Obama Advisor Says $360 Billion (14% of Health Spending) Wasted on Administrative and Billing Costs

About half of all administrative costs - $163 billion in 2009 – are borne by Medicare, Medicaid, and insurance companies. The other half pays for the legions employed by doctors and hospitals to fill out billing forms, keep records, apply for credentials and perform the myriad other administrative functions associated with health care.

Ezekiel J. Emanuel, MD, “Billions Wasted on Billing,” New York Times, November 13, 2011

November 13, 2011 - Today I bring your attention to an excellent article by Ezekiel Emanuel, MD, advisor to President Obama. Emanuel laments the cost of administration required to submit bills, a burden that falls on patients, who must repeatedly fill out duplicate information before undergoing the most minor of procedures, and doctors, who must spend time and money justifying claims and hiring staff to administer the claims.

Every doctor knows this. They know that 50% or so of their overhead costs go to justifying and figuring out how to wend their way through the coding labyrinth of 7500 or so codes in the CPT code book.

Emanuel explains why billing and administrative exercises are so frustrating, so time consuming, and so expensive. He says there are six steps in the billing process.

1) Determining a patient’s eligibility for services.

2) Obtaining prior authorization for specialist visits and treatments.

3) Submitting claims by doctors and hospitals to insurers.

4) Verifying whether a claim was received and where in the process it is.


5) Adjudicating denials of claims.

6) And receiving payment.

Frustration with this process is why doctors claim so bitterly about bureaucracy, why they tend to code for those claims for which they know they will receive payment, and why they are opting out of third party arrangements with Medicare, Medicaid, and insurance companies.

Emanuel’s answer to addressing these problems is:

• Universal use of electronic health records by physicians and hospitals.

• An electronic credentialing system shared by all hospitals, insurance companies, Medicare, Medicaid, and insurance companies.

• Requiring all parties to use electronic health records.

Doctors are reluctant to install electronic health records because of cost of installation and maintenance, lack of clinical usefulness, unintepretable reports, little clinical impact and benefit, expenses of education and training for data entry, and disruption of practice patterns.

Instead doctors are opting out of Medicare, Medicaid, and third parties and turning to concierge medicine and other forms of cash-only practices, anything to offer more convenience and lower costs to themselves and patients, and anything to escape the burdensome fetters of billing and administration.

Tweet: Administrative and billing costs in the health care system cost $360 billion, 14% of all health care spending (medinnovation blog 11/13)