Friday, April 12, 2013

Fwd: qotd: Stanford Business Professor Jeffrey Pfeffer on Administrative Waste

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-------- Original Message --------
Subject: qotd: Stanford Business Professor Jeffrey Pfeffer on
Administrative Waste
Date: Fri, 12 Apr 2013 07:27:50 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

Bloomberg Businessweek
April 10, 2013
The Reason Health Care Is So Expensive: Insurance Companies
By Jeffrey Pfeffer

As Congressional budget battles heat up—or roll along, depending on your
time perspective—the cost of health care in America receives a lot of
attention. Unfortunately most of the discussion is largely off the mark
about where the preventable, unnecessary costs really are.

The thing that few people talk about, and that no serious policy
proposal attempts to fix—the arrangement that accounts for much of the
difference between health spending in the U.S. and other places—is the
enormous administrative overhead costs that come from lodging
health-care reimbursement in the hands of insurance companies that have
no incentive to perform their role efficiently as payment intermediaries.

More than 20 years ago, two Harvard professors published an article in
the prestigious New England Journal of Medicine showing that health-care
administration cost somewhere between 19 percent and 24 percent of total
spending on health care and that this administrative burden helped
explain why health care costs so much in the U.S. compared, for
instance, with Canada or the United Kingdom. An update of that analysis
more than a decade later, after the diffusion of managed care and the
widespread adoption of computerization, found that administration
constituted some 30 percent of U.S. health-care costs and that the share
of the health-care labor force comprising administrative (as opposed to
care delivery) workers had grown 50 percent to constitute more than one
of every four health-sector employees.

What remains missing even in the discussion of the enormous
administrative burden is not just how large, both in absolute dollars
and as a percentage of health costs, it is, but also how few incentives
there are for insurance companies to stop wasting their and everyone
else's time.

Unless and until we as a society pay attention to the enormous costs and
the time wasted by the current administrative arrangements, we will
continue to pay much too much for health care.

(Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational
Behavior at Stanford University's Graduate School of Business.)

Comment: Individuals who understand the single payer model will find
nothing new here from a policy perspective. What is important about this
article is that it is a precise statement about administrative waste,
coming from a professor at Stanford University's Graduate School of
Business, and published in Bloomberg Businessweek.

There is hope that others may finally understand how we can control
spending while improving value in health care, and then join together to
act on it. The Harvard/CUNY professors cited by Pfeffer - PNHP's David
Himmelstein and Steffie Woolhandler - stand ready to provide guidance on
the reform that we so desperately need.

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