5 Reasons to Focus on Reducing Administrative Costs in Healthcare
Healthcare administrative costs are projected to reach $496 billion by the end of 2019. This is up from the $248 billion providers were spending in 2010.
It’s no secret that provider margins have been dwindling over the past 10 years. And with 12% of provider revenues going toward administrative spending, it’s no wonder.
Patients, payers, legislators, and more. Almost every player in the healthcare industry is shouldering part of the blame for such exorbitant spending. But researchers and industry experts have been playing the blame game for years.
Meanwhile, they’ve presented few solutions to solve the problem.
As a provider, you have medical school bills to pay, medical practice loans to take care of, obligations to staff and partners, and a family at home to feed and clothe. When administrative costs cut into your margins, your responsibilities suffer.
An alarming number of healthcare organizations have declared bankruptcy in 2019, which is leading healthcare organizations of every size to look for ways to reign in administrative spending and reduce the resources required for clerical tasks.
So what can providers do to start reducing administrative costs in healthcare? First, you need to understand the factors that have, are, and will continue to contribute to excessive administrative spending in the US.
The US Leads the World in Administrative Costs in Healthcare
In 1999, The New England Journal of Medicine published a study comparing the US and Canada. They found that administrative costs make up 31% of healthcare spending in the United States.
This is an exorbitantly high percentage. Especially considering the cost of medical devices, pharmaceuticals, and other pricey healthcare categories. And compared to the administrative costs in Canada, which only amount to 16.7%, administrative costs are much higher than they could be.
The US and Canada may share a border. But the two countries couldn’t be more different. And this couldn’t be more clear than when looking at healthcare administrative spending.
Yet, Canada isn’t the only country with lower administrative costs as compared to the US.
A study examining administrative spending from 2010 to 2011 compared US costs to Canada again. But it also included comparisons with England, Scotland, Wales, France, Germany, and the Netherlands. Up from 1999, US administrative costs accounted for 25.3% of total spending.
That percentage is significantly higher than the runner-up’s, the Netherlands, which came in at only 19.8%. The remaining companies racked up even fewer administrative costs. For comparison, Canada and England have the lowest percentage of total healthcare spending.
If all this isn’t enough, a growing body of evidence suggests that US healthcare organizations spend two times more on administrative tasks than they should.
This conclusion stems from research into countries with comparable systems but much lower costs. For instance, a new study comparing Canadian and US spending came out recently. This study suggested that 38% of healthcare savings seen in Canada are due to lower administrative spending.
Further, US healthcare organizations have 44% more administrative staff. And they spend 50% more time on clerical tasks.
Billing is to Blame
Healthcare spending categories include administration, professional services, pharmaceuticals, and more.
And what’s the highest spend category of all? Administrative costs are disproportionately high as compared to almost all other categories. And about half of this is spent on, you guessed it, billing.
Billing and insurance-related (BIR) costs are often thought to show how much administrative tasks are costing you.
According to the National Academy of Medicine, BIR made up 14.4% of total health expenditure in the US in 2009. And that percentage is only increasing. In 2012, another study showed that 16.8% of health expenditure went toward BIR.
As BIR costs have and will continue to climb, providers are going to bear the burden. A burden one study estimates equate to $100,000 per provider per year.
Provider groups and hospitals already spend almost half of their administrative budget on billing tasks. Meanwhile, private payers spend nearly all their administrative budget on billing.
This makes sense, though. Especially when the more a patient must spend out-of-pocket, the more administrative tasks are required for provider reimbursement.
Additionally, the individual mandate was eliminated in 2018. This removed the tax penalty people once received for failing to sign up for an insurance plan. Now, the number of uninsured patients is on the rise with no cap in sight.
Uninsured patients are spending more out-of-pocket than ever before. That means providers spend more time filing statements, mailing bills, and playing debt collectors with patients who are unable to pay upfront.
But individual mandate elimination isn’t the only thing contributing to administrative spending. Research shows that multi-payer systems lead to higher administrative costs than do single-payer systems like Canada’s.
Primarily, billing administrative costs are to blame. And 80% of those billing costs stem from the complexities of dealing with multiple payers both private and public. Even worse, multi-payer-related administrative costs increased by 3% from 2009 to 2012.
Currently, legislators are taking notice and planning to reform multi-payer systems. And these reforms could reduce administrative costs by half.
The Healthcare Market is Shifting
Individual mandate elimination isn’t the only reason out-of-pocket costs are increasing. The rise of high deductible health plans (HDHPs) has also contributed.
More patients than ever before must meet a high deductible before insurers will payout. athenahealth has found that 93.8% of patients who owe $35 or less take up to a year to pay off their bills. And when patient balances reach amounts higher than $200, only 67% of patients have the means to foot the bill.
The more patients owe, the longer it takes to pay and the more administrative work for providers. And with patient obligations rising, administrative costs will soon follow.
As administrative costs increase, providers tend to spend more time on administrative duties. That means they will have less time to devote to patients and ultimately has an effect on patient satisfaction. Competition in the healthcare industry is cut-throat these days. And you can’t afford to lose patients because you just don’t have time.
Value-based care is becoming increasingly more important these days. And if providers can’t find a way to reduce the cost of and the time it takes for administrative tasks, revenues and reputations will suffer.
The HITECH Act is Costing More Money than it’s Saving
The Health Information Technology for Economic and Clinical Health (HITECH) Act was passed to save providers money on administrative tasks.
Yet, a 2009 Harvard study found that HITECH may actually cost more than it saves. Implementation of system wide IT systems can cost in the millions depending on the organization’s size.
And those numbers don’t include the amount it costs to:
- Train staff to use the new software
- Implementing a new ITT team
- Teaching software user preferences.
How to Start Reducing Administrative Costs in Healthcare
So there you have it. The top reasons you should be worried about how much you and your peers are spending on administrative tasks.
But what exactly can you do about it?
Unfortunately, much of the issue lies outside your control, but that doesn’t mean nothing can be done. There are strategies you can implement for reducing administrative costs in healthcare.
If you’ve been paying attention, you’ll remember that the HITECH Act requires healthcare organizations to invest in automated workflow programs. And this move may be costing providers more than it’s supposed to save them.
But this problem can be avoided when choosing the right technology partner.
Yes, we said partner. Because when you’re shopping for a SaaS program to deploy at your business, you aren’t just picking a software program. You’re choosing a company that will be your business partner in all things IT.
Final Thoughts: How Can QueueDr Help?
At QueueDr, we know the value of partnering with health systems and organizations. Especially those that need help reducing administrative costs in healthcare.
Are you searching for scheduling software to reduce the burden of administrative tasks? Request a demo of QueueDr today and start saving time and money with our powerful schedule management software.