Part I – Administrative Waste And Inefficiencies

This is the first in a four-part series on the Health Affairs Council on Health Care Spending and Value’s newly released report, “A Road Map for Action.” Each piece will detail one of the four priority areas within the report, which provides recommendations on how the U.S. can take a more deliberate approach to moderating health care spending growth while maximizing value.

On February 3^rd, the Health Affairs Council on Health Care Spending and Value released its report, “A Road Map for Action.” It’s the culmination of four years of study, debate, and collaboration between 21 experts in the healthcare field, each representing diverse sectors of the industry. Our goal was to take a nonpartisan, evidence-based approach to understanding our nation’s growing health care spending, the value we get from that spending, and to make recommendations on how we can maximize value while slowing spending growth.

I served as co-chair of this effort, along with former FDA Commissioner Dr. Margaret Hamburg. When we first embarked on this journey in January of 2019, we knew it would be a difficult challenge – reining in health care spending has been a stated goal of policymakers for decades, with little to show for it. Yet our task became even more complex with the upheavals in health brought on by the pandemic, and by the needed spotlight on inequities in all aspects of American life – including health care – that was raised by George Floyd’s tragic murder. As the world around us shifted, we worked to adjust, and extended our Council work by a year. We released our report this month, the product of four years of research and collaboration.

We prioritized creating a report that could immediately be taken up for action, not left on a shelf, and could be used in some capacity by all — both federal and state regulators, by providers and payers, and by the private sector more generally — and could garner support across both political parties.

Focusing on change within the health care system, we included proposals that would affect the identified levers of: price of care, volume of care, mix of services, and growth of price and volume. After extensive study, meetings, and conversations with outside experts, we centered on four priority areas:

· administrative streamlining,

· price regulation and supports for competition,

· spending growth targets, and

· value-based payment.

This piece outlines our recommended actions on administrative streamlining.

Defining Administrative Spending and Waste: Scope of the Problem

For each policy area that we tackled, we first sought to define it. We considered administrative spending in health care, as described in one of the supporting briefs for our final report, to be “two primary categories: billing- and insurance-related expenses, which include claims management, clinical documentation and coding, and prior authorization, and non–billing- and insurance-related expenses, which can be thought of as general business overhead and include quality assurance, excise taxes and profits, and credentialing costs.” More succinctly, renowned Harvard health care economist and Council member David Cutler called it, “the nonclinical costs of running a medical system.”

Undoubtedly, some of this administrative spending is essential to systems operations. But there is certainly huge waste, which we defined as spending that does not contribute in any way to health outcomes.

Estimates attribute 15 – 30 percent of total national health spending to administration, with at least half of that spending demonstrated to be ineffective or wasteful. That means as much as $300 – $600 billion is wasted each year.

As my mentor, Princeton health care economist Dr. Uwe Reinhardt explained in his book Priced Out, “No other country among the developed economies spends nearly as much on administrative overhead for health care as does the United States.” A recent analysis from the Peterson Foundation found that the U.S. is spending over $1,000 per person on administrative costs, “five times more than the average of other wealthy countries and more than we spend on preventive or long-term healthcare.”

The scale of our administrative spending growth was further captured in a piece by Dr. Robert Kocher published in 2013 in the Harvard Business Review. He and his colleagues found that over 22 years (1990 – 2012), there was a 75% increase in the number of workers in our nation’s health system, but the overwhelming majority (95%) were in non-doctor positions. In fact, for every one doctor there were sixteen non-doctor workers, and 10 of those were “purely administrative and management staff, receptionists and information clerks, and office clerks.” The sheer size of the administrative arm of American health care had become daunting.

Ultimately, it was the data that compelled us to tackle this area of spending. But we all also had our own anecdotal stories of the challenges we faced in our places of work with increased regulatory requirements, time-consuming electronic health records, and extensive billing, credentialing, and prior-authorization paperwork. Unnecessary duplication and red tape are common. The data matched our own lived experiences in the health care field.

The Recommendations

Administrative Streamlining: Standardization of Processes

While the “right” amount to spend on administration may be up for debate, our Council widely agreed our current spending trajectory was too much and was ripe for action.

First, we focused on streamlining the processes for four high-cost areas: provider directories, credentialling, and prior authorization, as well as for processing claims, recognizing each creates a notable burden that could be simplified with certain tech-enabled steps that would standardize data flow. Our first set of recommendations are as follows:

· Collection of Data for Provider Directories – State and federal law require that health plans provide members with directories with information on in-network providers, which could be streamlined by using a single platform to exchange directory information. It’s currently estimated that maintaining provider directories costs physician practices up to $2.76 billion annually, with a single platform saving U.S. practices at least $1.1 billion per year.

· Collection of Data to Support Credentialing of Providers – Both hospitals and health plans conduct credentialing to ensure providers are up to date on education and licensure, but as any physician, physician’s assistant, or nurse can attest, it can be a lengthy process that leaves them on the sidelines waiting for approval when they could be administering care. Using a single platform to facilitate credentialing with multiple health plans can save clinical practices almost 40% on credentialing costs per month, while simplifying the process.

· Centralized Claims Processing – Modeled after the banking industry’s automatic clearinghouse, which allows for the secure, standardized transfer of money or financial products between two parties, a centralized health care claims clearinghouse would standardize the electronic transmission of billing information across providers and payers. Harvard’s David Cutler has estimated this approach could conservatively save $300 million per year, and effectively reduce fraud in the system.

· Collection of Data to Support Prior Authorization – While prior authorization can be important to manage cost and ensure appropriate use, it is also burdensome for clinicians. This can first be simplified by requiring prior authorization to be done electronically, instead of by phone or fax. Some states like Massachusetts and Michigan are already taking steps to automate or standardize this process.

Administrative Streamlining: Harmonization of Quality Measures

Finally within this priority area, the Council recommends action on the excessive and duplicative array of metrics providers are required to capture:

· Longer-Run Harmonization of Quality Measures – We at the Council widely support quality, data, and measurement, but agree the inordinate number and confounding diversity of quality metrics today meaningfully detract from our ability to interpret data effectively across systems, and unnecessarily burdens providers. For example, CMS uses more than 2,200 measures and metrics across its programs alone. One estimate put quality reporting costs at $15 billion per year for providers – a total that could potentially be cut in half with standardization. Harmonizing quality metrics has widespread industry support, although will take coordination among many stakeholders.

The Need, Examples, and Next Steps

My colleague and friend, Vanderbilt health care economist Larry Van Horn, has long argued that, “An insurance system is the last way you would choose to finance or pay for anything.” And if we were starting from scratch, we’d likely redesign our current system. But realistically working within the confines of today’s structure, we can start by simplifying some of the administrative burdens that have been erected largely to support the complex billing and insurance apparatus that finances healthcare. This is “low-hanging fruit” that policymakers, regulators, and health care executives can get behind.

It can also serve as a guide for private sector innovators and entrepreneurs looking for way to improve efficiencies and productivity within our health care sector. Thinking of my own experience through Frist Cressey Ventures, we are working with a number of tech-enabled companies that are squeezing out waste and making a difference in the administrative health care burden:

· One example is Memora Health, which partners with providers, payors, and pharma organizations to digitize existing clinical workflows to enable remote care initiatives, support member engagement, and accelerate clinical trial operations. The company’s platform integrates and automates complex care workflows, supporting care teams by intelligently triaging patient-reported concerns and data to appropriate care team members and providing patients with proactive, two-way communication on their care journeys.

· Another is DexCare, an access optimization platform that offers health systems the infrastructure required to scale and optimize digitally enabled care across a broad array of business lines, thereby eliminating the waste and inefficiencies of siloed administrative and management functions.

· Carta Healthcare is also making a difference this space. It uses technology to remove mundane and time-consuming administrative tasks from clinicians’ shoulders by harnessing the value of clinical data through its combination of AI-driven technology and a multidisciplinary team of experts. The result is high-quality, trustworthy datasets for use across a healthcare organization’s initiatives to operate more efficiently, optimize care delivery, improve patient outcomes, and allow clinicians to practice at the top of their license.

These are just a few examples within my own sphere of private sector innovators making a difference. But for largescale change, we’ll need engagement and commitment at the top of federal and state government, and from within the leading, legacy health care systems.

With the backdrop of the debt ceiling debate coloring today’s political climate, we encourage lawmakers to look to our report for recommendations that can achieve real health care savings as they address burgeoning federal spending. Likewise, we hope states, the laboratories of democracy, will also take up this charge and demonstrate how acting now can improve quality and value while effectively slowing health care spending growth. We as a Council recognize achieving these changes won’t be easy, but we offer this road map to begin the process of change.