Policy experts to legislators: Don't forget administrative spending in quest to lower healthcare costs 

Experts told legislators to focus on addressing administrative spending as they seek solutions to lower healthcare costs. (Pixabay)

As policymakers continue their search for solutions to lower healthcare costs, experts say it's crucial that they target a major source of bloat: wasteful administrative spending. 

David Cutler, Ph.D., a professor of applied economics at Harvard, told senators at a hearing on Tuesday morning before the Health, Education, Labor and Pensions Committee that healthcare administrative costs are a "major drain on the U.S. economy." 

These expenses cost about $1 trillion each year, twice what the U.S. spends treating patients with cardiovascular disease and three times what it spends on cancer care, Cutler said. 

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Cutler said that reforms in three areas could go a long way toward reducing these costs: 

  1. Simpler patient coding systems
  2. Standardized prior authorization processes
  3. Integrated and interoperable electronic health records and billing systems 

RELATED: Blues administrative spending surged 5.9% in 2017, the highest in years 

Medicare and Medicaid will have to lead the way in this transformation, Cutler said. Streamlined coding in Medicare, for example, could drive other payers to adopt similar protocols.

"There are areas where the federal government will have to be uniquely involved," he said. 

Part of the issue with prior authorization, he said, is that different payers require different things in different situations, and that lack of standardization adds to the administrative burden both in time and money.

Matt Eyles, CEO of America's Health Insurance Plans, said that his group's membership is committed to working with other industry stakeholders to address the concerns raised at the hearing. For example, a multidisciplinary committee that includes more than 100 groups is working to rethink the prior authorization structure. 

In January, AHIP joined the American Medical Association and the Medical Group Management Association to ease some of the tension points in prior authorization. Though those discussions are ongoing, Eyles said that more could certainly be done to make prior authorization work better. 

In addition to those collaborative efforts, Eyles said AHIP and its members are investing heavily in fraud prevention and detection and on care management to prevent unneeded testing and healthcare use. 

"Health insurance providers have a 360-degree view on how consumers use their care," Eyles said. So they can offer "many strategies to make care more efficient and affordable." 

RELATED: Policy experts blame provider consolidation, lack of price transparency for skyrocketing medical costs 

Another element policymakers need to consider is how administrative burdens impact different types of providers. Becky Hultberg, CEO of the Alaska State Hospital and Nursing Home Association, said that administrative costs especially impact smaller and rural hospitals. For a large, academic medical center, the cost of an EHR upgrade or other investment required for compliance could lead to a delayed project or initiative. 

But at a smaller facility, she said, those costs could lead to cancellation of services or other, much greater consequences. So, it's crucial that solutions to ease administrative burdens and spending account for the needs of both large and small hospitals, she said. 

"The issue of administrative burden falls into sharp focus in rural America," Hultberg said. 

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