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3 Strategies for Reducing Health Care Administrative Costs

3 Strategies for Reducing Health Care Administrative Costs

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Elizabeth Wikler, Peter Basch, and David Cutler summarize the benefits of 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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Published by: Center for American Progress on Jun 11, 2012
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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
 Adminisraive coss in he U.S. healh care sysem consume an esimaed $361 billionannually—14 percen o all healh care expendiures in our naion. A leas hal o hisspending is considered waseul.
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In a ime o large budge decis, ackling excessiveadminisraive coss oers a promising opporuniy or reducing healh care coss whileimproving paien care. Te proposals oulined below can lead o sysemwide savings o up o $40 billion per year by eliminaing waseul adminisraive 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 prot)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
 Adminisraive complexiy exiss a all levels o he healh care sysem, resuling in ine-cien spending and delays in care. o reduce his burden we have developed a hree-pronged sraegy ocused on inegraion, coordinaion, 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 meaningul usecrieria—which creaed nancial incenives o ensure ha providers use he daa inelecronic healh records o improve he qualiy o paien care—should inegrae herecording and analysis o clinical services wih he billing or hose services.o urher encourage provider paricipaion in adminisraive reorm, policymakersshould oer incenive paymens o some provider organizaions—hose engaged in Aordable Care Ac paymen reorm iniiaives ha also mee adminisraive-simpli-caion qualiy benchmarks. Tis unding could help caalyze necessary invesmens ininormaion-echnology inrasrucure. Addiionally, he Medicare program should encourage adminisraive simplicaioneors. Te Medicare Accounable Care Organizaion qualiy 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 adminisraive expensesrelaed o ime-consuming and cosly provider enrollmen and credenialing processes,he Deparmen o Healh and Human Services and he privae secor should work ogeher o creae a cenralized, mandaory provider enrollmen and
 
credenialingsysem ha will provide all essenial daa o necessary sakeholders
 
 boh in he privaesecor and in public programs.
 
3Center for American Progress | Strategies for Reducing Health Care Administrative Costs
Standardize quality- and safety-reporting initiatives.
Governmen regulaions, repor-ing requiremens or qualiy and saey programs, and sae licensure resricions should be sandardized o promoe greaer uniormiy and lower compliance expenses. Publicand privae organizaions should work o harmonize and cenralize
 
naional, sae, andlocal regulaions, reporing requiremens or qualiy and saey programs, and licen-sure resricions o align wih hose proposed under he Naional Sraegy or Qualiy Improvemen in Healh Care.
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In addiion o his sandardizaion, public and privaeeniies should leverage healh inormaion-echnology so ha qualiy reporing is ine-graed ino paien care and auomaed hrough he use o elecronic healh records.
Ensure continuity in public program enrollment to reduce “churn.”
 
Disrupions inhealh plan enrollmen—usually due o changes in a person’s insurance coverage,employmen saus, or amily srucure—makes care coordinaion difcul and increasesadminisraive expenses. Each change can mean new eligibiliy deerminaions andre-enrolling beneciaries in new plans. Te Aordable Care Ac includes specic provi-sions o sreamline enrollmen processes.o urher minimize he coss o churning, he Deparmen o Healh and HumanServices and sae governmens should coordinae coverage policies and adminisra-ive sysems across Medicaid, he new sae healh insurance exchanges, and he privaemarke, and should promoe coninuous-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.
Currenly, jurisdicion or adminisra-ive reorm is spread across dieren agencies. Tere is litle coordinaion beween heseofces, and dieren ofces may have compeing prioriies. o ensure he success o adminisraive simplicaion reorms, here needs o be a cenralized ofce wih heauhoriy o oversee and coordinae changes across he public and privae secors. Tesole mission o he new ofce should be o address adminisraive complexiy.

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Jon Vincent Deacon added this note
Sounds nice, though I still think that the best way to get health care under control is for everyone to drop their insurance and expose the whole system to the free market. Problem with finding ways to save money is that it usually ends up in someone's pocket and it is not the patient's.

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