How Can We Lower Administrative Costs?

By | January 31, 2022

As we continue to focus on healthcare affordability, the topic of administrative waste rises to the forefront of many discussions. These are the costs associated with the delivery of healthcare and its associated payment functions that do not directly impact the outcome of care. Furthermore, one can view these dollars as detrimental to care because they drive up the cost of care for the recipient.

It is estimated that 28% of healthcare spending fits into a category delineated as an unnecessary administrative burden. And though this seems like something easy to fix, removing these costs is not as easy as it sounds. For starters, one must identify those costs controlled directly by a single entity; the low-hanging fruit. The “within” interventions fall into the category of highly manual ones and are inefficient in their workflows, along with poor data management, and lack of standardization. These tend to occur in finance and human resources. They require automation and standardization.

The next level of cost reduction resides “between” different components of the healthcare ecosystem. By far, the largest of these is the interactions between payer and provider. These actions include authorization/utilization management, claim processing between entities, and client interactions concerning billing and collections. Many of these processes will require the desire of both parties to work in unison for the common purpose of lowering the cost of care, thereby improving affordability.

A final category of savings requires the entire industry and the recipient of services to think differently and accept a much different overall model. These solutions fall in the realm of interoperability of systems, improving the ability to know who you are regardless of location or setting by having a single identifier, as well as singular automated clearinghouses for claims.

There are many reasons why these changes are not occurring. Though we speak to the lack of affordability, it has not risen to the level of a burning platform. Despite ever-increasing costs to the consumer, a line has not been drawn in the sand proclaiming, “enough is enough.” Thus, we implement change in a piecemeal fashion when there is an implementation of “regulations” or the introduction of a “new” payment model. We have not definitively decided to attack these areas of savings. It’s crucial to recognize that these savings come at the expense of jobs, and with healthcare being such a significant component of our economy, this issue is meaningful. However, with the current labor shortage at all levels and the cost of labor inflation, there is a definite opportunity to solve multiple problems at once.

Let us refocus our attention on these administrative costs and realize their impact on the unit price of our services. Yes, it won’t be easy, and yes, there will be fallout, but we must continuously strive to provide high-quality, affordable care.