Standardizing and simplifying payer-provider contracts could significantly reduce healthcare administrative costs and potentially improve care, a new study found.
The U.S. healthcare system wastes an estimated $2,500 per person each year on administrative costs, which is higher than nearly every other developed country with a multi-payer system. Using templated contract structures, digitizing records and limiting prior authorization could help reduce billing and insurance related costs by between 27% and 63%, according to a new analysis published in Health Services Research.
"Besides the potential savings, this is why you are hearing stories of provider burnout and challenged access to care," said Kevin Schulman, professor of medicine at Stanford University and co-author of the study, noting that it costs primary-care physicians 14.5% of their revenue to submit a bill, while Square's administrative fees amount to 2.6% of revenue and a 10-cent charge per transaction. "Not only are the administrative costs high in terms of each transaction, look at what it's doing to the workforce to comply with these things."
The researchers identified three main drivers of administrative costs: architectural complexity, related to how health plans have unique contracts with each provider; contract complexity, or the customized benefit design in each agreement; and compliance costs, associated with vetting the billing process.
While proponents of a single-payer system have claimed that the model could reduce the estimated $265 billion of annual spending on wasteful administrative work, the researchers found that tweaking the current system could be more effective.
"The political rhetoric over healthcare reform, which tends to jump between extremes, cornered the debate over administrative costs into one over Canadian-style national insurance," Barak Richman, a professor of law and business administration at Duke University and a co-author, wrote in an email to Modern Healthcare. "Our approach shows there are a lot of win-win scenarios, in which we can achieve efficiencies—to everyone's benefit—without pursuing wholesale reform."
In the current system, providers often purchase software and hire staff to maximize revenue. Payers use software to minimize payments and vendors profit from both parties.
To incentivize reform, CMS should partner with payers and providers to develop model fee-for-service contract structures and require payers that offer Medicare Advantage or public exchange plans to accept standard contract terms, Dr. Bob Kocher, an adjunct professor of medicine at Stanford, wrote in an associated commentary.
The administration should impose stricter requirements for real-time adjudication of prior authorization and full claims auto-adjudication. The Center for Medicare and Medicaid Innovation should standardize value-based payment models. The National Quality Forum could help align providers' quality metrics, he recommended.
Ultimately, these changes could cut at least $200 billion in healthcare spending a year, Schulman said.
"There are huge chunks of our market that are dysfunctional," he said, pointing to drug prices. "There is a huge profit opportunity for the private sector to find ways to be more disruptive."