It’s no secret that healthcare in the United States is expensive. In less than a decade, healthcare spending is expected to reach nearly 20% of the country’s gross domestic product – a dollar amount nearing $6 trillion, representing a growth that would be 0.8% faster than the GDP’s own growth rate.

An expensive business to run

The United States already outpaces the rest of the world by a sizable margin in healthcare spending, with expenditures per capita reaching $10,224 in 2017 – more than $2,000 more per person than any other country, and almost twice the average of comparable countries. Not only does the U.S. lead the world in total money spent on healthcare, it also leads in a much more troubling category: spending on administrative tasks that have no direct connection to patient care.

A 1999 study published in the New England Journal of Medicine clocked the total costs of healthcare administration at nearly $300 billion, which at that time accounted for 31% of all healthcare expenditures. While that study remains the best source of data for administrative costs across the entire healthcare spectrum, more recent figures like the rising costs of administration for hospitals suggest that the number has only increased in the 20 years since the NEJM study.

Applying the 31% number to the current total U.S. healthcare expenditure of $3.6 trillion, the dollar amount spent on administrative tasks and transactions totals $1.12 trillion – a number higher than the entire GDP of all but 15 countries in the world.

Drilling down to hospitals specifically, another study found that more than a quarter of their spending goes to administrative costs. If that number could be reduced to the levels of hospitals in Canada (12.42%) or Scotland (11.59%), the system could realize a collective savings of more than $150 billion.

To what end?

While the ends may sometimes justify the means, the outsized expenditures of the American healthcare system may not be helping in the ways that we want it to – the life expectancy of Americans (81.1 years for women, 76.2 for men) is nearly the same as that of Scots (80.6/76.0), and Canadians live an average of two years longer (83.1/78.5).

The New York Times pointed out recently that some of the administrative costs tied up in healthcare are for useful, meaningful elements like quality initiatives and paradigm shifts such as the fee-for-service to value-based care transition. Yet many of the costs in the oversized administrative piece of the healthcare pie are for low-value, time-wasting activities.

For instance, the process of creating and maintaining physician directories is crucial to enabling a patient’s ability to navigate the system, yet for those using Medicare Advantage, it might actually be easier to find a doctor using Google than trying to use a plan directory. Nearly half of the entries examined in an audit of Medicare Advantage directories were found to have errors.

Better processes, better results

While solving the problem of administrative tasks is no small feat, much of the difference can be made in the exchange of information. Despite innovation and technological advancement in healthcare, an estimated 84% of the various pieces of information shared between providers and payers is transmitted via mail or fax. For one regional payer, one week’s worth of work processing that information requires 792 hours of labor – the equivalent of 20 full-time employees working all week long on just that one piece of the business.

On the provider side, a survey examining revenue cycle management processes found that while two-thirds of respondents felt that RCM was a vital part of their operation, only one third said their organization was “very or extremely” effective in managing the revenue cycle.

Digitizing administrative tasks can help reduce overall healthcare spending. By shifting to electronic transactions for administrative tasks like payment processing, CAQH estimates that payers and providers could save up to $10 billion each year.

An automated solution that makes the task of updating key physician information like addresses, phone numbers, and doctors’ in-network statuses would go a long way to making the patient experience more bearable, reducing burnout among providers, and allowing payers to better use resources.

In a world where we can buy and sell goods, sign legal documents and accomplish other important tasks without ever touching a piece of paper, it’s time for the healthcare system to catch up and allow valuable dollars to be reinvested in care.

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