Health care payers spend approximately $500 billion per year on billing and insurance-related costs annually, and as much as $250 billion of that is wasted in excess administrative spending.
The U.S. health care system could save 60% in billing costs by standardizing and simplifying contracts between providers and insurers, a new study has found. The report, published in Health Services Research (HSR), and summarized at the blog The Incidental Economist, suggests that there are ways to bring down health care costs without radically changing the U.S. health care system.
According to the Center for American Progress, health care payers and providers in the U.S. spend approximately $500 billion per year on billing and insurance-related (BIR) costs annually, and as much as $250 billion of that is wasted in excess administrative spending.
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"With administrative costs even for primary care services approaching $100,000 per year per physician, there is a growing recognition that reducing health-care-related administrative costs is a policy priority," the HSR report said. "Despite the longstanding concerns about these escalating costs, there is little understanding of what generates them and how we can reduce them."
A large reduction in billing costs
The study noted that under the current system, each provider and health system negotiates independently with insurance carriers, with little or no standardization to the contracts.
"We ask two questions: First, what if physicians entered into simpler contracts with insurers?" the authors wrote. "And second, what if physicians (who accept patients with many kinds of insurance) agreed to a single boilerplate contract with all insurers rather than individualized contracts with each insurer? Put more simply, what if contracts were simpler and standardized?"
The findings suggested substantial savings would be found with such a change. Just simplifying contracts would reduce billing costs by nearly 50%, the analysis found. Standardizing provider contracts would reduce billing costs by 30%. Both standardizing and simplifying the contracts would result in a reduction of billing costs by more than 60%, the report said.
No single-payer required
One of the interesting things about the study is that it compares reforming the billing system under the current U.S. health care approach, versus under a single-payer system, such as Medicare for All.
"Consistent with claims made by advocates for nationalized health insurance, we estimate that a Medicare-for-All plan would reduce administrative costs between 33-53%, largely by standardizing contracts," the authors said. "But these cost savings are less than those generated from standardizing and simplifying contracts within our current system of private health insurance because we modeled that a Medicare-For-All plan would retain Medicare's complex payment models and have increased compliance costs compared to private payers."
The conclusion: BIR costs could be reduced without the disruption caused by introducing a single-payer system. The report does acknowledge that the simplification/standardization change might have its own list of disruptions. It's debatable, though, whether the majority of Americans would complain about such changes.
"[The change] will impose costs on some: it would lead to fewer hours for lawyers, less authority for bill collectors, and smaller managerial kingdoms for hospital revenue departments," the report said. "But reducing administrative costs, which translate into savings for patients and fiscally-strapped governments without affecting the quality or quantity of care, is as close to a win-win reform as there is in a health policy world comprised mostly of tradeoffs."
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