Administrative costs in U.S. healthcare

The New York Times published a piece about how high administrative costs are in U.S. healthcare. Some interesting statistics include: a 1999 study estimating that about 30 percent of U.S. healthcare expenditures were because of administration and an estimate that seven additional people are needed for billing-related activities for every ten physicians providing care. The piece cited a study that estimated that about 80% of the nearly half-trillion dollars spent on U.S. healthcare administration in 2012 was due to the complexity of a multi-payer system.

Administrative costs can be from the provider's office (which hire medical coders to submit claims) and from insurance companies (which use software and humans to review the submitted claims). In some sense, the administrative costs related to billing on both sides represent the prisoners' dilemma. Initially, insurance companies might have simply just paid submitted claims. Over time, as costs grew and grew, insurance companies instituted policies to help reduce costs (part of which was fraud). As insurance companies introduced these policies, providers' offices likely quickly realized that they needed to devote more time to claim submissions, including some providers that might submit claims with higher severity than warranted (upcoding). That, in turn, likely prompted insurance companies to institute still more complex procedures and so on. In theory, if both sides went back to original arrangement and importantly, if no one ever cheated, both sides could save a lot on administrative costs. The lure, however, of easy short-term profits will be difficult for some on both sides to turn down.