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Editor's Comment
February 26, 2020

Administrative Simplification—The Holy Grail of Reducing Waste?

Author Affiliations
  • 1Department of Health Policy, Vanderbilt University School of Medicine, Nashville, Tennessee
JAMA Health Forum. 2020;1(2):e200232. doi:10.1001/jamahealthforum.2020.0232

Waste within our very costly health care system is a subject of intense interest—and indignation. A special communication in JAMA by Shrank et al1on waste in the US health care system has been viewed over 100 000 times since it was published in October 2019, and over 750 authors have cited the 2012 JAMA article on eliminating waste by Berwick and Hackbarth.2 Both pieces provide evidence that roughly one-quarter of US health care spending (a figure that approaches $1 trillion) might be considered waste and broke down the estimated total into 6 categories of potential sources of waste (failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity).

Shrank et al add to the literature both by conducting a thorough literature review to pull together an updated estimate of the extent of waste and by estimating the portion of the identified waste that could be eliminated through specific interventions. They project that savings from interventions to reduce waste could range from $191 billion to $282 billion, representing a potential 25% reduction in the total cost of waste.

These projections do not, however, include savings from reduced administrative complexity, because their review did not turn up studies that demonstrated savings through reduced administrative complexity. Their review did include 2 articles that quantified waste due to administrative complexity.3,4

In addition, related work in JAMA includes that by Tseng et al,5 who examined the administrative costs associated with physician billing and insurance-related activities. Tseng et al found that costs of billing and insurance activities alone represented 3% to 25% of professional revenue when looking across services ranging from primary care visits to inpatient procedures. Soberingly, their study considered a period after the administrative simplification measures of the Patient Protection and Affordable Care Act (Section 1104) put into place standards for electronic interactions between providers and plans designed to reduce such costs. While those standards have helped the vast majority of claims submissions and eligibility queries to become electronic, prior authorizations and requests for clinical documentation remain largely manual—frustrating health care professionals and administrators and perpetuating large bureaucracies within insurers and health care organizations.

Given that administrative complexity was the single largest category of waste, with an estimated total annual cost of $265.6 billion, the lack of studies revealing ways to reduce waste through reducing administrative complexity is problematic. So too is the lack of a clear path forward on reducing administrative waste. Payment reform may remove the need for some types of administrative processes by placing more decision-making authority in the hands of those delivering care. Still, our health care system is so fragmented that we need renewed policy attention on how to standardize and streamline interactions between parties. In doing so, we can free up time and money for other, better, purposes.

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Article Information

Open Access: This is an open access article distributed under the terms of the CC-BY License.

Shrank  WH, Rogstad  TL, Parekh  N.  Waste in the US health care system: estimated costs and potential for savings.   JAMA. 2019;322(15):1501-1509. doi:10.1001/jama.2019.13978Google ScholarCrossref
Berwick  DM, Hackbarth  AD.  Eliminating waste in US health care.   JAMA. 2012;307(14):1513-1516. doi:10.1001/jama.2012.362PubMedGoogle ScholarCrossref
Casalino  LP, Gans  D, Weber  R,  et al.  US physician practices spend more than $15.4 billion annually to report quality measures.   Health Aff (Millwood). 2016;35(3):401-406. doi:10.1377/hlthaff.2015.1258.Google ScholarCrossref
Gee  E, Spiro  T. Excess administrative costs burden the US health care system. Center for American Progress. Published April 8, 2019. Accessed July 17, 2019. https://www.americanprogress.org/issues/healthcare/reports/2019/04/08/468302/excess-administrative-costs-burden-u-s-health-care-system/
Tseng  P, Kaplan  RS, Richman  BD, Shah  MA, Schulman  KA.  Administrative costs associated with physician billing and insurance-related activities at an academic health care system.   JAMA. 2018;319(7):691-697. doi:10.1001/jama.2017.19148PubMedGoogle ScholarCrossref
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    1 Comment for this article
    Should We Actually be Discussing "Justly Efficient"?
    Paul Nelson, M.S., M.D. | Family Health Care, P.C. Retired
    To discuss the over-all efficiency of healthcare, I suggest that we confine ourselves to discussing whether or not it is equitably available, ecologically accessible, justly efficient, or reliably effective. Given the future prospect of a higher level of overt rationing, the quality of our nation's healthcare will be judged by each citizen as to whether or not the rationing process was unjustly applied to their healthcare or the healthcare of their family. With this view, our capability to parse out institutional inefficiency is fairly limited. Ethically, we don't operate on the basis of considering administrative processes as automatically unnecessary. Many of these expenses have occurred as miscellaneous administrative requirements, such as fire regulations of cities and states for hospitals.

    But even so, our nation's increased health spending has followed Parkinson's Law exactly ever since Medicare/Medicaid began just after 1965 (viz. work expands to use the resources available, as in the cathedral ceilings of hospital entry arenas). In 1960, health spending represented 5.0% of our national economy (GDP). In 2018, it was 17.8%. The other 34 OECD nation's allocate less than 13% of their GDP to health spending. For 2018, the difference between 13.0% and 17.8% of the our national economy represented $1.05 Trillion of which the Federal government paid 45%.

    Meanwhile, our nation's maternal mortality continues to worsen annually as it has for more than 50 years. It make me a bit breathless to even write about it.

    So, our current paradigm for thinking about healthcare reform is unlikely to be successful. As our economy is reacting to the prospect of a national pandemic, I offer the problem-solving conundrum of developing an inter-connected set of contemporary definitions for the following (alphabetically):

    ...caring relationship,
    ...collective action,
    ...disrptive process,
    ...social capital,
    ...social cohesion,
    ...social dilemma,
    ...social interaction, and
    ...survival commons (community safety net).

    Currently, cognitive dissonance represents a major barrier to break through the paradigm paralysis for understanding our nation's population health, its healthcare, and its unjust efficiency.

    See the following url for an updated set of definitions for the 13 concepts listed above. https://nationalhealthusa.net/paradigm-shift/rationale/
    CONFLICT OF INTEREST: Blogger, https://nationalhealthusa.net/