The complexity of the US health care system leads to astonishingly high administrative costs. Because administrative costs are not directly related to patient care, people rarely think about them. A report in the The New England Journal of Medicine used data from 1999 to estimate that about 30 percent of US health care expenditures were due to administration – about the twice what it is in Canada. If those figures hold today, some $5,700 of the average $19,000 US workers and their employers pay for family cover each year goes on administration costs. Not all of these costs are bad. Some go towards a quality improvement program, while others are for things we may dislike such as working out which claims to accept or reject. Some costs are indeed required, such as maintaining information systems or processing payments. The study is still the only one that addresses costs of the entire health care system but others examining portions of indicate the story remains the same. The US health care system’s administrative costs are the largest in the world, as is its overall cost as a system. A study published in Health Affairs, using 2010 and 2011 data, compared US hospital administrative costs with those in seven others – Canada, Scotland, England, Wales, France, Germany and the Netherlands. American hospital administrative costs exceeded all others, accounting for 25 percent of total spending and 1.4 percent of total US GDP, compared to 20 percent of hospital and 0.8 percent of economic output in the Netherlands. Meanwhile Canada and Scotland spend about 12 percent of hospital costs on administration and about 0.5 percent of GDP. Physician practices also take up a large proportion of revenue to administration. For every 10 physicians providing care, another seven are estimated to be involved in billing-related activities. A majority of US doctors say generating bills and getting payments is a big problem – with Canadian practices spending only 27 percent of what US physicians do in handling payers like private insurers and Medicare. JAMA, co-author of another study published in Kevin Schulman and professor of medicine at Duke, said high administrative costs were “functions of the system’s complexity.” An obvious source of this complexity is the multitude of payers involved in the system, including public health schemes as well as private insurers. An additional source of health care provider costs is chasing payments from patients for their portion of the bills and with more deductibles and co-payments on the rise, more patients are facing cost sharing they may not be able to afford. This means rising costs for providers and collection agencies to recoup the money owed. A lot of choice – including among health care plans – is a distinctive feature of the US health system. But the lack of co-ordination on pricing, billing and collection leads to a high administrative burden, which also drives high health care prices.
The complexity of the US health care system leads to astonishingly high administrative costs. Because administrative costs are not directly related to patient care, people rarely think about them. A report in the The New England Journal of Medicine used data from 1999 to estimate that about 30 percent of US health care expenditures were due to administration – about the twice what it is in Canada. If those figures hold today, some $5,700 of the average $19,000 US workers and their employers pay for family cover each year goes on administration costs. Not all of these costs are bad. Some go towards a quality improvement program, while others are for things we may dislike such as working out which claims to accept or reject. Some costs are indeed required, such as maintaining information systems or processing payments. The study is still the only one that addresses costs of the entire health care system but others examining portions of indicate the story remains the same. The US health care system’s administrative costs are the largest in the world, as is its overall cost as a system. A study published in Health Affairs, using 2010 and 2011 data, compared US hospital administrative costs with those in seven others – Canada, Scotland, England, Wales, France, Germany and the Netherlands. American hospital administrative costs exceeded all others, accounting for 25 percent of total spending and 1.4 percent of total US GDP, compared to 20 percent of hospital and 0.8 percent of economic output in the Netherlands. Meanwhile Canada and Scotland spend about 12 percent of hospital costs on administration and about 0.5 percent of GDP. Physician practices also take up a large proportion of revenue to administration. For every 10 physicians providing care, another seven are estimated to be involved in billing-related activities. A majority of US doctors say generating bills and getting payments is a big problem – with Canadian practices spending only 27 percent of what US physicians do in handling payers like private insurers and Medicare. Kevin Schulman, co-author of another study published in JAMA and professor of medicine at Duke, said high administrative costs were “functions of the system’s complexity.” An obvious source of this complexity is the multitude of payers involved in the system, including public health schemes as well as private insurers. An additional source of health care provider costs is chasing payments from patients for their portion of the bills and with more deductibles and co-payments on the rise, more patients are facing cost sharing they may not be able to afford. This means rising costs for providers and collection agencies to recoup the money owed. A lot of choice – including among health care plans – is a distinctive feature of the US health system. But the lack of co-ordination on pricing, billing and collection leads to a high administrative burden, which also drives high health care prices.