A report concluded that administrative waste in health care costs the US economy more than half a trillion dollars each year.
The Journal of Health Affairs, a leading health policy journal, estimates that $570 billion is wasted annually on administrative costs and inflation related to billing and insurance.
This wasteful spending makes up anywhere from 7.5 percent to 15 percent of all health care costs in the United States.
The report uses data from 2019 – before the Covid pandemic. Researchers fear that the amount of wasteful spending has increased over the past two years.
The United States spends more than three times as much on health care per head of population as Germany, and has 44 percent more administrative staff than Canada.
Despite this, there is no data showing that these increased expenses lead to higher quality care or better patient outcomes.
Administrative costs make up nearly a third of US healthcare spending in America — and half of the spending is wasteful and unnecessary, according to a new report (file photo)
The research team combined data from seven analyzes of healthcare spending in America spanning from 1999 to 2019 for their study, which was published last week.
They found that healthcare spending now made up 17.7 percent of the nation’s gross domestic product in 2019 — up from 6.9 percent in 1970.
This is more than double spending by the average developed peer country, which has an average spending of 8.8 percent.
It is estimated that spending now makes up nearly 20 percent of the United States’ gross domestic product.
That number was expected to be reached through 2028 – highlighting the acceleration of spending due to the pandemic.
Administrative costs account for up to a third of this spending in the United States. The team defined administrative costs as all non-care-related expenses.
This includes costs paid to insurance companies and brokers in industry and to fund billing and other departments within health systems.
“Even at the lower end of estimates, US spending on administrative costs annually is twice that of cardiovascular care and three times that of cancer care,” the researchers said in the report.
The researchers found that while some of this spending is necessary to properly run the healthcare system, about half of it is unnecessary.
In total, the United States spends about $1,055 per person annually in administrative healthcare costs, the researchers wrote.
Germany, for comparison, spends just $306 per person — a third of all spending in America.
This can be attributed to the large number of administrative staff working in America.
The report found that there are 44 percent more administrative employees in the United States than in Canada.
Physicians also shoulder some of the administrative burden, spending 13 percent of work time on tasks unrelated to care.
A review of studies over two decades found that up to half of this work was unnecessary, and that the resources used in it were wasted.
Researchers write that creating more uniform pricing across health care and removing the necessity for “pre-authorization” could help reduce the amount of waste in American care (file photo)
In a brief, the researchers say that massive shifts in health care in the United States will be necessary to help reduce the burden of excessive spending.
They say uniform prices for hospital services could be the beginning.
Under the current system, the cost of the procedure can vary greatly depending on the hospital, health system, and even the patient’s insurance.
This leads to both insurance companies and health service providers needing dedicated employees just to negotiate rates.
The research team proposes to set a price for each payer, which would establish uniform costs for hospital services in all areas and reduce a lot of administrative burden.
They also recommend centralizing billing systems into a single clearinghouse responsible for processing claims from insurance companies and service providers across the United States.
This would reduce the need for each individual health system to spend so much on their billing staff, which is less efficient than a centralized system.
The health affairs researchers also recommend cutting back on the prior authorization system, in which the health insurance company decides whether care provided by doctors is necessary.
The system is widely criticized because it removes medical decision-making power from doctors who treat patients and gives it to insurance experts.
While a person is still allowed to receive treatment without the approval of insurance companies, they will have to pay for it out of pocket on their own.
It can lead to significant delays in medical care being provided and further disruption of an already supported health system.