking that there is very little you can do to help manage these common examples of healthcare fraud and waste – but that simply isn’t true. Like many other industries, healthcare is being transformed from the inside out – and in many cases, this means measures to enhance transparency are more readily available to those who make decisions about healthcare. Plus, there are steps you can take to help rein in these unsustainable and unnecessary healthcare costs.

First, you can select an intrinsically monitored network for your organization’s healthcare plan. Medical groups that monitor and take responsibility for medical costs will always deliver a better value to both employers and patients by reducing healthcare waste and unnecessary treatment while focusing on evidence-based care.

Go a step further and select an Accountable Care Organization (ACO), like Kelsey-Seybold, that is not hospital-owned. When you select this kind of approach for your organization, you are choosing healthcare providers who prioritize keeping patients healthy and emphasize outpatient treatment when clinically appropriate. One of the biggest cost savings is keeping people out of the hospital. Hospital-based ACOs are caught in a tug of war between controlling costs and keeping up admissions to benefit the bottom line. However, if we can keep someone healthy and out of the hospital, it saves employers and employees a lot of money.

Additionally, you can focus on quality instead of quantity for your healthcare network. Simply put, the larger the healthcare network, the harder it is to manage it. If you’re worried about the impact of fraud and waste on the costs your organization is experiencing, selecting a smaller, more cohesive network is an excellent way to help control costs.

When an employer takes these steps to control healthcare costs while ensuring employees have access to high quality care, it’s a win-win. Employers save money that they can reinvest in their organizations, and employees are healthier and happier.

1. “Tackling Wasteful Spending on Health,” OECD, retrieved November 15, 2020 at
3. “Fraud, Waste, and Abuse Toolkit,” Centers for Medicare and Medicaid Services, retrieved November 15, 2020 at



Patrick Carter, MD, MBA, FAAFP,

Medical Director for Care Coordination and Quality Improvement and Chairman, Department of Family Medicine

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NOTE: Each employer plan is separately underwritten and results will vary based on the population demographics and other factors.