Opinion: Administrative Complexity Top Expense Waster

Russ Thomas

A new paper in JAMA found that 30% of all healthcare spending is wasted. This is not a new story for healthcare professionals, but the sheer size of the waste-$760 billion to $935 billion-can give even the most grizzled industry veterans pause.

The authors measured waste in six broad categories: failure of care delivery, failure of care coordination, over-treatment or low-value care, pricing failure, fraud and abuse, and administrative complexity. In five of the domains, the researchers identified potential cost-savings through various efficiency initiatives, technology advancements, and policy prescriptions.

The amorphous domain of administrative complexity was an outlier in this regard, even as it consumed the largest percentage of wasted spending (28%).

Unlike the more siloed categories, administrative complexity includes a lot of ‘stuff’ that makes the delivery of, and compensation for, medical care possible and are infused in every conceivable touchpoint in the system.

“The extraordinary costs… are not because of administrative slack or because healthcare leaders don’t try to economize,” said Dr. Kevin Schulman, co-author of a 2014 study that estimated that BIR administrative costs could represent up to 25% of provider revenue. “The high administrative costs are functions of the system’s complexity.”

It’s important to note that there is a cost to complexity that goes beyond dollars and cents. Misaligned incentives prevent seamless payer-provider collaboration. Patients are left with few tools to find the right provider, understand their benefits, and manage their financial obligations. Providers, tethered to inefficient administrative processes, are susceptible to burnout.

Build on what works

When it comes to administrative complexity, it’s important to separate the wheat from the chaff. Administrative tasks are not inherently bad. Some are innovative and designed to reduce costs and improve outcomes, like the creation of value-based care initiatives. Some, like billing- and insurance-related tasks and provider data management grease, are the wheels that keep the healthcare system churning but are often weighed down by inefficiencies and redundancies. Others, like claims denials and post-payment clawbacks, are an industry within the industry, costing the healthcare system tens of billions of dollars every year.

Related: The Top 5 Barriers to Value-Based Care

Administrative complexity is a structural problem. Our attempts to close information and care gaps are often tactical in nature and ultimately lead to greater complexity. As healthcare leaders, how do we address it?

Reducing administrative complexity is a golden opportunity to streamline essential administrative activities, significantly reduce costs, foster meaningful collaboration among all of healthcare’s stakeholders, share critical data, and fully embrace value-based models of care. Accomplishing those goals doesn’t mean that we must wipe the slate clean and start from scratch. We should align on what is already working in healthcare and build on that. And in that process, we need to look ourselves in the mirror and be honest about what creates value in the system and what is nothing more than non-sensical costs.

The road ahead

Providers and payers still take separate, circuitous routes to achieve common goals. Our problem isn’t that we have a multi-payer healthcare system-in fact that’s a strength of our system-but rather that the system itself remains profoundly and unnecessarily fragmented.

Initiatives that improve data interoperability, such as those currently being driven by CMS, and the industry-wide movement toward value-based care, have potential to better align healthcare’s stakeholder and obviate the need for many of the administrative tools that can lead to complexity and waste.

For these reasons, healthcare technology companies should be at the forefront of supporting industry standards that drive efficiencies and interoperability and reduce costs and administrative burdens for their customers.

Policy considerations

Election season is coming up, which means our political parties are selling healthcare reform. Whether it’s refinements to the ACA, adoption of Medicare for All, or simply going back to the drawing board, it’s clear that all of us will be dealing with some degree of uncertainty for the foreseeable future.

Policy can play a near-term role in reducing administrative complexity. Last year, CMS and the Office of the National Coordinator for Health IT (ONC) proposed new rules designed to give patients greater control over their own data and advance interoperability across the healthcare industry.

Ideally, this would not only provide patients greater ownership of information related to their diagnoses, procedures and tests, but also would mandate the seamless transfer of information from one healthcare organization to another as patients transition from physician to physician-enabling the promise of coordinated care within a complex healthcare system. But again, as with government policies of the past, we must be careful not to burden the system with regulatory requirements or, worse, restrictions in the effort to do good.

Government agencies also need to be at the forefront of significantly updating outdated regulations. For example, laws such as HIPAA should be modernized to suit today’s data challenges. HIPAA currently limits how clearinghouses can share data by treating them as business associates (despite their status as covered entities), which requires them to execute business associate agreements-agreements with plans and providers. These added layers of bureaucracy impede patients’ timely and electronic access to their healthcare information and the use of that information to enhance treatment, improve outcomes, and manage health across populations.

Expanding the Health Information Technology for Economic and Clinical Health Act (HITECH Act), which was created to super-charge the adoption of electronic medical record, to include more administrative tasks could result in system-wide savings.

I spend much of my time talking to people in the trenches of healthcare administration, who work tirelessly every day to keep our system moving. Solving more of their basic workflow challenges (automating authorization processes, simplifying referrals, improving the quality of benefits reviews) is where there hearts and minds are focused.

Finally, the government needs to lead the charge on standardization that aligns incentives without suppressing the industry’s competitive spirit. Standardization is essential to the shift to value-based models of care, and drives efficiencies and interoperability and reduce costs and administrative burdens for their customers. A next-generation standards framework like HL7’s FHIR, for example, offers payers and providers secure ways to better communicate and exchange information across multiple platforms and modalities.

Innovating on top of systemic inefficiencies will never result in a better healthcare system. Healthcare stakeholders need to align under a common cause to radically streamline health system complexity. Only then can we truly create a value-based healthcare system.

Russ Thomas is CEO of Availity.