Wasteful administrative costs tied to high US health spending
Dive Brief:
- New research in Health Affairs is shining a light on administrative costs as a major driver of unsustainable growth in U.S. healthcare spending. At least half of all administrative spending “does not contribute to health outcomes in any discernible way” and is wasteful, according to the research brief.
- The research concludes there is a strong case for government action to standardize many administrative processes across multiple public and private entities.
- The brief offers a snapshot of studies reviewed by Health Affairs’ Council on Health Care Spending and Value as it prepares to release recommendations later this year for how to moderate spending growth in U.S. healthcare. The National Pharmaceutical Council and Elevance Health supported the research but had no input into its content, Health Affairs said.
Dive Insight:
U.S. spending on healthcare administration, including billing and insurance functions, generates an estimated 15% to 30% of the nation’s total medical expenditures and has long exceeded levels spent in comparable countries, according to the health policy journal.
Annual administrative spending in the U.S. is twice that spent on care for cardiovascular disease and three times what is spent on cancer care, even at the low end of estimates, the brief said.
Health Affairs formed the nonpartisan Council on Health Care Spending and Value in 2019 to study excessive health spending in the U.S. and recommend strategies to address it. Former U.S. Senate majority leader William Frist and former FDA Commissioner Margaret Hamburg co-chair the council, which includes 20 other healthcare leaders.
The newly published research brief outlines evidence pointing to wasteful administrative spending as a driver of health cost growth in the U.S. Such non-clinical costs encompass expenses for claims management, clinical documentation and coding, prior authorization, quality assurance and credentialing. Multiple parties in the healthcare system, including hospitals, physicians, clinics, private payers and public programs, incur these costs, Health Affairs said.
Ineffective administrative spending comprises 7.5% to 15% of all national health spending, equal to $285 billion to $570 billion in 2019, the brief said.
The research also analyzes solutions that policy makers have proposed to reduce administrative waste, such as standardizing quality measures and the creation of a centralized healthcare claims clearinghouse. Health economist David Cutler of Harvard University, for example, has suggested that a clearinghouse could save $300 million annually, or 6 cents per claim.
The COVID-19 pandemic accelerated the long-term rise in total U.S. health spending, which climbed from 6.9% of gross domestic product in 1970 to nearly 18% of GDP in 2019, CMS data shows. In 2020, health spending accounted for nearly one-fifth of U.S. GDP, reaching a level it was not projected to hit until 2028, Health Affairs said. By comparison, the Organization for Economic Cooperation and Development estimates total health spending averaged about 9% of GDP among member countries in 2019.