30% of health care expenses in U.S. are for administration
Costs far exceed what other nations pay, studies show.
It takes only a glance at a hospital bill or at the myriad choices you may have for health care coverage to get a sense of the bewildering complexity of health care financing in the United States. That complexity doesn’t just exact a cogni- tive cost. It also comes with administrative costs that are largely hidden from view but that we all pay.
Because they are n ot directly related to patient care, we rarely think about administrative costs. They’re high.
A widely cited study pub- lished in The New England Journal of Medicine used data from 1999 to estimate that about 30 percent of U.S.
health care expenditures were the result of administration, about twice what it is in Canada. If the figures hold today, they mean that out of the average of about $19,000 that U.S. workers and their employers pay for family coverage each year, $5,700 goes toward admin- istrative costs.
Such costs are not all bad. Some are tied upin things we may want, such as creating a quality improvement program. Others are for things we may dislike — for exam- ple, figuring out which of our claims to accept or reject or
sending us bills. Others are just necessary, like processing payments; hiring and managing doctors and other employees; or maintaining information systems.
That New England Jour- nal of Medicine study is still the only one on adminis- trative costs that encom- passes the entire health system. Many other more recent studies examine important portions of it, however. The story remains the same: Like the overall cost of the U.S. health system, its administrative cost alone is No. 1 in the world.
Using data from 2010 and 2011, one study, published in Health Affairs, compared hospital administrative costs in the United States with those in seven other places: Canada, England, Scotland, Wales, France, Germany and the Netherlands.
At just over 25 percent of total spending on hospital care (or 1.4 percent of total U.S. economic output), U.S. hospital administrative costs exceed those of all the other places. The Nether- lands was second in hos- pital administrative costs: almost 20 percent of hos- pital spending and 0.8 per- cent of that country’s gross domestic product.
At the low end were Canada and Scotland, which both spend about 12 percent of hospital expenditures on administration, or about half a percent of GDP.
Other reasons
Hospitals are not the only source of high administrative spending in the United States. Physician practices also devote a large proportion of revenue to administration. By one estimate, for every 10 physicians providing care, almost seven addi- tional people are engaged in billing-related activities.
It is no surprise then that a majority of U.S. doctors say that generating bills and collecting payments is a major problem. Canadian practices spend only 27 percent of what U.S. ones do on deal- ing with payers like Medicare or private insurers.
Another study in Health Affairs surveyed physicians and physician practice administrators about billing tasks. It found that doctors spend about three hours per week dealing with billing-related matters. For each doctor, a further 19 hours per week are spent by medical support workers. And 36 hours per week of administrators’ time is consumed in this way. Added together, this time costs an additional $68,000 per year per physician (in 2006). Because these are administrative costs, that’s above and beyond the cost associated with direct provision of medical care.
“The extraordinary costs we see are not because of administrative slack or because health care leaders don’t try to economize,” said Kevin Schulman, a co-author of the study and a professor of medicine at Duke. “The high administrative costs are functions of the system’s complexity.”
Costs related to billing appear to be growing. A literature review by Elsa Pearson, a policy analyst with the Boston University School of Public Health, found that in 2009 they accounted for about 14 percent of total health expenditures. By 2012, the figure was closer to 17 percent.
One obvious source of complexity of the U.S. health system is its multiplicity of payers. A typical hospital has to contend not just with several public health programs, like Medicare and Medicaid, but also with many private insurers, each with its own set of procedures and forms (whether electronic or paper) for billing and collecting payment. By one estimate, 80 percent of the billing-related costs in the United States are because of contending with this added complexity.