Unnecessary care — usually associated with excess testing, surgical procedures or overprescribing — accounts for up to 25 percent of what's spent in health care according to the Institute of Medicine. That's more than $750 billion per year spent for services that do not improve outcomes.

Some of this is done as a precaution: About $60 billion annually of unnecessary testing is spent to avoid liability. But what about the rest? Some would say no harm, no foul. After all, patients often request procedures and pills not knowing what might work best (this is called "preference-driven demand") and that drives costs up but, far and away, "supply-driven demand" is the major reason for spending for unnecessary services.

Supply-driven demand is simple: Suppliers (doctors, hospitals, labs, imaging facilities, et al.) do unnecessary testing and procedures because they can. The financial incentives in our system encourage doing more, and most patients are none the wiser. But in recent months, enforcement actions against physicians and hospitals for unnecessary care have gained increased attention. It's neither a new story nor one that's easy to understand.

The basic facts:
1) Overutilization and unnecessary care is prevalent and costly: The U.S. health system is the world's most expensive, and health costs per the Congressional Budget Office will continue to increase at least 2–3 percent faster than the overall economy for the next decade. The costs associated with unnecessary care, aka "medical necessity," are significant and growing.
2) The government is cracking down on unnecessary care: Hospitals increasingly are being held accountable for the practice patterns of the physicians on their medical staff via the False Claims Act. Enforcement actions against both are on the rise and financial penalties harsh.
3) Media attention is sparking public attention to unnecessary care: National broadcast and print news organizations have increased coverage of health care, including its tendencies around medical necessity and unnecessary care. And social media is a hotbed for anecdotal assessments of "medical necessity" — some supported with objective data, most supported by personal experience, and a few judiciously studied and reported.

So, if costs are a looming problem and lack of consistency around the delivery of medically necessary care is a systemic challenge, why isn't more done? Most industry insiders offer these reasons:

  • The body of scientific evidence about what works best is expanding and changes fast. It's hard to know what's necessary or not. There are 20,000 medical journals. Keeping track of the latest innovations is almost impossible without using a clinical knowledge management software program that captures and filters relevant information useful to making patient diagnostic treatment decisions. As more information about a patient's signs, symptoms, risk factors and comorbidities are factored into a treatment determination, the less likely it is that a clear "medical necessity" directive is found. Ironically, the more information (data) a clinician has about a specific patient, the less likely it is that a "medically necessary service" is dictated through a clinical algorithm or guideline.
  • Most consumers assume that more care is the "right care." The majority of consumers assume that what their physicians recommend is evidence-based, and few feel confident to challenge their views. Therefore, consumers want MORE, not less in the majority of cases. And social media and traditional media coverage are complicating matters as treatments du jour become more widely known to consumers' searching the latest and best treatments. The burden to stay abreast of traditional and nontraditional methods for diagnosing and treating is daunting, especially if reimbursements are cutting into time spent with patients.
  • Most providers err on the side of overtreatment, and most of their incentives reward doing more. The majority of physicians and the institutions that credential them to practice tend to overtreat, fearing liability exposure or the possibility of an inaccurate diagnosis. It's precautionary and a business imperative (discounting it can be lucrative at the same time). And the majority of revenues and profits in the U.S. system align with doing more, not less.

These views provide a defensible rationale as to why medical necessity and unnecessary care are systemic challenges in our system, but they may be seen more as lame excuses. The spotlight on unnecessary care and medical necessity is likely to shine brighter because …

Unnecessary care contributes significantly to the impressive profitability in many parts of the health system: Crackdowns on self-referrals and false claims routinely originate from the appearance of ill-gotten gain, whether justified or not. While providers complain of lower reimbursement, they are frequently guilty of doing more, whether necessary or not, and in some sectors, that translates to healthy profits and high compensation.

Unnecessary care can be harmful to consumers: There's growing concern about oveuse, especially among millennials on behalf of their families. Compounding these suspicions, higher co-pays and deductibles, lack of price transparency and inadequate access to definitive clinical trial data (the evidence) is fueling consumer frustration. There's ample reason to believe consumers are paying attention to unnecessary care because it's risk they bear directly — physically, emotionally and financially.

Data and sophisticated analytics tools upon which determinations of medical necessity and unnecessary care are increasingly available: Defaults that "My patients are different" and "We don't have the data" will fall on deaf ears.

What does it mean? Every treatment and test prescribed to patients by physicians affiliated with a hospital or health system is subject to examination about their necessity. If regulators spot patterns of unnecessary care, the physician will face civil penalties and possible criminal prosecution for harm; the same is true for the hospitals that grant privileges to the clinician.

Medical necessity and unnecessary care are huge issues for hospitals and health systems. It's not going away.

Paul H. Keckley, Ph.D., a health economist and expert on U.S. health reform, is managing director at the Navigant Center for Healthcare Research and Policy Analysis. His H&HN Daily column appears the first Monday of every month. He is a member of Health Forum's Speakers Express. For speaking opportunities, contact David Parlin.