3 ways to improve healthcare administration and lower costs

Cutting down on administrative costs in the U.S. healthcare industry has become a major focus over the last several years, with billions of dollars in savings to be had from automation and centralizing claims records.

However, cutting healthcare administrative costs isn’t so straightforward, and there are multiple opportunities to streamline and save money, according to William Frist, MD, former U.S. senator and co-chair of the Health Affairs Council on Health Care Spending and Value. Frist recently penned an editorial outlining three ways to lower healthcare administrative costs, while also recognizing the complex nature of the current American healthcare system.

“Unfortunately, ‘administrative cost’ isn’t a neat budget item that we can cut,” Frist wrote. “All businesses have necessary overhead costs, and successful, customer-oriented businesses incur costs for customer service and choice in their offerings.”

Compared to 14 other nations in the Organization for Economic Cooperation and Development, the U.S. has the highest healthcare administrative costs, with one estimate putting the per capita cost at $937. The country with the next highest costs is Germany, at $293 per capita. The numbers reveal that there is room for improvement, especially considering that experts see half of U.S. healthcare administrative spending as wasteful––a total of 7.5% to 10% of total nationwide spending.

Opportunities for savings 

According to Frist, there are three main ways to streamline administrative work and cut costs: a centralized claims clearinghouse, streamlined prior authorization and improved quality reporting.

A centralized clearinghouse could standardize the healthcare billing process, taking a page from the banking industry, which automatically moves money globally while ensuring security through its centralized clearinghouse. A claims clearinghouse in health care could route claims for payments and flag for fraud. However, consolidation is needed for success, as separate clearinghouse systems won’t create ease, according to Frist.

Next, Frist suggests limiting use of prior authorization, which is costly and time-consuming for healthcare parties.

In fact, for medical providers, manual transactions can cost $10.26 per transaction on average, though automating the process can bring the cost down to $3.64 per transaction, according to the 2020 CAQH Index.

One proposed rule from CMS would prompt technical innovation in this area by building program interfaces to streamline documentation and communication using existing medical records for prior authorizations. Cutting back on prior authorizations in general is an equally attractive opportunity, Frist said.

Lastly, improving quality reporting by striking a balance between delivering high-quality care and keeping data costs down could prove to be significant in terms of overall healthcare savings. 

“We all know the maxim: If you can’t measure it, you can’t improve it,” Frist wrote. “But there is so much noise in our current metrics that actually measuring quality is secondary to the labor and cost of generating the data.”

Automating the collection of data, harmonizing quality metrics and automating reporting and flagging of data “outside the norm” could all improve the costs associated with quality reporting.

Again, Frist promotes borrowing processes from other industries to tackle the low-hanging fruit in the U.S. healthcare delivery model.

“Private-sector technological solutions, paired with effective public-sector guide rails, will be able to achieve a great deal of cost savings as well as introduce much-needed efficiencies,” he concluded.

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