The United States is notorious for its complex healthcare system coupled with excessive spending. At its current pace wasteful spending will not slow down any time soon—in fact, it’s set to exceed projections. Health spending accounted for nearly 20% of total gross domestic product (GDP) in 2020, a height that wasn’t expected to be reached until 2028.
To determine the root cause of excessive spending, and understand how to tackle it, it’s important to look at the bigger picture. In 2019, Health Affairs, the leading journal of health policy thought and research, launched the nonpartisan Council on Health Care Spending and Value to study excessive health spending in the US. In a new research brief derived from the study, evidence indicates that wasteful administrative expenses are a major source of the excess, defined as higher than the norm or disproportionate to the health produced.
For years, we’ve been on our soapbox about fixing the administrative side of healthcare—the non-clinical activities involved with running a health system—and this recent research from Health Affairs is another validation that our aim to remove the old school siloed approach to administrative ops is important now more than ever.
Following David Cutler’s formulation, healthcare administration includes two primary categories: billing- and insurance-related expenses—like claims management, clinical documentation and coding, and prior authorization—and non-billing-and insurance-related expenses—such as general business overhead, quality assurance, taxes and profits, and credentialing costs. The Health Affairs report cites a range of estimates that illustrate how administrative expenses account for 15% to 30% of all healthcare spending. The estimates vary as some include only billing- and insurance-related expenses and others cover both categories. Yet even at the low end of the range, the cost of healthcare administration accounts for double the spending on care for cardiovascular disease and triple the spending for cancer care annually.
At Madaket, we agree that not all administrative spending is wasteful—in fact, most administrative tasks are necessary to operate a safe medical practice—but we’ll continue to shout from the rooftops that there are interventions that improve processes, increase efficiency, and reduce waste. Eliminating recurring expenses that cost healthcare billions of dollars is our sweet spot.
A Significant Amount of Administrative Spending is Wasteful
As with overall healthcare spending, research proves that the US is an outlier regarding healthcare administration, spending significantly more than comparable countries. Based on 2021 data, the US spends $1,055 per capita on administrative costs, far exceeding the next highest spend per capita of $306 in Germany. This perspective certainly makes us question our country’s approach to healthcare administration.
The Health Affairs brief also points out that at least half of administrative spending is wasteful, meaning up to 15% of total US healthcare spending is unnecessary. Considering the current challenges in our healthcare environment—staff shortages, overworked providers, full hospital beds, high costs of care, and more—it’s extremely disheartening that this much time, effort, and money goes towards painstaking paper-based processes.
Given the complexity of the US healthcare system, multiple factors contribute to administrative spending, and it won’t get fixed overnight, but introducing efforts to reduce waste are worth it. To avoid deteriorating patient care quality, we wouldn’t recommend slapping a standardized approach on every healthcare touchpoint, but undoubtedly, there are tasks that can be automated to reduce the system’s administrative burden. Health Affairs highlights a few areas that could benefit from a standardized intervention including clearinghouses, prior authorization, reporting, benefits, and provider directories and credentialing.
Standardizing Administrative Activities Creates Savings
The Health Affairs brief confirms one of our unwavering claims: administering provider data is a pain when organizations rely on manual ways to manage it. The process of maintaining up-to-date provider directories, which are essential to delivering patient care, poses a significant burden on healthcare administration. In fact, CAQH estimates that this activity alone costs US physician practices up to $2.76 billion annually. Similarly, health plans require provider information for credentialing purposes.
CAQH reported that providers who used a single platform to enable credentialing with multiple health plans saved an average of $1,250 in administrative costs per month. According to CAQH research, utilizing a standardized platform for maintaining provider directories could save the US more than $1.1 billion annually.
At Madaket, we’re focused on playing our part in reducing wasteful administrative spending by providing a platform that manages the complexities of provider data management for you. Our all-in-one solution eliminates administrative waste by digitizing and standardizing provider data management for all parties involved.
While we await the full research from Health Affairs in early 2023, get in touch to learn how our Provider Data Management platform automates your administrative ops and protects your revenue stream.
