Administrative Waste

One in four California health care dollars — estimated at up to $73 billion annually —  doesn’t improve patient care or health outcomes.

Where does that money go? Almost 30% is spent on administrative waste.

A Uniquely American Problem

Health care requires some administrative work — doctors and hospitals need to schedule appointments, bill patients and insurance companies, and manage patient records; and health insurance companies have to enroll patients, process claims, and pay doctors. But those activities have become overly complex and cumbersome in the U.S. health care system.

The U.S. spends five times more on administrative health care functions than other wealthy nations, on average. The U.S. employs 44% more administrative health care staff than Canada.

Our system is like this because much of the information and administration is not standardized, automated, or easily connected. Far too often, this creates administrative steps for patients, providers, and plans that add time and costs without adding value.

Some examples of the problem:

• Inefficient prior authorization processes. Health plans use prior authorization to review and approve treatments prescribed by a doctor. It’s an important tool to ensure care is safe, necessary, and covered by a patient’s plan. But prior authorization processes can be costly and inefficient: Providers may not have easy access to the criteria health plans use to make decisions, appeals can consume significant time, and patients can face multiple reviews for the same treatment. 
• Incompatible clinical data systems. Providers waste time tracking down patient information from other providers, while patients must repeat their medical history over and over. This can lead to delays, duplicative treatments, and errors.
• Complex billing processes. Inconsistent terminology and procedures between providers and insurers — many still manual — cause confusion, denials, delays, and increased costs.
• Fragmented quality reporting. Providers must meet different quality-improvement requirements from multiple insurers, employers, and government agencies. These efforts are essential, but when they aren’t coordinated or aligned, they can consume significant time and resources. 

Potential Solutions

Policymakers, advocates, and industry leaders are implementing various solutions to reduce costs associated with administrative waste. Some of the most promising include:

• Capping cost growth under the California Office of Health Care Affordability’s (OHCA). The state is mandating that  hospitals, medical groups, and health insurers can’t increase their spending by more than roughly 3% annually. This incentivizes these organizations to better manage their underlying costs, including reducing administrative waste.
• Requiring providers and health plans to automate parts of the prior authorization process. This would include administrative steps (like confirming the patient’s health plan) and the exchange of clinical information between providers and plans. This can make the overall prior authorization process more efficient and accurate.
• Building a statewide data exchange network. Enabling all providers to link physical, behavioral, and social health information in a statewide network — like other states use — would significantly reduce paperwork and data entry costs throughout the system. Learn more about data exchange and how it can reduce administrative costs.
• Standardizing quality measures. A coalition of large health care purchasers and regulators, including CalPERS and the California Department of Managed Health Care, have aligned to focus on four key quality metrics called the  “Core 4.” More health plans and purchasers could focus on these metrics.