Health spending in the United States is highest in the world, driven in part by administrative complexity. To date, studies examining the administrative costs of American health care have primarily focused on clinicians and organizations—rarely on patients.
A new study in Health Services Research finds administrative complexity in the U.S. health care system has consequences for access to care that are on par with those of financial barriers like copays and deductibles. In other words, we pay for health care in two ways: in money and in the hassle of dealing with a complex, confusing, and error-riddled system. Both are barriers to access. The study was led by Michael Anne Kyle, and I am a coauthor.
Main Findings
Nearly three-quarters (73%) of people surveyed reported doing at least one health care-related administrative task in the past 12 months. Such administrative tasks include: appointment scheduling; obtaining information from an insurer or provider; obtaining prior authorizations; resolving insurance or provider billing issues; and resolving premium problems.
Administrative tasks often impose barriers to care: Nearly one-quarter (24.4%) of survey respondents reported delaying or foregoing needed care due to administrative tasks.
This estimate of administrative barriers to access to care is similar to those of financial barriers to access: a 2019 Kaiser Family Foundation survey, found that 26% of insured adults 18-64 said that they or a family member had postponed or put off needed care in the past 12 months due to cost.
Administrative burden has consequential implications for equity. The study finds administrative burden falls disproportionately on people with high medical needs (disability) and that existing racial and socioeconomic inequities are associated with greater administrative burden.
Methods
To measure the size and consequences of patients’ administrative roles, we used data from the nationally representative March 2019 Health Reform Monitoring Survey of insured, nonelderly adults (18-64) to assess the annual prevalence of five common types of administrative tasks patients perform: (1) appointment scheduling; (2) obtaining information from an insurer or provider; (3) obtaining prior authorizations; (4) resolving insurance or provider billing issues; (5) and resolving insurance premium problems. The study examined the association of these tasks with two important measures of their burden: delayed and forgone care.
Conclusions
High administrative complexity is a central feature of the U.S. health care system. Largely overlooked, patients frequently do administrative work that can create burdens resulting in delayed or foregone care. The prevalence of delayed or foregone care due to administrative tasks is comparable to similar estimates of cost-related barriers to care. Administrative complexity is endemic to all post-industrial health systems, but there may be opportunity to design administrative tools with greater care to avoid exacerbating or reinforcing inequities.
The following guest post is by David Scheinker, Barak Richman, Arnold Milstein, and Kevin Schulman.
Administrative costs in the US healthcare system are known to be higher than those in any other country, even than other countries with private health insurance systems. There also is widespread agreement the excessive US costs generate little, if any, value, and that they impose a tremendous burden on physicians. With administrative costs even for primary care services approaching $100,000 per year per physician, there is a growing recognition that reducing healthcare-related administrative costs is a policy priority.
Despite the longstanding concerns about these escalating costs, there is little understanding of what generates them and how we can reduce them. To the degree there has been any academic inquiry into administrative costs imposed on US providers, it has compared them to the much lower costs in other countries with nationalized systems. These comparisons are unflattering to the US system and are designed to encourage wholesale healthcare reform.
Our paper published in Health Services Research begins at the retail level, focusing on the specific administrative costs inflicted by our payment system on providers. We examine the complex contractual arrangements between insurers and physicians and measure the efforts that physicians must endure to get paid. It then offers a simulation model to estimate how certain policy reforms would result in nationwide administrative savings.
Currently, each health plan and each physician or physician group (and each hospital) negotiates over a contract for services on a periodic basis. Our analysis examines three separate costs that result from this type of market structure: architectural costs (the enormous number of contracts that are generated annually to provide services to patients), contractual complexity (the difficulty of following all of the requirements of each agreement to receive payment), and compliance costs (the costs of not following the rules in submitting a bill).
Based on this framework, we ask two questions: First, what if physicians entered into simpler contracts with insurers? And second, what if physicians (who accept patients with many kinds of insurance) agreed to a single boilerplate contract with all insurers rather than individualized contracts with each insurer? Put more simply, what if contracts were simpler and standardized?
Our simulation predicts that simplifying contracts would reduce billing costs by nearly 50%, standardizing contracts would reduce those costs by about 30%, and both simplifying and standardizing contracts would reduce those costs by over 60% percent.
We then used the model to estimate administrative cost savings from a single payer “Medicare-for-All” model. Consistent with claims made by advocates for nationalized health insurance, we estimate that a Medicare-for-All plan would reduce administrative costs between 33-53%, largely by standardizing contracts. But these cost savings are less than those generated from standardizing and simplifying contracts within our current system of private health insurance because we modeled that a Medicare-For-All plan would retain Medicare’s complex payment models and have increased compliance costs compared to private payers.
We think this is good news. Though we find that a single-payer system will reduce certain administrative costs, we also find that reforms to our current multi-payer system could generate at least as great a reduction. There might be benefits to pursuing national health reform, but we can reduce burdensome administrative costs through much simple and less disruptive paths. The even better news from this study is that we can now have a more precise understanding of where administrative costs arise in our health system, and we have the means to evaluate the effects of other kinds of reforms. Understanding is the prerequisite to reforming.
David Scheinker is Clinical Associate Professor of Pediatrics and Executive Director of Systems Design and Collaborative Research (SURF) at the Stanford Lucile Packard Children’s Hospital.
Barak Richman is the Bartlett Professor of Law and Business Administration at Duke University and a Visiting Scholar in the Department of Medicine at Stanford University. @BarakRichman
Arnold Milstein is Professor of Medicine at Stanford and directs the University’s Clinical Excellence Research Center.
Kevin Schulman is Professor of Medicine at the School of Medicine and Professor of Business (by courtesy) at the Graduate School of Business at Stanford University.
Political talk is getting more and more serious around Medicare for All in the United States. The argument, as usual comes down to costs. One of the advantages that proponents always bring up are the very low administrative costs of Medicare. Are those low costs for real? Would they hold up if everyone was in the system? Healthcare Triage looks at the facts.
Special thanks to Austin, from whose Upshot column this episode was adapted.
Democrats say that giving people the option to partake in Medicare — no matter their age — will actually cut costs.
American administrative costs for health care are the highest in the world, and they argue that one advantage of Medicare for All is that it would save money because Medicare’s administrative costs are below those of private insurers.
Does that argument hold up?
Don’t forget about Medicare’s private plans
Medicare’s administrative costs were $8.1 billion last year, or 1.1 percent of total spending, close to the proportion it has been in recent years.
But some have argued that the actual cost is higher because of services performed for Medicare by other parts of the government that aren’t accounted for: The Social Security Administration collects premiums, the Internal Revenue Service collects taxes for the program, the F.B.I. provides fraud prevention services, and at least seven other federal agencies and departments also do work that benefits Medicare.
The claim that these administrative costs are overlooked is false. As annual reporting of Medicare’s finances plainly states, they are accounted for.
But there is something missing from the $8.1 billion Medicare administrative cost figure, as Kip Sullivan explains in a 2013 paperpublished in the Journal of Health Politics, Policy and Law. Although it accurately accounts for the federal government’s administrative costs, it does not include those borne by private plans that also offer Medicare benefits.
In addition to the traditional (public) Medicare plan, Medicare is also available from private plans through the Medicare Advantage program. Today, one-third of people using Medicare are in such plans, up from about one-fifth a decade ago. Moreover, all Medicare drug benefits are administered through private plans.
National Health Expenditure data shows both the government’s administrative costs for Medicare and those of Medicare’s private plans. Putting them together for the most recent year available (2016), they reach $47 billion, or 7 percent of total Medicare spending — well above the administrative costs borne directly by the Medicare program.
Medicare’s private drug benefit plans incur administrative costs that are about 11 percent of their spending. All of this additional, private administrative cost is paid for by taxpayers and, through their premiums, people who use Medicare.
Medicare’s direct administrative costs are not only low, but they also have been falling over the years, as a percent of total program spending. Yet the program’s total administrative costs — including those of the private plans — have been rising.
“This reflects a shift toward more enrollment in private plans,” Mr. Sullivan said. “The growth of those plans has raised, not lowered, overall Medicare administrative costs.”
The high costs of private insurer plans
Making an accurate estimate of the administrative costs of Medicare for All would depend, in part, on whether it would be more like an expansion of traditional Medicare (with its 1.1 percent administrative cost rate) or of all of Medicare, including its private plans (with a combined 7 percent administrative cost rate).
Yet both figures are well below private insurers’ administrative costs, which run about 13 percent of spending (this also includes profit), according to America’s Health Insurance Plans, an advocacy organization for the industry.
Some critics have argued that Medicare’s administrative cost rate appears artificially low because Medicare enrollees’ health spending is so high. Average Medicare spending per beneficiary is just over $12,000 per year; for an average worker in a private plan, it’s about $6,000. If you simply divide administrative costs by total spending, you will get a lower number for Medicare for this reason alone.
This is true, but the government’s administrative costs for Medicare are still below those of private plans. The government’s administrative costs are about $132 per person compared with over $700 for private plans. One reason Medicare’s are so much lower is that it reaps economies of scale. It also benefits from not needing to do much marketing, and it doesn’t earn profits.
Administration of medical care is a huge driver of costs in the United States’ healthcare system. Running hospitals, generating bills, and collecting payment are just a few of the activities that take up health providers’ time, and run up the costs of care.
The following originally appeared on The Upshot (copyright 2018, The New York Times Company). Research for this piece was supported by the Laura and John Arnold Foundation.
It takes only a glance at a hospital bill or at the myriad choices you may have for health care coverage to get a sense of the bewildering complexity of health care financing in the United States. That complexity doesn’t just exact a cognitive cost. It also comes with administrative costs that are largely hidden from view but that we all pay.
Because they’re not directly related to patient care, we rarely think about administrative costs. They’re high.
A widely cited study published in The New England Journal of Medicine used data from 1999 to estimate that about 30 percent of American health care expenditures were the result of administration, about twice what it is in Canada. If the figures hold today, they mean that out of the average of about $19,000 that U.S. workers and their employers pay for family coverage each year, $5,700 goes toward administrative costs.
Such costs aren’t all bad. Some are tied up in things we may want, such as creating a quality improvement program. Others are for things we may dislike — for example, figuring out which of our claims to accept or reject or sending us bills. Others are just necessary, like processing payments; hiring and managing doctors and other employees; or maintaining information systems.
That New England Journal of Medicine study is still the only one on administrative costs that encompasses the entire health system. Many other more recent studies examine important portions of it, however. The story remains the same: Like the overall cost of the U.S. health system, its administrative cost alone is No. 1 in the world.
Using data from 2010 and 2011, one study, published in Health Affairs, compared hospital administrative costs in the United States with those in seven other places: Canada, England, Scotland, Wales, France, Germany and the Netherlands.
At just over 25 percent of total spending on hospital care (or 1.4 percent of total United States economic output), American hospital administrative costs exceed those of all the other places. The Netherlands was second in hospital administrative costs: almost 20 percent of hospital spending and 0.8 percent of that country’s G.D.P.
At the low end were Canada and Scotland, which both spend about 12 percent of hospital expenditures on administration, or about half a percent of G.D.P.
Hospitals are not the only source of high administrative spending in the United States. Physician practices also devote a large proportion of revenue to administration. By one estimate, for every 10 physicians providing care, almost seven additional people are engaged in billing-related activities.
It is no surprise then that a majority of American doctors say that generating bills and collecting payments is a major problem. Canadian practices spend only 27 percent of what U.S. ones do on dealing with payers like Medicare or private insurers.
Another study in Health Affairs surveyed physicians and physician practice administrators about billing tasks. It found that doctors spend about three hours per week dealing with billing-related matters. For each doctor, a further 19 hours per week are spent by medical support workers. And 36 hours per week of administrators’ time is consumed in this way. Added together, this time costs an additional $68,000 per year per physician (in 2006). Because these are administrative costs, that’s above and beyond the cost associated with direct provision of medical care.
In JAMA, scholars from Harvard and Duke examined the billing-related costs in an academic medical center. Their study essentially followed bills through the system to see how much time different types of medical workers spent in generating and processing them.
At the low end, such activities accounted for only 3 percent of revenue for surgical procedures, perhaps because surgery is itself so expensive. At the high end, 25 percent of emergency department visit revenue went toward billing costs. Primary care visits were in the middle, with billing functions accounting for 15 percent of revenue, or about $100,000 per year per primary care provider.
“The extraordinary costs we see are not because of administrative slack or because health care leaders don’t try to economize,” said Kevin Schulman, a co-author of the study and a professor of medicine at Duke. “The high administrative costs are functions of the system’s complexity.”
Costs related to billing appear to be growing. A literature review by Elsa Pearson, a policy analyst with the Boston University School of Public Health, found that in 2009 they accounted for about 14 percent of total health expenditures. By 2012, the figure was closer to 17 percent.
One obvious source of complexity of the American health system is its multiplicity of payers. A typical hospital has to contend not just with several public health programs, like Medicare and Medicaid, but also with many private insurers, each with its own set of procedures and forms (whether electronic or paper) for billing and collecting payment. By one estimate, 80 percent of the billing-related costs in the United States are because of contending with this added complexity.
“One can have choice without costly complexity,” said Barak Richman, a co-author of the JAMA study and a professor of law at Duke. “Switzerland and Germany, for example, have lower administrative costs than the U.S. but exhibit a robust choice of health insurers.”
An additional source of costs for health care providers is chasing patients for their portion of bills, the part not covered by insurance. With deductibles and co-payments on the rise, more patients are facing cost sharing that they may not be able to pay, possibly leading to rising costs for providers, or the collection agencies they work with, in trying to get them to do so.
Using data from Athenahealth, the Harvard health economist Michael Chernew computed the proportion of doctors’ bills that were paid by patients. For relatively small bills, those under $75, over 90 percent were paid within a year. For larger ones, over $200, that rate fell to 67 percent.
“It’s a mistake to think that billing issues only reflect complex interactions between providers and insurers,” Mr. Chernew said. “As patients are required to pay more money out of pocket, providers devote more resources to collecting it.”
A distinguishing feature of the American health system is that it offers a lot of choice, including among health plans. Because insurers and public programs have not coordinated on a set of standards for pricing, billing and collection — whatever the benefits of choice — one of the consequences is high administrative burden. And that’s another reason for high American health care prices.
My latest JAMA Forum post, with Elsa Pearson, is about health information technology’s (HIT’s) role in administrative costs. It’s disappointing.
HIT doesn’t actually seem to be providing substantial [administrative] savings. A 2014 review of early adoption of HIT among thousands of US hospitals showed no notable cost savings 5 years after implementation. One study of an EHR implementation pilot program in Massachusetts found the average projected 5-year return was negative, with a loss of almost $44 000 per physician.
Elsa Pearson is a Policy Analyst with Boston University’s School of Public Health. She tweets at @epearsonbusph. Research for this piece was supported by the Laura and John Arnold Foundation.
In general, the research literature on administrative costs, which I summarized in a prior TIE post, assesses three broad categories: billing and insurance-related costs, hospital administrative costs, and physician practice administrative costs. But, there has been little comparison of administrative costs across insurance types…until now.
As promised in that post, below is a review of the recent Gottlieb, Shapiro, and Dunn Health Affairs article that fills that gap in the literature. Gottlieb et al. focus on the differences in billing complexity across insurers. They use billing complexity as an indicator of the burden of total health care administrative costs within the US system.
Methods
The authors used 2013-2015 claims data from the IQVIA Real-World Data Adjudicated Claims. IQVIA collects claims data for all the payers with whom a sample of physicians contract or bill, allowing researchers to study differences across payers for the same provider. Gottlieb et al. principally analyzed a sample of 68,000 physicians in the 2015 IQVIA data, though also looked at trends in some measures from 2013-2015. They considered five insurance types: fee-for-service (FFS) Medicare, Medicare Advantage, FFS Medicaid, Medicaid Managed Care, and private.
The authors characterized billing complexity in multiple ways. One set of measures pertains to how much of each claim was never paid: amount challenged and share challenged. Amount challenged was defined as the difference between what was actually paid for services and the full negotiated price. Share challenged was defined as the fraction of the negotiated price that was never paid. The authors understand that challenged claims are not equivalent to total administrative costs but believe they are a strong indication of national cost trends.
In addition to these measures of challenged claims, they used another four complexity measures: time to payment, number of interactions between physician and payer, claim denial, and nonpayment.
The authors use these measures to characterize billing complexity in the following sense: challenging and denying claims, as well as additional interactions between physician and payer, requires work (and resources) from both parties. Effectively, billing complexity means that additional resources are ultimately required for each dollar paid.
Comparisons of measures across insurance types were conducted using physician-specific fixed effects and adjusting for the logarithm of the allowed charge, the number of claims, each patient’s Charlson Comorbidity Index score, and each patient’s age. This limited the impact of differing patient populations.
Results
The analysis included 37.2 million office visits, totaling 44.5 million insurance claims. FFS Medicare and private insurance each accounted for almost 40% of the claim data and included more lengthy claims due to more complex clinic visits.
Overall, the authors found Medicaid, both FFS and Managed Care, to be the most complex insurer across all measures. Both types of Medicaid had the highest shares challenged (21% and 13%, respectively) as well as the longest times to payment. Medicaid claims were also denied three times as much as Medicare claims. (Of note, given lower overall potential payments, the monetary value of Medicaid shares challenged was comparable to other insurance types.)
The authors found billing complexity to be notable regardless of insurance type (for example, private insurers still had a share challenged of 6%) though the variation between insurers was substantial. Exhibit 2 shows this variation.
Finally, Gottlieb et al. extrapolated national estimates of contested claims. They calculated that the US health care sector handles up to $54 billion in challenged claims a year (though this estimate may be on the high end).
Limitations
As with any study, there are a few limitations. The authors note that the data are limited to only the physicians who participated in IQVIA’s collection process. Further still, the data do not adequately capture the breadth of insurance administration. For example, the data do not contain costs associated with prior authorizations, actuarial services, or marketing.
Impact
Since billing complexity varies across payers, reducing billing complexity is possible. (In other words, if FFS Medicare can have lower billing complexity than FFS Medicaid, perhaps there is room for improvement in FFS Medicaid billing practices.)
Reducing the administrative headache and wasted financial resources associated with billing practices may cause some providers to be more willing to accept patients with public insurance. Providers could also reclaim time and resources spent on administrative activities for patient care, increasing productivity.
The authors suggest a better understanding of administrative costs could also impact health policy, particularly antitrust policy and merger evaluation. Insurers and providers alike could weigh billing complexity when considering payment contracts, pursuing contracts based on administrative burden. Because of this, governing leadership could start to consider these types of nonmonetary aspects of insurer/provider relationships when assessing proposed mergers.
Gottlieb, Shapiro, and Dunn offer a fresh perspective on US health care administrative costs through their analysis of billing complexity. There seems to be some promise that billing complexity—and its associated costs—could be reduced across payers. In a health care system wrought with expense, it’s encouraging to see room for even small improvements.
Elsa Pearson is a Policy Analyst with Boston University’s School of Public Health. She tweets at @epearsonbusph. Research for this piece was supported by the Laura and John Arnold Foundation.
The United States spends much more on health care each year than wealthy equals around the globe. That’s not just true for spending on direct patient care, but also for spending on health care administration. Many scholars recognize the cost containment potential in curbing administrative costs. Determining just how much the US spends on health care administration and in what ways are critical first steps.
How much of US health care spending is on administration?
Health care administration includes all activities related to coordinating health and medical services, such as scheduling, billing, and claims processing. Administrative costs’ contribution to overall health care spending is large and growing.
System-level estimates for health care administrative costs are limited and often dated. One highly cited estimate suggests that administrative costs accounted for about 30% of total health care expenditures in 1999. In 2006-2007, administrative costs outpaced growth in other health care categories, such as professional services, and matched growth rates in typically costly categories, such as prescription drug spending.
Though we may not be able to pin down a current estimate of total administrative costs, we do know it’s substantial and continues to increase. Other research focuses on administrative costs in three, large subcategories: billing and insurance-related (BIR) costs, hospital administration, and physician practice administration.
BIR Administrative Costs
BIR costs are often an easily quantifiable subcategory of administrative costs. The National Academy of Medicine calculated the US spent about $361 billion on BIR costs alone in 2009, or 14.4% of total health expenditures. That number only seems to multiply; another study suggests the same costs totaled $471 billion in 2012, or 16.8% of total health expenditures (with 80% directly related to the US’ multi-payer system).
A case study of an academic health care system by Tseng, et al. showed that BIR costs accounted for 14.5% of professional revenue collected during primary care visits (as well as 25.2% during discharged ED visits and 13.4% during ambulatory surgical visits). The authors estimated the monetary impact of this administrative burden on primary care providers equated to almost $100,000/year/provider.
Hospital Administrative Costs
Research by Himmelstein, et al. found that US hospitals spend about 25% of total hospital expenditures on administration. For-profit hospitals tend to have the highest administrative costs. (This does not equate to better care, however, as for-profit hospitals often have higher death rates as well.)
Blanchfield, et al. conducted a case study of a large teaching hospital’s physician organization to determine the impact of administrative costs on the organization’s bottom line. While understood it was already a “high performance billing organization” and, thus, already ahead of the curve in reducing wasteful spending, the study found that excessive administrative costs accounted for about 12% of the organization’s revenue in 2006, or about $45 million. Processing and billing of claims alone accounted for 12.5% of those administrative costs, or $5.6 million.
Physician Practice Administrative Costs
Sakowski, et al. found administrative costs to consume 10% of revenue in a multispecialty medical group. In order to successfully maintain administrative procedures, the organization employed two administrative staff for every three clinical providers.
Research by Casalino, et al. concluded that medical practices spend about $68,000/year/physician interacting with health insurance plans. Primary care physicians, especially those in private practice, feel the most impact. Over three quarters of participants indicated that the costs associated with health plan interactions had increased within a two year period. Similarly, Papanicolas, et al. found that over half of surveyed physicians found insurance-related administrative tasks to be a significant burden.
Worth noting, high administrative costs are not just associated with misuse of resources but rather also accrue in efficient health care systems. Tseng, et al. found no glaring inefficiencies in billing practice, such as task duplication or poor resource management, during their analysis. Blanchfield, et al. studied a physician organization with streamlined billing practices as well.
How does US health care administration spending compare to other countries?
When compared to 11 other wealthy countries, the US leads the pack in health care administration spending.
Himmelstein, et al.’s 2010-2011 estimate of about 25% of total hospital expenditures devoted to administration exceeds the Netherlands’, the next highest spender, by about 5.5 percentage points. US hospital administrative spending exceeds Canada’s and Scotland’s, the lowest spenders, by about 13 percentage points. In fact, US administrative costs have risen over the past decade while Canada’s costs have decreased.
Similar comparisons exist at the physician level as well. Morra, et al. compared the resources spent in 2006 on provider-payer interactions by small physician practices in both the US and Canada (specifically, Ontario). Canadian practices spent only 27% of the financial resources on provider-payer interaction that US practices did. Canadian support staff—nurses and administrative staff—spent one tenth of the time on these interactions compared to US support staff. The authors estimate the US could save $27.6 billion/year on administrative costs by adopting Canadian administrative practices.
Why are administrative costs so high in the US?
Though studies provide various hypotheses on why US health care administration is so expensive, the big picture is always the same: it’s structural.
The United States utilizes a largely private, multi-payer system. The complex payment scheme may cause systemic fragmentation, leading to additional, unnecessary administrative costs. Private insurers contribute the largest share of billing and insurance-related costs in the US ($198 billion in 2012) and, because the US health care system relies on them so heavily, their significant financial footprint may contribute to high overall administrative costs.
(A new Health Affairs article from Gottlieb, et al. explores billing complexity across insurance types—both public and private—in the US. They found, in general, that higher billing complexity led to higher administrative costs. The article provides fresh insight into US administrative costs and we will unpack the details in a future TIE post.)
The Netherlands, the nation with the second highest administrative expenditures, also has a multi-payer system, and one that is moving towards a market-based approach. Canada, on the other hand, has a single payer system and—coincidently?—has the lowest national hospital expenditures.
What should we do about high administrative costs in the US?
It’s worth acknowledging that administration costs are not automatically bad. Morra, et al. suggest “administrative tasks are wasteful [only] if their costs exceed the benefits they generate or if the same benefits could be achieve at a lower cost.” Policies to reduce administrative costs should aim to reduce waste while preserving worthwhile administrative activities.
A single payer health care system is often considered the “gold standard” for reducing administrative costs. However, most would agree that adopting a single payer system in the United States is a political nonstarter, though it certainly is gaining momentum in public opinion.
There are ways reap many of the administrative benefits of single-payer without moving to it. This would rely on standardization, simplification, and automation.
Standardization & Simplification
Every US payer operates within its own unique system—unique forms, processes, and rules. A “single-payer approach,” with one set of rules and operations for all payers, could reduce administrative costs. All individual payers would utilize the same claims forms, submission methods, etc., under a universal operating framework.
The current health care financial system is complex and often burdensome to providers and administrative staff and a simplified financial system may have significant cost-savings potential, or at the very least, reduce waste. Streamlining other administrative activities, such as credentialing, quality measurements, or benefit eligibility, could also contribute cost savings in the long-term.
Minimizing waste in the current system could lead to substantial savings. Berwick, et al. emphasize reducing administrative complexity (such as, inefficient rules and procedures) and reducing fraud/waste (both actual scams and the procedural regulations put in place because of them). The authors estimate that poor performance in these two categories accounted for $189-661 billion of wasteful spending in 2011.
Automation
Health information technology (HIT) and electronic health records (EHR) were developed, in part, with the intent of streamlining administrative tasks and patient care, resulting in long term cost savings.
Effectively conducting correspondence, payments, and insurance-related activities electronically may reduce administrative costs. Lee, et al. argue that the current rush towards EHR implementation lends itself as a natural opportunity for improvement. The Health Information Technology for Economic and Clinical Health Act (HITECH Act) was created to provide financial motivation for EHR implementation. A 2015 CDC report suggests the HITECH Act may have successfully incentivized providers to adopt some sort of EHR system.
Cutler, et al. propose the HITECH Act lays the foundation for comprehensive electronic correspondence. Expanding HITECH legislation to include electronic transmittance of other pertinent administrative data, such as claims data, may be a logical way to create system-wide reductions in administrative costs. The authors speculate an annual savings of $2 billion through this proposal.
However, the current use of HIT and EHR doesn’t seem to reduce administrative costs in the US as anticipated. Tseng, et al. conducted their analysis within a health care system with a complete EHR system and a centralized billing organization. The authors report administrative costs still had a significant financial impact even in light of these technological advances.
Reducing health care administration costs in the United States could have both direct and indirect impacts on the health care system as a whole. Most obvious would be the potential monetary savings by curtailing wasteful spending accrued through superfluous administrative activities. Providers could also see a positive impact on their relationships with patients, reclaiming the three hours/week spent on administrative duties for clinical care and increasing physician productivity.
US health care prices are the highest in the world. Some of that is due to ever growing administrative costs. So far, we haven’t found ways to keep those costs from rising. Overhauling the US health care system in its entirety seems unlikely. Some restructuring of health care administration could be a plausible first step towards reducing costs without harming patient care.
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.
Austin and Aaron are participants in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.
09/09/2021
Austin Frakt
