Anyone mildly paying attention to what’s happening in healthcare will know that the industry has a lot of waste associated with non-clinical, non-patient-care activities— i.e., the paperwork. Whether it’s about claims, reimbursement for services, or status updates, a lot of administrative work goes into conducting business between payers, providers, and the revenue cycle partners between them. Unfortunately, much of that is wasteful.

Just how wasteful? Read on.

25% of overall healthcare spending is wasteful.

In October a new study in JAMA found that between $760 billion and $930 billion is wasted each year in healthcare. That equates to about 25% of overall healthcare spending being thrown away. The waste can be attributed to a variety of sources— administrative complexity, lack of care coordination, unnecessary or poor-quality treatment, misfires in pricing, and more. Fortunately, there’s a silver lining. The amount of overall healthcare spending that’s wasteful has decreased by 5% since 2011 when Donald Berwick and Andrew Hackbarth studied how healthcare dollars are spent. So, while we’ve still got a long way to go, we are moving in the right direction.

Administrative complexity is the top contributor to waste.

Most of the waste quantified in the recent JAMA study is due to administrative complexity— no surprise there. Interoperability, or rather the lack thereof, makes data exchange in healthcare a bigger obstacle than it has to be, and this has been an ongoing conversation in healthcare for years. The fragmentation and siloes that exist between payers and providers, between providers and other providers, between payers and clearinghouses, and between all of the systems they use, end up adding unnecessary steps to even the simplest transactions.

Administrative costs can represent up to 25% of provider revenue.

Unnecessarily complex administrative transactions not only cause industry-wide waste but also have a direct impact at the provider level. For every patient visit providers spend time, energy, and resources on billing and insurance-related (BIR) activities, whether they do it themselves or outsource. Those costs amount to between 3% to 25% of providers’ revenue for the care they deliver. In other words, up to a quarter of every dollar is spent on administrative tasks rather than being reinvested in care.

$1,000 per month goes to directory upkeep.

Drilling down further into some of these BIR and administrative activities, we find that some are more wasteful than others. Directory upkeep is a must in healthcare to help patients and their caregivers find and build the right care team. Frequently these directories are outdated. In one study, researchers found that Google generated more accurate information on doctors than health plan provider directories. Providers are mainly responsible for keeping directories up to date by notifying their payers of any changes in their information, background, and profiles. But for providers, and third parties they may work with to interface with payers, there are often many hoops to jump through just to change a phone number or address— common updates with the increases in mergers and physician mobility. Updating this information in the various ways payers require can cost providers $1,000 a month. Additionally, the cost per practice goes up with each additional payer they work with, which we found through our research to be an average of twenty-five payers per clinician.

84% of “attachments” shared between payers and providers are still traveling via snail mail or fax.

Much of the activity associated with directory upkeep fits into the larger bucket of provider data management, which is the foundation of a smooth relationship between payers and providers. In any sort of transaction with payers— from EFT payments to EDI enrollment to payer enrollment or credentialing— lots of data and information about providers change hands. Often, this is done on paper, which 84% of the time is sent via snail-mail or a fax machine, rather than emails or portals.

It costs $3 more to fill out forms by hand.

Filling out forms by hand is not only burdensome to providers and the revenue cycle partners they work with, but it’s also fundamentally more costly than using fully electronic data exchange. The 2016 CAQH Index found that each manual transaction costs $3 more than electronic transactions. 

17% of practices pay fees to go paperless.

Knowing that it costs more to do administrative paperwork by hand would make it a no-brainer to go paperless, right? Well, it’s not that simple. For some transactions, providers may be charged for going paperless, even though it saves the entire industry money. A recent survey by MGMA of 900 practices found that 17% of them faced fees from payers between 2% and 5% of their total reimbursement for choosing to use electronic payments.

Manual transactions are down 6%.

If you’ve read to this point in the blog, we admit the numbers sound a little doom and gloom. In reality, it’s not all bad. With many administrative transactions, adoption of electronic transactions has increased in recent years. The 2018 CAQH Index found that the volume of manual transactions declined by 6% from 2017, even though the overall volume of transactions increased. That’s progress, and we’ll take it.

There’s $9.8 billion left on the table.

If providers, payers, and everyone in between continue to adopt electronic administrative transactions, the industry could save $9.8 billion in time and resources that could be reinvested into high-value activities that help improve care delivery and quality. The vast majority of that savings would be realized by providers, who currently are dividing their attention between patients and papers, but there’s $1.3 billion on the payers’ side that could be recouped too. In short, everyone wins.

Why does all of this matter? As Peter Drucker said, “What gets measured, gets managed.” In order to continue addressing administrative waste, the industry has to continue quantifying it. Knowing how much, and where, wasted dollars are going allows us to follow the trail and make strides in turning waste into work that’s impactful.

One easy fix we know— automation. Ask us what we can do to help your organization.

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