How to Save Money by Streamlining Healthcare Costs

The recent passing of price transparency legislation has compounded the conversations we have been having nationwide about rising health care costs and what we can do to combat them. The United States spends twice as much on healthcare than other comparable high-income nations, yet we have some of the worst healthcare outcomes. When it comes to improving costs, we must start having conversations that go beyond care delivery models. It’s time to address excess spending throughout our healthcare system.

US healthcare system spending

The data shows that the US spending seems to far surpass other countries’ spending on health care administration. In one calculation, US health care administrative spending came in at $937 per capita, higher than 14 other nations in the Organization for Economic Cooperation and Development. Our closest neighbor in this listing is Germany, which spends $293 per capita.

Unfortunately, “administrative cost” isn’t a budget item that can be cut entirely. All businesses have necessary overhead costs, and successful, customer-centric businesses incur costs for customer service and choice in their offerings. But in looking at these costs—which include everything from billing, insurance, human resources, legal, electronic medical records, and other software updates, to hardware, facility costs, and taxes—it is clear that there is waste or excess in the administration of our health care system. In fact, experts estimate that of the 15 percent to 30 percent of total US health care spending that goes toward administration, about half is wasteful—comprising about 7.5 percent to 15.0 percent of total national health spending.

Wasteful administrative spending

One culprit of wasteful spending is in billing. Medical billing costs tend to vary widely based on the type of care. Emergency department visits, for example, have been found to generate billing costs that are a much higher percentage of total revenue than inpatient surgery or inpatient stays. In another study, researchers found that billing and insurance costs were much higher for private insurers than for public programs.  

Completely eliminating waste, excess, or even fraud in health care administrative spending is likely impossible, but this gives the private sector room for innovation. Many of our current administrative systems are too manual, and information exchange is disparate or non-existent. This leads to costly, hands-on solutions that are vulnerable to fraud and waste.

New, innovative systems could better automate processes and reduce administrative spend.

Next week we will take a deeper dive into streamlining prior authorizations and improving quality reporting, which are some of the easiest ways to get started in reducing administrative costs.

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