Frustration with the administrative complexity of the U.S. healthcare system has reached a fever pitch. Patients, payers, physicians and policymakers agree on at least one thing: The complexity costs big money but does nothing to improve patient care.
Writing in the New England Journal of Medicine earlier this year, Brookings Institution economist Henry Aaron called the nation's healthcare system "... an administrative monstrosity, a truly bizarre melange of thousands of payers with payment systems that differ for no socially beneficial reason." Aaron went on to describe the public healthcare payment systems (Medicare and Medicaid) as "staggeringly complex ... public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird."
Harvard Medical School associate professors Steffie Woolhandler and David Himmelstein, longtime advocates of a single-payer, government-run system, estimate that the administrative complexity costs of the U.S. system were more than $294 billion in 1999. If anything, Woolhandler and Himmelstein's estimate probably is too low.
How much might be saved each year just by eliminating some of the most visible sources of unnecessary complexity and duplication? The sources of this complexity and their annual costs include:
* Converting completely from paper-based to electronic claims-$73 billion;
* Eliminating redundant physician credentialing by health plans, hospitals, surgery centers, etc.-$1.95 billion;
* Streamlining and standardizing physician and hospital contracts with payers-$1.87 billion.
Those estimates don't include how much more might be saved by standardizing documentation requirements for claims for certain procedures, referral authorizations, bundling policies and other aspects. Nor do they include the costs of our incredibly arcane billing system, where each payer seems to take pride in being different from every other. And that's not to mention how much money-and medical opportunity-is wasted in a system that bases a bewildering array of clinical guidelines, disease management protocols, specialist referral requirements, drug formularies and other aspects of patient care on which health plan the patient is enrolled in, rather than on scientific evidence of what works best.
How much could we save if we had a single fee schedule for physicians and a single payment schedule for hospitals? What other business accepts literally hundreds or sometimes thousands of different prices, not of their own choosing, for the same service from the same provider? No wonder we're frustrated.
This complexity does more than create costs. It feeds physician discontent, spurring many to opt for early retirement or nonclinical work, close their practices to Medicare or HMO patients, or experiment with boutique practices. Physicians, nurses and administrators all are reporting more instances of burnout. And personnel on both sides of the adversarial relationship between health plans and providers report feeling that they are under siege.
Meanwhile, patients are frustrated that they are rushed in their visits to their doctors. They have become increasingly confused and irritated by rising copayments and deductible amounts, frequent changes in health plans or benefits, and physician and hospital billing systems that seem to have been designed by Rube Goldberg. Employers complain that escalating healthcare costs, driven in part by administrative complexity, harm their ability to compete in world markets. And employers' ability to pass on those costs to their workforces soon may come to a screeching halt, as evidenced by the strike of 310,000 General Electric Co. employees last winter.
Some physicians have proposed that the solution to this problem is a government-run, single-payer national health system. But it's unlikely that we'll see such a system anytime soon. Too many vested interests would rise up in opposition. Besides, there is little or no political enthusiasm for replacing our pluralistic, private system with a new governmental monolith.
But what about a more modest alternative-a simplified payment system, administered by multiple public and private insurers? Physician credentials could be verified one time, and the information shared with every hospital, health plan or other entity that needed the information. Clinical guidelines, disease management protocols, referral requirements, prior authorization policies and a drug formulary would be standardized and no longer vary across health plans.
Contracting between payers and providers in each state would be streamlined by using a single contract form for all payers, determined through a fair and equal negotiation between providers and payers. Similarly, a single physician fee schedule and hospital rate schedule would be determined through the same negotiation process, with state governmental oversight to ensure that the public interest is protected.
Hospitals and medical practices still would be free to structure their operations and compensation systems as they see fit, compete with one another for patients and control their own internal processes.
Rather than the confusing mix of covered benefits, copayments, deductibles, restricted networks and so on that we have today, all insurers would offer an identical menu of four or five plans, ranging from a low-end catastrophic plan to a full-service health maintenance plan. Because all insurers would use the same contract terms and payment systems, customer service would become the best means of differentiation among health plans.
Idealistic? Perhaps. But the current duplicative, costly, redundant system is harming the nation's health. It's time for a change.
William Jessee is president and chief executive officer of the Medical Group Management Association, Englewood, Colo.