• Administrative burden just isn’t on the insurance end

    I got my usual slew of email after I suggested that the super committee could at least talk about a single-payer health care system. Emails range from those castigating me from the right for suggesting that the government just kill us already to those castigating me from the left for even suggesting that a single-payer system has any trade-offs at all.

    Some days I despair.

    But then I regroup. The reason I think that it’s worth talking about other health care systems is so that we explicitly realize that there are tradeoffs. We say we like “choice” and that we like “savings”, but then refuse to acknowledge that giving up one makes the other more likely. Florida is seeing that right now. With respect to a single-payer system, some may not like the tradeoffs, but it is a way that other countries save a lot of money.

    One of the ways they do this is through a lower administrative burden. Without underwriting, advertising, CEO-salaries, and profits, more money can go into actual health care. Some will argue that the ways we compare administrative spending in Medicare and private insurance isn’t totally fair, and sometimes they have a point in terms of magnitude of differences, but these arguments ignore the very real administrative burden differences on the provider side.

    There’s a nice new study in Heath Affairs which gets at exactly that:

    Physician practices, especially the small practices with just one or two physicians that are common in the United States, incur substantial costs in time and labor interacting with multiple insurance plans about claims, coverage, and billing for patient care and prescription drugs. We surveyed physicians and administrators in the province of Ontario, Canada, about time spent interacting with payers and compared the results with a national companion survey in the United States…

    Physician practices in the United States must interact with many health plans in the US multipayer system. Moreover, interactions increase with plans’ attempts to “manage care,” such as requiring prior authorizations for many specialist, imaging, and hospital services. Each health plan offers many different insurance products to consumers, and each may have its own formulary (or list of approved drugs); prior authorization requirements; and rules for billing, submitting claims, and adjudication. In contrast, Canadian physicians generally interact with a single payer that offers a single product, and they are subject to fewer managed care requirements.

    By estimating the cost to Canadian practices of interacting with the Canadian single payer, then comparing this to the cost to US practices of interacting with health plans, it is possible to provide an estimate of the “extra” costs to US physicians of the nation’s multipayer, managed care system of health insurance. We conducted a survey of physician practice interactions with the single payer in Ontario, Canada, that paralleled our survey of practices in the United States. Ontario includes approximately one-third of the Canadian population; its single-payer model is generally representative of the Canadian system.

    Because providers in the US have to deal with so many different insurance companies and systems, they waste a lot of time and manpower. How much? Well, they found that practices in the US spent about $83,000 per physician per year interacting with insurance companies, while doctors in Canada spent about $22,000. This isn’t about outcomes or medicines or care. This is just how much money had to be spent per doctor to deal with payers.

    That means if we had a system similar to Canada’s, doctors might save about $60,000 each. That’s a lot of money. In fact, it would result in more than $27 billion a year in savings to doctors a year in the US. Moreover, it’s not just money; they spent so much more time. Staff in physician offices spend more than 20 hours per week per doctor on administrative tasks compared to 2.5 hours spend by Canadian office staff.

    As we dismiss single-payer, it’s worth thinking about this. There’s no good good reason for all this time and money spent by doctors and their offices on non-medical tasks. It costs an enormous amount, and it makes everyone miserable. If we refuse a different health care system, it’s worth acknowledging again what we sacrifice.

    If we demand this system, the least we could do is set up some standards to reduce this insane waste. Maybe if doctors could save tens of thousands of dollars per physician per year in administrative costs, they’d be more open to payment reforms.

    • It’s also worth noting that the sorts of government-payer insurance programs we have in the United States are cheaper despite being far from ideal. Many hold the VHA up as a shining example of efficiency, and relative to anything else in the States it is, but eligible beneficiaries come in many different sorts, each with different varieties of coverage and this leads to a higher than necessary administrative cost. I’m sure there are some parallels to this in Canada (things vary between provinces, right?), but the point is to the same extent that comparing Medicare to private care isn’t “fair,” neither is assuming that Medicare with its many correctable inefficiencies is the right comparison. How many administrative dollars in Medicare are spent processing claims for scooters and other things purchased from predatory advertisements?

    • No need to look at Canada to see the difference in costs for providers between single payer systems and private payers.

      The costs of dealing with Medicare in the US are very substantially lower for providers than the costs of dealing with private insurers. This is made even worse by the fact that private insurers offer a plethora of forms, rules, data requirements, need for appeals, and so on that vary widely from company to company.

      For large provider groups with strong market power and/or prestige, this difference is made up by the ability of the groups to force payment concessions from private payer that they cannot get from Medicare. However, for smaller provider groups that option does not exist, and it is not uncommon in many markets for providers to actually make more money from Medicare than from private insurance per unit of service.

      I am no longer part of a small group, but four years ago when I was our net income from Medicare was actually higher per unit than from private insurance as a whole. The 10% greater payment per unit from private insurers was completely consumed and then some by the overhead costs of dealing with private insurers.

      I have now also practiced in a large regional group. I am not as privy to the details of the group’s finances, but I am told that the agreements negotiated by the group with various private insurers result in much higher profits than achieved with Medicare.

      The basic lesson is that private insurance is profitable for large groups and not for small groups, exclusively due to market power. The profitability for individual practitioners within large groups is in turn related to their own market power in dealing with the group, which is in turn related to their ability to generate profitable business for the group and to the scarcity or plenty of people in their specialty and its influence on payment rates for their specialty.

    • Billing costs for my medium sized group, 45 providers, are 2-3 times higher for private insurance than Medicare. The results of the study sound about right to me. It also adds to dissatisfaction with the job.


    • lower my medical liability premiums ($100k per MD) and I could accept lower reimbursement as well – so I don’t understand why economists cite studies that show liability premiums don’t have that much to do with healthcare delivery?

    • Hi guys,
      You may be interested to know that the PPACA contains an effort to standardize paperwork for private plans. Its section 1104, and CMS recently issued proposed rules for implementing the act. Its 45 CFR parts 160 and 162, which I believe were published in the July 1 Federal Register. The CBO, in their scoring of the PPACA, estimated an $11B savings to the feds, with additional savings accruing to both providers and insurers.

      Is this the road to single payer?????

      probably not, but its at least a step towards a more efficient system.