The 25% Administrative Complexity Conundrum

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A modest 10% optimization of health care’s administrative processes would save the US health care system $500 billion over 10 years. That is the estimate of the Healthcare Administrative Simplification Coalition (HASC), which sponsored a Summit on Administrative Complexity in Washington, DC, on November 13, 2008, and issued a report¹ based on the summit in July 2009.

imageFigure. Mean operating cost per FTE physician in multispecialty practices, 1951 through 2006.1 1951 costs were adjusted using the Consumer Price Index

The authors of the report cite the steady rise in the cost of health care complexity as reason for concern. The mean operating cost per FTE physician in a multispecialty practice has risen from $14,224 in 1951 to $457,552 in 2006, or $110,293 in 1951 costs, adjusted using the Consumer Price Index (CPI). In fact, operating costs for multispecialty groups have grown at a rate that exceeds the national CPI for more than 50 years.

Health care spending amounted to $2 trillion in 2007, or 16.2% of the US gross domestic product, and HASC estimates that administrative costs account for 25% of that spending; billing and insurance-related functions are responsible for a significant amount of that staggering sum. The report cites studies estimating that private insurers spend approximately 9.9% of revenue on administration and another 8.4% on billing functions, physician offices spend 27% of revenue on administration and 13.9% on billing, and hospitals spend 21% of revenue on administration and 7% to 11% on billing.

Recommendations are made to rein in costs in four main expense categories. No one in radiology will be surprised to learn that standardizing prior authorization is one of those. Radiology benefit management (RBM) companies covered approximately 90 million lives in 2008, or nearly half of all privately insured people in the United States. The authors cite a study that established the cost of complying with pharmacy benefit management (PBM) company preauthorization requirements as $137,000 for a 10-physician practice. The cost of administration will probably grow for all providers if CMS heeds the June 2008 recommendation of the US Government Accountability Office that Medicare implement prior authorization.

HASC Recommendations

Practitioner Credentialing.—Pegging the cost to a 10-physician practice at $7,600 in staff time, or $45 per application, the summit calls for full participation in the Council for Affordable Quality Healthcare (CAQH) Universal Provider DatasourceTM (UPD) as the primary practitioner-data–collection tool for all health plans and hospitals that require providers to be credentialed.

The report also calls for CMS to develop an electronic data interchange (EDI) to permit direct transmission of provider information from the UPD to the Web-based Medicare Provider Enrollment, Chain, and Ownership System database. A campaign to educate employer organizations about the UPD (to encourage their adoption of the database in requests for proposal issued to health care organizations) is recommended. The report also recommends that state Medicaid offices use the UPD.

Health-insurance Eligibility.—There is tremendous variability among payors, claims clearinghouses, and vendors of practice-management software in how they interpret and meet the requirements of the EDI standards required by HIPAA. The cost to providers of processing claims ranges from 10% to 14% of gross revenue for physician practices, 8% for hospitals, and 7% to 11% for private insurers.

The report calls for increased transparency and collaboration in developing operating rules for EDI standards, including the adoption of voluntary certification with the CAQH Committee on Operating Rules for Information Exchange (CORE) phase I and II rules by health plans, clearinghouses, and practice-management systems and EDI. Earlier this year, CAQH announced a partnership with CMS, Blue Cross Blue Shield, Integrating the Healthcare Enterprise, and the Healthcare Information and Management Systems Society to pretest new HIPAA requirements slated for 2012 implementation.

Standardized, Machine-readable Identification Cards.—Inconsistent health-insurance identification (ID) cards are responsible for a significant number of rejected claims. Machine-readable cards and Web-based queries can potentially optimize this process through direct importation of patient information, but without standards, consistency in the contained information