• Chart: Health care administrative costs vs. other sectors

    Here’s another chart from the JAMA study “The Anatomy of Health Care in the United States” (click to enlarge):


    It looks bad for health care. But what’s this “revenue cycle FTE per $1 billion revenue” business (the horizontal axis)? The footnote (not shown) references an Institute of Medicine report, in which I found similar chart along with the explanation:

    One approach to compare the relative resources required for the revenue cycle across industries is to look at the number of staff, measured in fulltime equivalents (FTEs) required per dollar cost. Many non-healthcare sectors operate close to or below 100 FTEs per $1 billion collected compared with median staff levels of 810 FTEs per $1 billion collected for physician practices.

    This is new to me, but I guess the idea is, how many people (or FTEs) does it take to suck in $1B in revenue? The fewer it takes, the more efficient the sector. With all the billing, coding, claims processing, and the like going on in health care, I buy that it’d be among the least efficient industries in this regard. If I don’t seem to have this quite right, school me in the comments.

    Still, that health care is 16 times less efficient than the “all industries” average, by this measure, has got to be meaningful, if not shocking.


    • This is really shocking to anyone?

      The whole rationale of privatizing government functions is that supposedly private organizations will cut down on bureaucracy and deliver the “goods” more efficiently.

      Because this is generally true, it has actually become an article of faith for many people. “American healthcare is private, therefore American healthcare is efficient.”

      The fact that American healthcare is inefficient as an entire sector should be trumpeted more, but it gets no press.

    • I’ve been struck by how much time my PCP and other small providers, like a physical therapist have to spend extracting money from my insurance, Aetna. It’s a pain. I’d say I average 2 hours of billing hassle for every 20 minutes with a doctor.

      Admittedly, I have unusual insurance, because I have individual insurance designed for expats, but every other business manages to figure out how to deal with people residing overseas.

      My personal feeling is that a lot of the problem with the big providers is billing departments where staff is penalized for spending too much time on one item. It’s like a hot potato, everyone is so busy passing it on that no one stops to actually look at the issue.

    • This is pretty much the reason I say wild, outrageous things like “it’s cheaper to just pay cash for heath care.” The other day I put up a post largely copied from a direct primary care practice doctor’s explanation of why he chose that model. One key takeaway: he said that most physicians need 4.5 staff people to support them in a traditional, insurance-taking practice (presumably some of those are nurses and techs too). His office required less than one FTE. http://selfpaypatient.com/2013/12/17/direct-primary-care-practices-why-are-they-so-much-less-expensive/

      I’ve heard pretty much the same thing from countless doctors that have opted out of the insurance system – low overhead = low prices. It’s been quite about a decace since I did my back of the envelope calculations, but just by getting primary care and relatively low-cost/common specialists and procedures out of the third-party payment system, we could relatively easily shave 10% or more off the national health bill.

      • “…quite about a decace…”??? Sigh.

        I’ts been about a decade since…

      • You can do the same thing if you have a single third payer.

        Either way it eliminates the hassle.

        • A single, third-party payer would be more efficient than what exists now, but not as efficient as a direct financial relationship between patient and doctor. Just ask any doctor that accepts Medicare if that is an efficient relationship. Besides the complexities at the provider level, whenever one party is spending someone else’s money (as is the case in Medicare), there will always be rent-seeking activity.

    • When I moved into the healthcare industry, I was astonished by how inefficient the revenue cycle was. My immediate question was: why? It isn’t the caliber of people. The revenue cycle professionals in healthcare seem just as talented as their peers in other industries. It isn’t a lack of standards or complexity–other industries deal with those just fine. Software? The billing and financial systems in healthcare are literally decades behind those in other industries, both on the provider and payer sides. But that seems like a symptom of a greater problem rather than the cause itself.

    • While it might not change the moral of the story, I would be more convinced about the inefficiency of the health care insurance industry if it had been compared to other insurance functions. What would the bar graph be for automobile insurance or fire and casualty insurance? And wouldn’t it be interesting to see the bar graph for the industry that sells risk? How many FTEs are required to generate a billion in lottery-ticket sales?

    • I’d guess that other insurance products are stuffed into the “other service provider” category.

      Think about a car crash. You call your agent, some arrangement is made to look at the damage, they issue a check, you take it to a repair place. Never once I have I gotten a rebill for an auto repair a year later. I have received rebills for health care many months after the service was provided.

    • All the FTE/$1 billion revenues really tells us is how “labor-intensive” a sector is (ideally, it would be “value-added” in place of revenues). Health care is an inherently labor-intensive sector. The technological innovations in mechanization that allow one farmer to feed hundreds of people just haven’t yet been possible in health care. Whereas technology in industry lets a factory be run with just a handful of employees, healthcare technologies (imaging, analytics) have tended to require more people, and more of them with specialized skills, to treat the same number of patients. This will continue to be the case until we have robo-docs.

      • Nope, that chart wasn’t about how many doctors and nurses are needed to provide care, but how many people are needed in the accounting and billing department. It’s the back office.

        There are plenty of businesses with very complex billing. Take telecoms, for example. There are so many different plans and they need to track every call record.

    • It seems that in healthcare and schooling administration seems to be absorbing more and more of the income. Is it because of the who will watch the watchers problem inherent in 3rd party payer systems.

      We should look at what those 2 industries have in common.