The Path to Health Care for All: Removing Extreme Waste

This is the second in a two-part series exploring the path to affordable health care for all through practical, proven intermediate steps.

In our first article, we explored how community-based primary care offers a crucial foundation for health care transformation. Now we turn to the second strategic step on the journey to health care for all: removing the extreme waste that plagues our system.

The Trillion-Dollar Drain

Organizations from the National Academy of Medicine to PwC consistently find that 30-50% of health care spending is waste. Put in perspective, this represents $1.5-2.4 trillion annually that could be redirected to improving care, expanding coverage, or addressing other societal needs.

As co-founder of Health Rosetta, a Public Benefit Corporation, I've witnessed firsthand how our objective scoring of commercial health plans helps both public and private organizations find opportunities to improve benefits while freeing up resources. It's rare when we haven't found at least 10-20% savings – frequently more, as Marilyn Bartlett's work with the Montana state employee health plan demonstrated.

These findings aren't limited to private employers – public sector plans at federal, state, and local levels exhibit the same or worse waste patterns. The magnitude of the problem was highlighted a decade ago in an Economist article estimating that fraud alone consumed at least 10% of health care spending, a percentage that likely remains constant today.

At Health Rosetta, we've invested over $4 million to catalyze the Nautilus Health Institute, a 501(c)3 nonprofit that makes our "secret sauce" – the procurement expertise, contracting know-how, and open source technology that have helped thousands of employers achieve superior outcomes at 20-50% lower costs – freely available to anyone. This isn't theoretical philanthropy – it's a core part of our mission as a Public Benefit Corporation to democratize access to these battle-tested resources. We will continue to be enthusiastic adopters of Nautilus resources and feed new innovations into the ecosystem as we discover them in our work with employers nationwide.

The Health Rosetta Framework: A Proven Solution

The Health Rosetta movement has documented hundreds of examples where employers and communities have successfully removed waste while improving care. Our framework identifies five key components that directly generate 40+% in savings:

1. Major Specialties & Outlier Patients (10-20% potential savings)

High-cost specialty care and the small percentage of patients who account for the majority of spending represent a major opportunity for improvement through Centers of Excellence (COEs).

Tom Emerick, who pioneered the employer-driven COE model while managing benefits at BP and Walmart, discovered the staggering rates of misdiagnosis in specialty care. His research revealed that 20% of new cancer cases, 67% of spine surgeries, 60% of bypass surgeries, and 50% of stent procedures in some parts of the U.S. involved misdiagnosis or inappropriate care recommendations.

"A senior executive at a Fortune 10 company wisely told me that misdiagnosis is the biggest health care error," Emerick notes. "Everything that follows both harms the patient and costs you."

In health benefit plans today, about 6-8% of plan members are spending 80% of plan dollars. These "outliers" often have complex health problems with multiple comorbidities and are typically seeing three or four specialists who rarely collaborate. About 40% receive treatment plans that are "flat out erroneous or clearly suboptimal." When combined with misdiagnosis, this means that about 32% of total plan dollars are wasted annually.

The Pittsburgh (Allegheny County) Schools Health Insurance Consortium demonstrates the power of this approach. By using quality rankings to create tiered benefits steering patients toward higher-quality, lower-cost hospitals, they reduced hospital spending by $7.36 million (36.8%), while providing better care to teachers and preserving resources for education.

2. Transparent Open Networks (10-20% savings)

Traditional PPO networks often enable rather than prevent price gouging. By creating transparent pricing frameworks and direct provider relationships, organizations can dramatically reduce costs.

Consider the State of Montana's public employee health plan transformation. When facing bankruptcy in 2015, administrator Marilyn Bartlett discovered that approximately 43% of the plan's costs derived from just 11 hospitals, with wildly varying prices. By implementing a Medicare-informed pricing model that capped payments, Montana saved millions while maintaining quality care for state employees.

Another example comes from Virginia Mason Medical Center, which worked directly with Starbucks to address back pain among their employees. After analyzing their approach, the Virginia Mason team concluded that "90 percent of what we did was no help at all," according to Dr. Mecklenburg. The evidence showed that physical therapy was the only truly effective intervention for uncomplicated back pain – not expensive imaging, specialist appointments, or surgeries. By redesigning their approach around evidence-based care, they provided same-day appointments and returned 94% of patients to work the same day or the day after, dramatically reducing costs while improving outcomes.

Dann Marine Towing, with 200 employees and 400 lives on their health plan, achieved similar results using reference-based pricing and direct contracting with providers. In the first two years after creating its self-funded plan, the company reduced spending by 25% each year, allowing it to eliminate employee deductibles entirely.

3. Transparent Pharmacy Benefits (5-10% savings)

The byzantine world of Pharmacy Benefit Managers (PBMs) and prescription drug pricing creates enormous waste through spread pricing, rebate schemes, and misaligned incentives.

Ohio's Medicaid program discovered PBMs were pocketing $223.7 million through spread pricing – an 8.8% markup between what Medicaid paid and what pharmacies received. This practice was so egregious that Ohio abandoned the spread pricing model entirely.

ETEX Telephone Cooperative, a telecom provider serving over 13,000 customers in northeast Texas, found similar issues in their plan. By replacing their PBM with a transparent, fiduciary model and sourcing medications from manufacturers and local pharmacies, they slashed pharmacy costs by 50%. These changes reduced per-employee per year medical and prescription costs by $5,743 annually for their 150 employees.

4. Advanced Primary Care (5-10% savings)

Building on our previous article's focus, robust primary care significantly reduces downstream costs when properly implemented.

Rosen Hotels & Resorts in Orlando, with over 5,000 employees, created a revolutionary health care model by investing in robust primary care. By establishing their own medical center and restructuring care delivery from the ground up, they slashed costs to half the national average while improving care quality. In a workforce where 56% of pregnancies were considered high-risk, they successfully managed maternal care more effectively than traditional systems, resulting in outstanding outcomes at lower costs.

Bennett School District in Colorado, with just 140 staff members, transformed their primary care approach with remarkable results. By implementing site-based direct primary care, they saved more than $1.6 million and cut spending by more than one-third. The direct primary care benefit delivered high employee satisfaction, convenient care, and considerable savings – reducing employees' individual out-of-pocket doctor's visit costs by approximately $900 a year.

5. Independent Plan Administration & High-Performance Design (5-10% savings)

The administrative complexity of health care creates enormous waste. By implementing robust oversight and streamlined plan design, organizations can capture significant savings.

Copper State Bolt & Nut Company, with 220 employees and 500 total lives on their health plan, was combating rising health care costs on a carrier-based partially self-funded plan. By implementing a new approach including a transparent benefit model, medical advocacy program, and bundled care arrangements, they achieved a remarkable 54% reduction in health care spending, saving $1.2 million. Their per-employee per year costs dropped from $14,000 to just $6,000, and employees gained access to direct primary care while eliminating out-of-pocket costs when following the directed care protocols.

R.E. West Transportation, with approximately 140 employees, shows how these principles can work for smaller organizations. When facing a punishing 25% premium increase, they moved to a self-funded plan with unbundled components. Within a year, they saved $102,000 (15%) and were on track for an additional 10% reduction in year two. Employees enjoyed richer benefits, including $0 copays for many services and medications.

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Public Sector Eligibility Waste

A frequently overlooked area of waste in public sector plans involves dependent eligibility verification. The State of North Carolina discovered more than 36,000 ineligible dependents receiving coverage, costing tens of millions annually. Similarly, the City of Atlanta found about 10% of dependents on its health plan were ineligible. In 2011, New Jersey's state health plan audit uncovered more than 8,000 ineligible dependents, resulting in an estimated $20 million in annual savings.

Many public sector plans historically relied on self-reporting for dependent status and lacked regular documentation updates. Without periodic audits, ex-spouses (after divorce) and adult children (after reaching the age limit) often remained covered due to administrative oversight.

Public Sector Success Stories

While our examples focus heavily on employer plans (reflecting the 48% of Americans who receive coverage through work), the same principles apply to public programs like Medicaid (covering 24% of Americans) and Medicare (18%).

The City of Milwaukee's public employee plan provides a powerful example. As administrator Michael Brady explains, "By investing more in primary care, implementing consumer-driven incentives, and adopting value-based purchasing, we've held health care costs flat for the last five years." This contrasts sharply with the 8-9% annual increases they previously faced.

Montana's state employee plan transformation, mentioned earlier, demonstrates how public sector plans can achieve private-sector-like results when properly managed. After eliminating their reserves deficit, they built reserves to an impressive $112 million, all without reducing benefits or increasing employee costs.

The Health Rosetta Dividend

Perhaps the most powerful aspect of removing waste isn't just the direct savings – it's the "Health Rosetta Dividend" that results from redirecting those resources.

Harris Rosen, a hotel owner in Orlando, not only reduced health care costs to half the national average for his 5,000 employees but invested the savings in community transformation. His company began funding preschool and college education in the underserved Tangelo Park neighborhood, with remarkable results: high school graduation rates rose from abysmal to nearly 100%, college graduation rates soared to 78%, and crime dropped by 78% and property values tripled.

Kenny Pipe & Supply of Nashville, with around an employee base of 120, saved over $750,000 in health plan costs, allowing it to implement a 401k match program, improve health benefits, and reduce employee out-of-pocket costs. As their CFO explains, "The less we have to spend on the plan, the more we are able to put back into salaries or additional benefits."

Phifer Inc. has fully embraced this concept, creating annual dividends from health care savings. As Russell Dubose, head of HR, recently testified to the House Energy & Commerce committee:

"One of the most important concepts developed by Dave Chase is the creation of a 'health care dividend.' This is the intentional repurposing of previously squandered dollars to something that is meaningful and purposeful."

Phifer's dividends have funded scholarships for more than 100 employee dependents (2019), created a summer enrichment program for employee children that has served over 200 children (2020), eliminated copayments for their onsite pharmacy serving 1,700 patients (2021), and designed an onsite chiropractic and imaging center (2022). Their 2023 savings will fund childcare assistance for more than 250 plan members beginning in 2025.

As of April 2025, Phifer's summer enrichment program is expected to reach maximum capacity on its first day of enrollment, and they're launching their onsite Chiropractic, Imaging & Physical Therapy Center. This year's dividend goal is covering GLP-1 medications through their hybrid onsite/telemedicine specialty weight-loss center.

"The power of the Health Rosetta Dividend has not diminished and continues to burn brightly," Dubose reports.

Practical Solutions, Not Political Battles

The beauty of the waste-removal approach is that it transcends partisan divides. Whether you're motivated by fiscal responsibility or universal coverage, eliminating waste creates a path forward that both progressives and conservatives can embrace.

When we look at fraud and abuse alone, the numbers are staggering. The Economist article from 2014 estimated that fraud added as much as $98 billion to annual Medicare and Medicaid spending and up to $272 billion across the entire health system (at the time, the U.S. was spending $2.9 trillion on health care). More recent analyses suggest these figures have only grown.

Medicare investigators report that caseloads involving pharmacy and prescription drug fraud quadrupled over a five-year period. In one case, a pharmacy owner in Louisiana paid nursing home staff to bring her unused drugs, which she repackaged and sold as new, billing Medicare $2.2 million for the recycled medications.

Similarly, Medicaid programs struggle with waste and abuse. In a particularly egregious example, investigators in New York discovered a luxury condo complex where 500 residents claimed Medicaid despite driving Porsches and Aston Martins. When six residents were charged with fraud, another 150 quickly stopped claiming assistance.

The Path Forward

Combining our two-part strategy – implementing community-based primary care and removing extreme waste – creates a practical roadmap to health care for all that is both economically sustainable and politically achievable.

This approach doesn't require waiting for Washington to act. Communities across the country are already proving it works, from Scituate, Rhode Island to Ashtabula, Ohio; from Montana state employees to the City of Milwaukee.

By reclaiming the wasted trillions, we can fund not just better health care but also education, infrastructure, and other community needs that ultimately improve health and wellbeing. The money is already in the system – we just need to redirect it from waste to care.

The journey to health care for all begins not with grand pronouncements from Washington, but with communities taking control of their health care destiny through better primary care and the elimination of waste. The evidence is clear: this approach works. The only question is whether we have the courage to implement it.

This concludes our two-part series exploring the path to health care for all through practical, proven intermediate steps. The blueprint exists – now it's time to build.

Dave Chase is a co-founder and CEO of Health Rosetta. Prior to Health Rosetta, he co-founded Avado, which was acquired by and integrated into WebMD/Medscape; founded Microsoft’s 28,000 partner $30 billion health care ecosystem; and was a consultant with Accenture’s health care practice.