Administrative waste comprises 15 to 30% of healthcare spending, Health Affairs shows
While not all administrative spending is wasteful, about half is likely ineffective, meaning it has no effect on care quality, authors say.
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Between 15 and 30% of all medical spending in the U.S. is attributable to administrative spending, which totaled between $285 billion and $570 billion in 2019, according to new research published by Health Affairs.
The report added that much of this spending – at least half – doesn't contribute to health outcomes in any significant way.
Some of the estimates contained in the data encompass only billing- and insurance-related expenses and, as a result, are lower than those that include both billing- and insurance-related and non–billing- and insurance-related costs. But even at the lower end of estimates, U.S. spending on administrative costs annually accounts for twice the spending on care for cardiovascular disease and three times the spending for cancer care.
The U.S. compares unfavorably to other countries in this regard, spending more in healthcare administration than its peers. One estimate from the Peterson Foundation, based on 2021 data from the OECD, finds that the U.S. spends $1,055 per capita on administrative costs – by far the highest amount among a list of 12 OECD nations plus the U.S. The country with the next highest level of per capita administrative spending is Germany, at $306 per capita.
There are also international differences in amounts spent on personnel with primarily administrative functions. A 2011 publication found that compared with Canada, the U.S. health system has 44% more administrative staff, and U.S. physicians devote a higher percentage of their time to administrative tasks than do their Canadian counterparts (13% of working hours in the U.S. versus 8% in Canada).
While not all administrative spending is wasteful, about half is likely ineffective, the report found.
WHAT'S THE IMPACT?
No single intervention is likely to make a significant dent in the system's administrative burden, authors said, and efforts to address administrative waste are only effective if they do not impose greater costs than they save.
A number of systemic reforms could move things in the right direction: all-payer rate setting, a single-payer health system and capitated payments were all cited as effective steps in this regard.
But the authors considered targeted proposals more realistic. Among them: a centralized claims clearinghouse that would save an estimated $300 million annually; a fully electronic prior authorization system that could see $417 million in annual savings; and standardization of provider directories, which each year would save about $1.1 billion.
Either way, direction from the federal government will likely be needed to shepherd things in the right direction, authors said.
THE LARGER TREND
"Processes such as prior authorization and billing complexity, which increase administrative spending, are motivated in part by payers' incentives to reduce their financial liability," authors wrote. "Limiting the use of these processes through standardization may slow the growth of administrative spending but could simultaneously result in increased growth in overall spending. However, if such an increase means that more resources are devoted to improved quality of care and patient outcomes, it may be a more palatable driver of spending growth than administrative spending."
Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com
