A recent study comparing hospital administrative costs in the United States and seven other countries found these costs accounted for 25% of total U.S. hospital expenditures, or more than $215 billion in 2011.
Researchers found that the United States had more than two times the percentage of costs allotted there than the lowest two countries in the study: Canada at 12% and Scotland at 12%. If U.S. hospitals could reduce administration costs to these levels, the study authors estimated it would have saved them more than $150 billion in the year the numbers were analyzed (2011).
The United States has a very different healthcare system than what is seen in other countries: A multi-payer system adds heavily to administrative time. U.S. hospitals also tend to have a larger number of administration personnel than other countries, the study authors noted. But many experts say that even with these kinds of differences, U.S. hospitals' administrative costs are too high. And they can be shaved through a wide range of cost-cutting measures that wouldn't do damage to quality of care.
Why does the U.S. spend so much more?
Other countries clocked in at much more moderate rates. In England, administrative costs account for 15% of total expenditure; in Wales, 14%; in the Netherlands, 20%. Administrative spending is also a larger part of the United States' gross domestic product than any of the others in the report:1.43% or $667 per capita, as opposed to 0.41% or $158 per capita in Canada.
These costs have risen in previous years in the United States, up from 24% in 2000. They also rose dramatically during that same period in England, but fell slightly in Canada. U.S. for-profit hospitals had higher administrative costs, 27%, than did all other types of hospitals. Urban facilities spent slightly more in this area than did rural organizations. Public hospitals, at 23%, had the lowest percentage.
When accounting for administrative costs, the study authors said procuring and coordinating facilities, supplies and personnel are basic duties of hospital administrators. Where countries begin spending more on administrative costs is when they have per-patient billing systems and have to rely on capital funds for profit. For instance, costs are low in Scotland where hospitals don't bill per patient and capital projects are funded by government grants.
This was borne out previously in a study published in 2011 in Health Affairs. It found that groups in Ontario, Canada spent about $22,205 per year per physician interacting with the nation's single-payer organization, as opposed to the United States' $82,975 annually per physician. Study authors estimated that the country would save $27.6 billion annually if its billing time were equivalent to that of Canada's.
Reducing the burden
There are things that can be done to reduce the administrative burden of providers, but much of it would have to be done by other entities. And a key to reducing administration appears to be through standardization.
David Cutler, a professor of economics at Harvard, released a report on the potential for standardizing administration in healthcare. Cutler tallied that up to $23 billion in provider costs could be saved annually through a handful of changes in the system.
The authors noted how Walmart saved money by making suppliers conform to its computer standards and the Federal Reserve reduced banking administration by standardizing the way banks' computer systems communicate. Unfortunately, the only organization involved in healthcare that has the mass of these two organizations is the federal government. And the government has made some changes that have helped reduced administration through the Affordable Care Act and HITECH. Continued adherence to these laws will continue to decrease costs, the authors said.
Changes that could make an impact include: increasing automation and adoption of electronic transactions; creating a national provider credentialing program; and implementing standardized reporting and enrollment in public insurance programs, said the study authors.
Sorin Davis, managing director at the Council for Affordable Quality Healthcare, a nonprofit organization dedicated to streamlining the business of healthcare, agreed that external standardization can dramatically reduce healthcare administrative costs.
"To some degree, these costs are inescapable," he said. "But a lot of activities can be simplified and reduced significantly by doing shared activities between otherwise competitive bodies."
His organization works to find "abrasion points" between providers and payers and ways to eliminate or reduce them.
CAQH's newest product is a national registry that allows providers to know which payer should pay first when a patient has dual insurance coverage. More than a decade ago, the company created a universal provider data source that allows providers to input credentials for various provider networks in one spot. And two years ago they launched an EFT program that allows payers to provide reimbursement electronically, moving money faster and more accurately through the system.
Davis said that what CAQH does is what all providers can do to reduce administrative costs.
"We don’t look at a problem and say, 'How can we live with it better?' but we ask, 'How can we limit the impact?'"