The Costs of Getting Paid

How much do hospitals spend just to get paid? A new study¹ in JAMA estimates that the cost of billing and insurance activities at a large academic health system in Durham, North Carolina ranged from $20 for a primary care visit to $62 for an emergency visit to $215 for an inpatient surgical procedure. This corresponds to 3-25% of total professional revenue collected (excluding facility fees). Altogether, health system staff spend 13 to 100 minutes processing each bill.

Tseng et al, 2018¹

Tseng et al, 2018¹

The authors used a state-of-the-art accounting method known as time-driven, activity-based-costing. This method involves mapping out who touches a bill at each stage of its life and the cost in time and dollars of each person’s labor: including the registration desk verifying the patient’s insurance information, the physician entering ICD-10 codes, and the cash manager accepting the payment.

Tseng et al, 2018¹

I spoke to lead author Phil Tseng who is also an incoming EM resident at Ohio State (congrats Phil!). Tseng says he was most surprised by the size of the behind-the-scenes billing operation and the fact that 70 to 90% of the billing cost came from non-physician labor. The billing machine in the health system studied consists of >1500 employees housed at a large complex 10 miles off campus. Interestingly, when when they refer to “the back end” of the electronic medical record, it is in reference the clinical side.

Much of this billing cost, Tseng notes, comes from lack of standardization. The authors actually found that the “billing process did not reveal any significantly wasteful or inefficient efforts,” but as Tseng notes, it’s a well-oiled machine working in a broken system. Billers have to deal with thousands or more health care plans with different inclusions or exclusions – some cover physical therapy but not mental health, some cover 1 or 2 of a particular service per year, certain employers might have special packages, etc.

Tseng et al.¹ conclude the paper saying knowledge about billing and administrative costs such as those elucidated in the study may help inform policy solutions to reduce administrative expenses. Other studies have also quantified the uniquely high proportional cost of administration in US healthcare as compared to other industries and other countries, highlighting this as as an expense-reduction target.^2–8 However, that may be a hard sell for the 1500 billing employees billing who could could lose their jobs.

We all want the most efficient administrative system for patients. The question remains how to make that transition when one person’s administrative waste and expense is another person’s income and livelihood.

For more posts, please visit my blog Margin and Mission.

References

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):691–7.
Collins SR, Nuzum R, Rustgi SD, Mika S, Schoen C, Davis K. How health care reform can lower the costs of insurance administration. Issue Brief 2009;61:1–19.
Jiwani A, Himmelstein D, Woolhandler S, Kahn JG. Billing and insurance-related administrative costs in United States’ health care: synthesis of micro-costing evidence. BMC Health Serv Res 2014;14:556.
Morra D, Nicholson S, Levinson W, Gans DN, Hammons T, Casalino LP. US Physician Practices Versus Canadians: Spending Nearly Four Times As Much Money Interacting With Payers. Health Aff 2011;30(8):1443–50.
Riley GF. Administrative and claims records as sources of health care cost data. Med Care 2009;47(7 Suppl 1):S51–5.
Sakowski JA, Kahn JG, Kronick RG, Newman JM, Luft HS. Peering into the black box: billing and insurance activities in a medical group. Health Aff 2009;28(4):w544–54.
Papanicolas I, Woskie LR, Jha AK. Health Care Spending in the United States and Other High-Income Countries. JAMA 2018;319(10):1024–39.
Lee VS, Blanchfield BB. Disentangling Health Care Billing. JAMA 2018;319(7):661.