Healthcare Can Be More Affordable if We Can Limit Waste

By | March 18, 2021

The cost of healthcare in the United States is exorbitant. There are multitudes of reasons for our elevated unit price. Many believe, waste, makes up a significant part of the problem. And the largest component of wasteful spending is what we identify as administrative costs. These are dollars that are not improving patient care, and yet, they impact the out-of-pocket costs to individuals directly or affect wages and/or taxes.

The US health care system is administratively complex by design. It encompasses a multi-payer system to allow choices in things like, benefit packages, multiple insurance companies to choose from, and our underlying belief that a single-payer, system will lead to lower quality, less choice, and inferior service. All are valid reasons but they lead to a fragmented model that enhances the complexity and thus the cost. The Affordable Care Act attempted to control this by legislating that administrative costs may not exceed 15% of premiums, but this cost is still 10% greater than the administrative cost of Medicare. One can argue there is a legitimate reason for this difference, and I am not suggesting that there should be a single-payer model. Instead, I am merely pointing out that there is a significant difference.

As an example, hospitals employ up to one full-time person per bed to support billing and nearly four full-time employees are allocated per physician in the ambulatory environment to work on administrative tasks, and this ratio is increasing. A benefit of this is job creation as health care labor accounts for most healthcare costs, consequently feeding the economy and unfortunately, this economic benefit transfers to higher health care costs.

So, how do we reign in this waste, keep our ability to choose, and have competition in our payer environment? Standardization of many aspects of billing and payments is one such way. Additionally, a single technology that can determine the following:  benefits eligibility, coverage information, patient cost-sharing transparency to improve collections at time of service, real-time claim status updates, auto adjudication standards, and real-time authorization for referrals and prior authorizations are all methods to lower overhead costs and thus affordability.

Other industries have solved these issues by driving self-standardization.  For instance, the government can play a role in these activities just as it does for the banking industry. But, because of the fragmentation of healthcare in the United States, this becomes a more arduous task. Even the Medicare and Medicaid systems are fragmented by their payments flowing through multiple different programs and hundreds of intermediaries. However, standardization would positively impact all and it behooves us to recognize that consumers are incredibly confused in their time of health vulnerability. Also, we must acknowledge there is an impact on their financial health by our lack of standardization in administration processes.

We must come together as an industry to address these issues. Lack of self-regulation and movement to hold down costs through reducing administrative waste will lead to external regulation that will cause other unintended consequences. Instead of our health industry societies focusing on how to improve our position in the economic ecosystem, we should focus on how to translate these wasted dollars into an improvement of care and consumer ease of using our services. Doing this will enhance affordability; and consequently, all involved would be happier.