Thursday, April 29, 2010

qotd: New Health Affairs article on administrative waste

Health Affairs
April 29, 2010
Saving Billions Of Dollars — And Physicians' Time — By Streamlining Billing Practices
By Bonnie B. Blanchfield, James L. Heffernan, Bradford Osgood, Rosemary R. Sheehan and Gregg S. Meyer


The U.S. system of billing third parties for health care services is complex, expensive, and inefficient. Physicians end up using nearly 12 percent of their net patient service revenue to cover the costs of excessive administrative complexity. A single transparent set of payment rules for multiple payers, a single claim form, and standard rules of submission, among other innovations, would reduce the burden on the billing offices of physician organizations. On a national scale, our hypothetical modeling of these changes would translate into $7 billion of savings annually for physician and clinical services. Four hours of professional time per physician and five hours of practice support staff time could be saved each week.

Opportunity For Reform 

The growth in administrative complexity has been largely overlooked as an opportunity for health care reform, with administrative expenses being viewed as a relatively mild influence on the growth in health spending. The Patient Protection and Affordable Care Act of 2010 does not contain major provisions to limit excessive administrative complexity. However, it does require that health plans begin to standardize the transfer of electronic data, which will cut down some of the duplicative information technology costs. The law does not specifically address the need for comprehensive uniformity of all data and information requirements.

The results of this study enumerate the inefficiencies engendered by excessive administrative complexity. We also hope that they will provide detail to enable understanding of the magnitude of these costs, and to inspire multistakeholder discussions around proposals of incremental reforms that standardize payment processing rules across payers. The current cost of excessive complexity would not be tolerated by employers from any other type of vendor. We believe that once fully explained, the current administrative burden will be recognized as intolerable by patients, purchasers, and policy makers.

Thus far, health reform has not resulted in a single-payer mandate that replaces the U.S. health insurance industry and nationalizes billing and payment processes. But the evidence of the system costs from excessive complexity in our case study indicates that imposing a standard set of payment requirements, increased payment-rule transparency, standardized forms, and a standard set of data exchange requirements remains an important and high-value target for future policy reform efforts.

An incremental move to one set of payment rules would yield significant dollar savings as well as work-life and productivity opportunities for physicians and their office staffs. Done carefully, administrative simplification could still leave room for a diversity of insurance products and could promote innovation without relying on blunt and opaque administrative processes as a tool.

The savings from reducing administrative complexity could be translated into decreased costs in general. These decreased costs would be of greater magnitude than estimated here. Many of the changes under the single-rule-set scenario would result in decreased costs for payers as well, and would provide resources that could be passed on as savings to purchasers and patients or could be used to provide additional needed health services.

Achieving these savings would not require restructuring the basic market-system tenets of our complex health care system through, for example, mandating a single-payer approach. Rather, mandating a single set of rules, a single claim form, standard rules of submission, and transparent payment adjudication — with corresponding savings to both providers and payers — could provide systemwide savings that could translate into better care for Americans.

Comment:  This study confirms the previously well documented administrative waste that occurs in physicians' practices due to the complexity of complying with the various requirements of multiple payers in our fragmented system of health care financing. However, the authors do a disservice by perpetuating the myth that all we need is a single billing form and a single set of rules, thereby obviating the need to switch to a single payer model of health care financing.

The authors estimate that a single claim form and simplified rules would save about $7 billion yearly. Yet the single payer model has been projected to save about $400 billion yearly. What are these authors overlooking?

First is the profound administrative waste intrinsic to the private insurance industry. It is so great that our legislators up front granted them the right to retain 15 to 20 percent of insurance premiums just to pay these costs (plus profits).

Although this article indicates that the administrative burden on the physicians is great, the authors still would not salvage all of the waste that is recoverable since they contend that the insurers could still continue to provide a diversity of innovative insurance products, perpetuating the inevitable administrative complexity.

Anyone who has looked at a hospital bill understands the great administrative complexity of hospital payment systems under our multi-payer system. Under a single payer system, hospital financing would be provided by global budgets based on legitimate costs, much like our fire and police departments. The labor-intensive, complex hospital chargemaster disappears. 

Bulk purchasing would be used for pharmaceuticals and medical supplies, again greatly reducing the administrative waste.

More waste is generated when payers and providers try to work the system to their own advantages - an understandable response in a complex and opaque system. A single payer system provides much greater precision and transparency in payment processes.

It is not as if the authors didn't understand these differences. They cite the landmark paper of Woolhandler, Campbell and Himmelstein showing the dramatic reduction in administrative waste in Canada compared to the United states, after Canada changed to a single payer system of financing. But they seem to sweep the conclusions under the carpet while insisting that all we need is a simple form (which we already have - CMS 1500) and simple rules (which we will never have with the diversity of insurance products and insurer innovation that they support).

Perhaps the most outrageous comments in this paper are the following:

"Prior studies of this problem have examined the relative overall administrative costs of health care in the United States, particularly in comparison to those in Canada. However, these studies have been able to provide only an overall view of the costs and do not provide specific direction to foster improvements. As a result, these findings have done little to move stakeholders in the U.S. health care system — including patients, providers, payers, purchasers, and policy makers — to confront excessive administrative complexity as a target for reform."

No specific direction!? The single payer advocates have been vociferous in showing the direction in which we must head! Google "health care administrative costs." There are over 45 million results, and the first one is the landmark NEJM article by Woolhandler, Campbell and Himmelstein. People who deny that there is adequate evidence that a single payer system would provide us the savings that we need to provide health care to everyone are simply liars!

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