U.S. healthcare could save $265B in administrative costs, McKinsey report finds

More than a quarter of U.S. healthcare administrative spending—an estimated $265 billion—could be reduced without compromising care quality or access, a new report suggests.

The U.S. spent an estimated $950 billion on administrative healthcare costs alone in 2019, and that amount has only increased since, according to the report. Co-authored by experts from McKinsey and Harvard economics professor David M. Cutler, Ph.D., and published in JAMA Viewpoint, the research suggests 30 interventions to simplify healthcare administration and reduce healthcare spending by hundreds of billions of dollars while preserving patient care.

The authors conclude that these known interventions could be adopted over the next three years.

Most surprisingly, the bulk of the potential savings­—an estimated $175 billion—could occur at the level of individual organizations, co-author and McKinsey senior partner Brandon Carrus said.

“The majority of opportunity is able to be captured through the actions of individual players, and there’s significant value to be had without any broad sweeping policy or regulatory action,” Carrus told Fierce Healthcare. “A lot of times people say the only way to fix U.S. healthcare spending is to look more like Canada or increase regulation. But we’re talking about huge numbers here that can be implemented without even scratching the surface of regulation or policy.”

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The report outlines three categories of savings, including $175 billion from “within” interventions inside individual organizations, like simplifying the claims submission process; $35 billion from “between” interventions requiring collaboration between organizations, like building strategic payer-provider platforms with proactive data-sharing; and $105 billion from “seismic” interventions at the industry level, like creating a centralized, automated claims clearinghouse.

The total $265 billion in net savings accounts for some overlap in the “between” and “seismic” interventions.

Co-author and McKinsey partner Nikhil R. Sahni said the authors wanted to ensure the report only included actionable solutions.

“The thing we held ourselves to the most was, we want to only include interventions that are available today, with existing technologies, that have been proven already inside or outside healthcare, as opposed to broad sweeping policy and regulation-type changes,” he said.

To achieve the full $265 billion in net savings would require an equivalent investment in the first year to set up the necessary technologies, however, which Sahni said could serve as a barrier for organizations.

“These things require some upfront investment. You can’t pull away from that—you have to lean into that and make it happen,” he said.

Carrus noted that the authors also observed a lack of motivation by industry leaders to implement solutions to save on administrative costs, particularly those that require collaboration with other organizations, representing another major roadblock.

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Sahni said the authors took care to ensure their proposed solutions wouldn’t have consequences for patient care.

“When we defined administrative spending, we created that boundary,” he said, adding that the authors choose to exclude considering interventions in some categories altogether where patient care was involved to eliminate any gray areas.

The report notes that the total potential savings would equal more than three times the combined 2019 budgets of the National Institutes of Health, Centers for Disease Control and Prevention, the Health Resources and Services Administration, and the Substance Abuse and Mental Health Services Administration.