Report Finds ‘Administration’ Small Factor in Rising Healthcare Costs

Healthcare administration is a problem, according to researchers at a think tank formed by a bipartisan group of former U.S. senators, but is only one of many factors contributing to the nation’s high healthcare costs.

The report, “What Is Driving U.S. Health Care Spending? America’s Unsustainable Health Care Cost Growth,” was released last week by the Bipartisan Policy Center, a not-for-profit institute created by former U.S. Senate majority leaders Howard Baker, Tom Daschle, Bob Dole and George Mitchell. The report is essentially a laundry list of factors as to why U.S. healthcare rates far outstrip those in other industrialized nations, some supported by hard statistics, other by conjecture and speculation.

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Revenue cycle professionals will be glad to know their piece of the healthcare puzzle is a relative drop in the bucket. “Administrative costs in the U.S. are estimated to be somewhere between $156 and $183 billion annually — and growing,” according to the report. If those estimates are correct, even if administration costs were completely eliminated, overall health care spending would only drop from $2.6 trillion to $2.4 trillion. Nonetheless, administration is part of the reason why healthcare cost are so high.

“Our complex system of payment and delivery leads to increased paperwork and the need for greater administrative resources, raising provider and payer costs,” the report’s authors write. “For example, most providers file claims with numerous health insurance plans, which typically utilize different processes for authorizing services, establishing patient eligibility and paying claims. Navigating this complex system requires significant administrative resources to complete necessary paperwork and contact payers about treatments, referrals and diagnoses.”

The report’s authors were unable to pinpoint the exact cause or causes of rising healthcare costs, instead stating that “drivers of health care cost growth are complex and overlapping. To some extent, experts disagree on how best to quantify their role in driving spending.”

The report identified the following drivers of rising U.S. healthcare costs:

Healthcare Financing and Delivery

  • Fee-for-service reimbursement. Reimbursement under the fee-for-service (FFS) model generates a strong incentive to perform a high volume of tests and services, regardless of whether those services improve quality or contribute to a broader effort to manage care.
  • Fragmentation in care delivery. Providers are paid for volume rather than patient outcomes, generating little financial incentive to coordinate with others to deliver more efficient care.
  • Administrative burden on providers, payers and patients. Our complex system of payment and delivery leads to increased paperwork and the need for greater administrative resources, raising provider and payer costs.

Population Needs for Care

  • Population aging, rising rates of chronic disease and co-morbidities, as well as lifestyle factors and personal health choices. The aging of the population will have a significant impact on health care spending growth.
  • Chronic disease. The rapidly increasing number of individuals with chronic disease account for a disproportionate percentage of overall health spending.

Advancing Medical Technology

  • Advances in medical technology can both increase health system efficiency and encourage unnecessary utilization of expensive treatments in FFS.

Insurance Design

  • Tax Treatment of Health Insurance. The employer-sponsored health insurance tax exclusion encourages increasingly generous benefit designs and represents a significant loss in revenue for the federal government.
  • Utilization and Prevention. Access to health care services with little cost-sharing encourages higher care utilization and leads to increased spending.

Lack of Transparency in Cost and Quality Information

  • Limited Consensus on Standards of Care. Without reliable information that enables a fair comparison of health care quality and outcomes, patients and clinicians are ill-equipped to utilize the best, most cost effective treatments.
  • Cultural and Institutional Influences. Cultural biases often favor more and prolonged care, regardless of its effectiveness.

Competition and Consolidation

  • Choice and Market Forces. Imbalances in market power due to regional variation as well as increasing provider and payer consolidation hinder market forces from limiting high prices.
  • Provider Consolidation. Growing consolidation among providers can improve the delivery of care, but misuse of market power to increase the price of services is a risk.
  • Insurance Industry Consolidation. Larger insurers are gaining market share across the nation. Potentially, insurers could use this power to negotiate lower provider reimbursement.
  • Unit Prices. The U.S. pays higher prices for health services, which leads to higher spending.

Legal and Regulatory Environment

  • Legal Barriers. The current U.S. legal and regulatory environment drives up costs to our health care system by preventing transition to more costeffective systems of care.
  • Medical Malpractice. Fearing malpractice lawsuits, many physicians significantly drive up costs to our health care system by ordering unnecessary tests and treatments.
  • Fraud and Abuse. Fraud and abuse contributes to wasteful spending in both federal and private sector health programs.

Health Professional Workforce

  • Scope of Practice Restrictions. Utilizing a physician for a service that another professional is able to effectively and safely provide is a missed opportunity to utilize a lower cost provider.
  • Health Professional Workforce Shortages. Shortages or maldistribution of health professionals can drive patients to seek care from higher cost providers.
  • Clinical Specialization. The high ratio of specialty physicians in the U.S. can encourage utilization of higher cost services.
  • Medicare and Medicaid Participation. Patients that cannot regularly access care via a physician office visit may seek treatment from higher cost providers, such as hospital emergency departments.