Billing and Insurance-Related Administrative Costs

Cost of Pushing Paper

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According to a study published by BMC Health Services Research, billing and insurance-related (BIR) administrative “costs in the U.S. health care system totaled approximately $471($330 – $597) billion in 2012”.  This translates to every man, woman and child in America spending $1,570 on BIR activities – pushing around paperwork and paying for an unproductive bureaucracy.  More specifically, this “includes $70 ($54 – $76) billion in physician practices, $74 ($58 – $94) billion in hospitals, an estimated $94 ($47 – $141) billion in settings providing other health services and supplies”.

 The conclusion of the study was “A simplified financing system in the U.S. could result in cost savings exceeding $350 billion annually, nearly 15% of health care spending”.  Specifically, as illustrated by Figure 1, it is estimated that a simplified financing system would allow physicians to save $49 billion, hospitals an additional $54 billion and other health service providers $69 billion.
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The study in Figure 2 indicates the “contribution towards total added BIR”.  “Added is defined as spending above indicated benchmark comparison” with benchmark being a simplified financing system or a single payer system.  Without a simplified financing system, physicians, hospitals and other health service providers “contribute” 13%, 15% and 18% of the $375 billion over-spending respectively, on BIR administrative costs.
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Although non-BIR administrative costs “e.g., medical records, scheduling” aren’t the focus of the study, it is worth noting as illustrated in Figure 3, 9.4% of approximately $2.6 trillion of 2012 U.S. Health Consumption Expenditures was spent on non-BIR administrative activities.
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Finally, the study goes on to state, “it appears that HIT will impose hefty implementation and training costs, and may require ongoing expenditures for IT upgrades and maintenance”.