1Center for American Progress | Strategies for Reducing Health Care Administrative Costs
3 Strategies for Reducing HealthCare Administrative Costs
Reducing Inefficiencies Will Save the Health CareSystem $40 Billion a Year
Elizabeth Wikler, Peter Basch, and David Cutler June 11, 2012
Adminisraive coss in he U.S. healh care sysem consume an esimaed $361 billionannually—14 percen o all healh care expendiures in our naion. A leas hal o hisspending is considered waseul.
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In a ime o large budge decis, ackling excessiveadminisraive coss oers a promising opporuniy or reducing healh care coss whileimproving paien care. Te proposals oulined below can lead o sysemwide savings o up o $40 billion per year by eliminaing waseul adminisraive spending.
Our current system of administrative complexity
Administrative costs: Who pays how much? How much can we save?
TABLE 1
What we can gain from health care administrative reform
Estimates o annual administrative costs and possible savings by health care payers and providers
ElementShare of revenueCurrent costsPossible savings
Insurer costs(claims processing,marketing, generaloverhead, and prot)12.3 percent—private,3.5 percent—public$105 billion—private$42 billion—public$44 billion–$52 billion*Provider costs (hospitals,physicians, nursing homes)13 percent—physicians,8.5 percent—hospitals,10 percent—other providers$214 billion$105 billion–$108 billionPatient costsN/AN/A
Total$361 billion$149 billion–$160 billion
* Costs or billing transactions only. Omits costs or marketing o insurance, estimated to be about 30 percent payer administrative costs.Source: Institute o Medicine, “The Healthcare Imperative: Lowering Costs and Improving Outcomes: Workshop Series Summary,” p. 148–150.Current costs are derived rom multiplying estimated revenue or 2009 (as published by the Center or Medicare and Medicaid Services in 2007)by the percent revenue dedicated to billing and insurance related costs or each group.
2Center for American Progress | Strategies for Reducing Health Care Administrative Costs
Opportunities for savings and administrative simplification
Adminisraive complexiy exiss a all levels o he healh care sysem, resuling in ine-cien spending and delays in care. o reduce his burden we have developed a hree-pronged sraegy ocused on inegraion, coordinaion, and leadership.
Integration: Electronic capabilities for administrative transactions should beintegrated with health information-technology initiatives so all stakeholderscan communicate electronically and in real time for improved care deliveryand efficiency.
Bring health care providers (physicians and hospitals) online.
Te meaningul usecrieria—which creaed nancial incenives o ensure ha providers use he daa inelecronic healh records o improve he qualiy o paien care—should inegrae herecording and analysis o clinical services wih he billing or hose services.o urher encourage provider paricipaion in adminisraive reorm, policymakersshould oer incenive paymens o some provider organizaions—hose engaged in Aordable Care Ac paymen reorm iniiaives ha also mee adminisraive-simpli-caion qualiy benchmarks. Tis unding could help caalyze necessary invesmens ininormaion-echnology inrasrucure. Addiionally, he Medicare program should encourage adminisraive simplicaioneors. Te Medicare Accounable Care Organizaion qualiy measures, or example,should include a measure o efciency.
Coordination: Bring together similar administrative processes by different healthcare participants to maximize efficiency. Reporting and enrollment systemsshould be coordinated across national, state, and local regulatory bodies toreduce redundant tasks that take away from patient care.
Maximize efficiency by streamlining programs.
o minimize adminisraive expensesrelaed o ime-consuming and cosly provider enrollmen and credenialing processes,he Deparmen o Healh and Human Services and he privae secor should work ogeher o creae a cenralized, mandaory provider enrollmen and
credenialingsysem ha will provide all essenial daa o necessary sakeholders
boh in he privaesecor and in public programs.
3Center for American Progress | Strategies for Reducing Health Care Administrative Costs
Standardize quality- and safety-reporting initiatives.
Governmen regulaions, repor-ing requiremens or qualiy and saey programs, and sae licensure resricions should be sandardized o promoe greaer uniormiy and lower compliance expenses. Publicand privae organizaions should work o harmonize and cenralize
naional, sae, andlocal regulaions, reporing requiremens or qualiy and saey programs, and licen-sure resricions o align wih hose proposed under he Naional Sraegy or Qualiy Improvemen in Healh Care.
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In addiion o his sandardizaion, public and privaeeniies should leverage healh inormaion-echnology so ha qualiy reporing is ine-graed ino paien care and auomaed hrough he use o elecronic healh records.
Ensure continuity in public program enrollment to reduce “churn.”
Disrupions inhealh plan enrollmen—usually due o changes in a person’s insurance coverage,employmen saus, or amily srucure—makes care coordinaion difcul and increasesadminisraive expenses. Each change can mean new eligibiliy deerminaions andre-enrolling beneciaries in new plans. Te Aordable Care Ac includes specic provi-sions o sreamline enrollmen processes.o urher minimize he coss o churning, he Deparmen o Healh and HumanServices and sae governmens should coordinae coverage policies and adminisra-ive sysems across Medicaid, he new sae healh insurance exchanges, and he privaemarke, and should promoe coninuous-enrollmen policies.
Leadership: Policymakers should exert leadership on administrative simplificationreforms to ensure timely and innovative results.
Create a new federal office within the Department of Health and Human Services tosimplify health care administrative processes.
Currenly, jurisdicion or adminisra-ive reorm is spread across dieren agencies. Tere is litle coordinaion beween heseofces, and dieren ofces may have compeing prioriies. o ensure he success o adminisraive simplicaion reorms, here needs o be a cenralized ofce wih heauhoriy o oversee and coordinae changes across he public and privae secors. Tesole mission o he new ofce should be o address adminisraive complexiy.
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3 Strategies for Reducing Health Care Administrative Costs
Elizabeth Wikler, Peter Basch, and David Cutler summarize the benefits of reducing health care administrative costs.
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