Huge costs hidden in plain sight: the enormous burden of healthcare administration

There is one aspect of our relentlessly rising healthcare costs that seems particularly out of control — administrative costs. An interesting recent editorial in the New England Journal of Medicine provides some sobering details.

Every physician confronts daily the burden of dealing with healthcare bureaucrats of various sorts. The average doctor personally spends 43 minutes each day at it, and behind every physician there is an army of coders. They all communicate (inefficiently) with another army of insurance company employees and Medicare and Medicaid workers. What is the added cost of all this baked into the system? Do we have any idea? Can we do anything about it?

The Institute of Medicine, a component of the National Academy of Sciences, estimates the yearly administrative costs to be 361 billion dollars. This is a staggering sum — twice the amount of money we spend on heart disease and three times what we spend on treating cancer. Can we do anything about this?

Many have suggested that a single payer system would be the obvious answer, since providers would not be dealing with dozens of insurance and governmental entities. Although this is my view, I realize that right now it is just not politically feasible. It is the standardization of methods and procedures that matters most. The question, as well laid out by the editorial authors, is if we can reap some of the benefits of standardization without a single payer system? The authors think we can, and I agree.

One issue that really, really needs better standardization is physician credentialing. Each healthcare entity, be it a hospital or a payer, has its own way and standards of reviewing the credentials of physicians. And believe me, it’s a mess that just gets worse and worse. I have practice privileges at several hospitals and medical licenses in several states. Each one of these has its own, often idiosyncratic, standards for credentialing physicians, and these credentials need to be redone every couple of years. The process takes many hours and causes many headaches. There are national databases that keep relevant information about physicians — medical school and residency information, medical license information, information on disciplinary actions. You might think this would have made the process faster, but it just added another layer to the mess. Hospitals spend millions of dollars duplicating work that has already been done. It’s crazy.

Credentialing and other systems that are used to establish contracts between providers and health plans are riddled with redundancy, with many organizations collecting virtually identical information from providers. The typical physician spends more than 3 hours annually submitting nearly 18 different credentialing forms, with staff spending an additional 20 hours.

This sort of craziness is found all through the system (which really isn’t a system at all) that we have. The editorial’s authors go on to suggest several useful things which, if implemented in the context of the Affordable Care Act, would save billions:

The possibilities for reducing administrative complexity are immense. The reforms we describe could save as much as $20 billion annually for providers (roughly $29,000 per physician), or $40 billion annually for all stakeholders. And $2 billion of these savings would accrue to the federal government — a relatively small but valuable contribution to reducing the deficit. For the individual physician, these savings could translate into more time and resources for direct patient care — and therefore into improved professional satisfaction.

As we look for ways to make our healthcare system more efficient, this sort of thing truly is low-hanging fruit. It wastes resources we should be putting toward patient care.


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