The Journal of the American Medical Association (JAMA) recently published three articles pertaining to administrative costs of health care in the US. (November 2, 2021). In 2019, the US spent $3.8 trillion on health care (quite a bit more in Covid times, no doubt), with about $950 billion going to nonclinical administrative functions. One of the articles compared the number of administrative workers in service industries such as education and law to the same number in health care. It cited a study that showed health care had more than twice the number of administrative support personnel for doctors and nurses than for teachers and lawyers.
I don’t know if the above example is fair, but the estimated administrative costs are probably understated on the whole. Cost estimates for our health care system typically focus on providers (hospitals, doctors, nurses) and don’t capture the expense of, say, employee benefit consultants who help businesses research and negotiate health insurance plans.
The literature on administrative costs is difficult and extensive. Anyone can simply google “administrative costs in US health care” and encounter an avalanche of articles, a fair amount of which is controversial. For instance, almost 20 years ago researchers found that administrative costs per capita for health care in Canada were less than one-third of the costs in the US. This was met with many objections as to study methodology, questionable value of comparison to a health care system much different from the US, and even the political motivation of the authors.
As a former provider and a current consumer of health care, however, I don’t need exhaustive data to convince me of the truth that there is significant waste in our health care system.
When I was in a university physician group practice, we employed a “coordinator” to be sure our charting satisfied insurers’ requirements for collecting billing claims This included physician signatures for every clinical encounter.. This person was full time, with benefits and his/her sole job was to track down the doctors and present charts for our missing signatures.
Some years back, physicians committed the sin of paying more attention to good patient care than billing. Corporate medicine registered this and now employs nonclinical personnel to be sure physicians bill the maximum amount under the rules.
(I cannot resist highlighting the irony of some of the administrative functions designed to save money. Some activities engender a virtual arms race: insurance companies make rules to, say, limit billing, and medical providers hire consultants to help them figure out how to beat the rules. The opportunity costs are enormous: dollars expended on these activities could be used for patient care).
And then there is an administrative cost that shows up in no analysis of administrative costs that I am aware of. Members of the public face a plethora of options when choosing insurance plans–this occurs every year for many people, such as those who have changed jobs and therefore have a different health insurance plan. They navigate a labyrinth of issues that involve deductibles, co-pays, in network vs. out of network costs, prior authorization (the requirement that an insurance company must sanction a test before committing to coverage), and eye popping provider bills that seem to constitute a bureaucratic stress tests.* And don’t forget the donut hole.
The time the public puts in navigating health insurance issues is clearly staggering. I wish someone would do a study of these in-kind contributions we all make to health care.
The point of all of this is that a lot of our insurance premiums are going for nonclinical purposes. One of the articles referenced above asserts that more than one quarter of the cost of administration in health care could be eliminated without compromising the quality of care. Another compares our administrative costs of health care to the other ten richest countries in the world. According to this study, we spend about three times the amount of money on administration as the average of the ten countries.
Do these bureaucratic costs pay off? Our rmean life expectancy is three years less than that of the ten countries, and our infant mortality is the highest. But these and other measures of outcomes are another story.
*I recently got a statement that read: $400 that the provider billed, but the total cost (allowed amount) was $34.40, of which my plan paid $29.24. I paid $5.16.
Well stated. I think of this every time I get a United Healthcare statement. Thank you. Mena
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All of this is perpetuated by politicians who are at the beck and call of the huge lobbying power of healthcare, pharmaceutical and insurance companies, spending countless millions to buy the support of said politicians. My recommendation: support politicians who support a single payer/Medicare for All healthcare system. Until we do that, we are not likely to see appreciable movement away from this status quo, which slides so much money away from patients and toward those entities.
Mark Lindenbaum, MD, PhD