1Center or American Progress | Replace Fee-or-Service with Bundled Payments in Medicare
Cut Administrative Costsin the Health System
David M. Cutler, Ezekiel J. Emanuel, and Topher Spiro October 2011
Te Institute o Medicine estimates that the United States spends nearly $360 billionannually on administrative costs.
As much as hal o that is unnecessary and excessive.Estimates suggest that administrative simplication could reduce the systemwide costso health care administration by about $40 billion per year.
Payers and providers agree that the system is broken. And they even agree on many o the operations needed to achieve administrative simplication. Some o these steps werecodied in the Aordable Care Act, such as the development o standard operating rulesor the electronic processing and billing o many common medical services. Signicantadministrative savings can be achieved by ensuring eective implementation o the ACA. But there is more to be done.
Require electronic integration of administrative functions such as billing, priorauthorization, and payments.
Te HIECH Act, part o the American Recovery andReinvestment Act, invested in health inormation technology that is put to meaning-ul use. Te act currently ocuses on the electronic exchange o
inormation;to achieve administrative efciencies,
inormation must be exchangedelectronically, too. Electronically integrating clinical and administrative unctions—so that the recording o clinical services ordered or a patient automatically bills theinsurer, or example—should be required as one o the criteria or meaningul use o electronic health record technology.
Require providers to transmit and receive eligibility, claims, and other administrativeinformation electronically as soon as the relevant operating rules are specified.
Asrequired by the ACA, development o operating rules on eligibility, claims, and otheradministrative inormation is already underway. Medicare plans to require electronic