U.S. leads world in health care administrative costs and half of it is wasteful

Administrative costs account for 15% to 30% of U.S. health care spending – and at least half of that spending is wasteful.

“Even at the lower end of estimates, U.S. spending on administrative costs annually account for twice the spending on care for cardiovascular disease and three times the spending for cancer care,” according to a HealthAffairs research brief.

Researchers note that not all administrative spending is wasteful, making a distinction between spending and waste.

“However, a review of relevant studies indicates that at least half of total administrative spending is likely ineffective, meaning that it does not contribute to health outcomes in any discernible way,” the brief says. “Put another way, if administrative spending is about 15 to 30% of national health spending, then wasteful administrative spending comprises half of that, or 7.5% to 15% of national health spending (or $285 billion to $570 billion in 2019).”

U.S. per capita spending on administrative costs is $1,055, which is by far the highest amount among 12 nations studied. The country with the next highest level of per capita administrative spending is Germany, at $306. Closer to home, 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 United States vs. 8% in Canada).

The brief supports governmental action to curb administrative spending.

“The case for top-down intervention, rather than tweaking incentives to prompt the market to function better in the long-term, is strong,” the survey says. “This is particularly true in regard to standardization across diverse public and private sectors. It is notable that much of the literature on solutions to administrative waste proposes action by either the federal government or an agency created by the same, perhaps because of a glaring market failure inherent to administrative costs: They are not generally born by those imposing them.”

The relationship between growth in administrative spending and overall spending also is important to consider.

Read more: Health care administrative spending up despite decline in volume

“Processes such as prior authorization and billing complexity, which increase administrative spending, are motivated in part by payers’ incentives to reduce their financial liability,” the brief says. “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.”