The Burden Of Inefficiency

How Rising Administrative Burdens Have Cost U.S. Taxpayers Millions

WHAT YOU CAN DO...

    • S.B. 3434, the Reducing Administrative Costs and Burdens in Health Care Act of 2018, was killed in Committee during the 115th Congress

    • Contact Senator Bill Cassidy (R--LA) and Senator Tina Smith (D--MN) to encourage them to reintroduce this bill

By Zoe Hauser

Debates over the United States healthcare system run rampant throughout the political stage, with each party taking strict oppositional stands. Yet, healthcare should be seen through a lens that removes the party power struggle the issue has become, and as the necessity to American livelihood it truly is. The result of healthcare being posed as merely a political battleground for party quarrels is a vastly inefficient and wasteful U.S. system. If we can reduce waste and inefficiency, then we will be able to improve our system to better serve the country’s citizens and help temper the political stalemate on healthcare.

 

The United States unloads 17.8% of its GDP on healthcare, making us the world’s largest healthcare spender[1]. But this does not mean that our healthcare system uses this money efficiently and/or properly. In 2017, the National Health Expenditure Accounts (NHEA) estimated the United States spends a total of approximately $3.5 trillion each year on healthcare, rendering per capita costs of $10,739[2]. Switzerland, the second largest spender on healthcare, witnessed per capita costs at an estimated $7,317 in USD[3]. This is equal to 12.2% of Swiss GDP, a figure still substantially less than the United States. The United States’ noticeable healthcare waste can be traced to the system’s administrative costs, rooted into the inefficiency of the U.S. healthcare system. Administrative costs include medical records, insurance bills, and other hidden costs which most patients are not aware of.

 

According to a recent Journal of the American Medical Association (JAMA) study, the estimated total cost of waste in the administrative healthcare sector ranges from $760 billion to $935 billion[4]. This accounts for 25% of total healthcare spending in the United States. JAMA identified 6 domains of waste including: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud, abuse, and administrative complexity3.

 

Administrative complexity, for instance, is the largest producer of administrative waste because the medical system requires many different departments, form duplications, and various other requirements which cause the system to become too complex to remain efficient and functional. This complexity accounts for the largest portion of administrative waste produced, but also has the potential to use innovation and reorganization to reduce its waste by the greatest portion of the six domains.

 

While some misuse of funding is inevitable in all large-scale governmental systems, the amount of administrative waste in the United States is staggering and has become an issue that must be dealt with. Researchers have proposed solutions such as digitalizing all medical records, incorporating a pay-in-advance option for services, and an array of other modifications to the system that would ultimately reduce waste by $191 billion to $282 billion.

 

In 2018, S.3434, title Reducing Administrative Costs and Burdens in Health Care Act, was introduced to Congress[5]. The Senate has referred this bill to the Committee on Health, Education, Labor, and Pensions. This bill would require the Department of Health and Human Services to allow states to implement strategies, recommendations, and actions to reduce unnecessary costs and burdens of the administrative health care system. The bill includes recommendations such as standardizing and automating administrative transactions and implementing more open application programming interfaces to improve communication between patients and their doctors.

 

For young adults, the idea of healthcare is dealt with mostly by our parents. However, as we graduate from college and transition into a lifestyle no longer supplemented by our parent’s aid, healthcare insurance costs and hospital visits will become an increasingly important part of our lives. An inefficient healthcare system handcuffed by administrative deficiencies has caused the cost of health care, and subsequently insurance rates, to increase. Since healthcare is required by law in the United States, young adults as well as other Americans will be forever plagued by these ever-increasing insurance rates.


[1] Papanicolas  I, Woskie  LR, Jha  AK.  Health care spending in the United States and other high-income countries.  JAMA. 2018;319(10):1024-1039.

 

[2] National Health Expenditures BType of Service and Source of Funds, CY 1960-2017. CMS.gov. US Centers for Medicare and Medicaid.

[3] “Health Resources - Health Spending - OECD Data.” TheOECD, data.oecd.org/healthres/health-spending.htm.

[4] Shrank WH, Rogstad TL, Parekh N. Waste in the US Health Care System: Estimated Costs and Potential for Savings. JAMA. Published online October 07, 2019322(15):1501–1509. doi:10.1001/jama.2019.13978

 

[5] United States. Cong. Senate.  Reducing Administrative Costs and Burdens in Health Care Act of 2018. 115th Cong. 2nd sess. S3434.