The Executive Suite: Reining in administrative burden

Doctors and medical practices are mired in administrative tasks.

One of every five dollars of U.S. gross domestic product, or $4 trillion, is spent on the health care industry. And a quarter of that is spent on administration, with half of the $1 trillion devoted to complex billing processes.

It’s not only back-office workers who are sucked into the whirlwind of medical administration. Doctors spend up to 20 hours a week on paperwork, often taking as much time to document patient visits as they do actually caring for patients.

The burden of health care administration has put doctors and small medical groups at a disadvantage compared with larger players and insurance companies. The situation is so bad that doctors are leaving the profession, and otherwise healthy small practices are deciding they have no choice but to be swallowed up by larger medical groups or to shut down.

But there are solutions. This is what doctors and other health care professionals need to know:

Detailed prices are finally starting to become publicly available. Although you almost need to be a data scientist to figure them out, providers can now use some benchmarks to negotiate with payers on prices.
The floor price of procedures. It may be hard to believe, but many don’t know those prices. It’s hard to run a practice without this information.
The reasons for payment denials. That’s so fixes can be made at the front end of the payment process to avoid denials and thereby reduce administrative work.
Process automation, including the use of artificial intelligence, increases efficiencies and performs tasks at a small fraction of time and costs now devoted to them.
Transitioning to value-based care can save time and lead to better care.

For health care providers, the headache tends to involve three interlocking problems. The first is what I like to call a “wild west” approach to pricing baked into America’s fee-for-service payment model. That’s where the cost of a procedure can vary widely.

When a regulation recently took effect mandating that hospitals disclose their standard charges, the variations were stunning, and the presence of big government payers like Medicare only makes the situation more unstable. There are, for example, hundreds of procedures where commercial payers’ prices are tens or even hundreds of times more than what Medicare reimburses.

Pricing remains so opaque and complex that most providers are forced to offer the bulk of their services without knowing in advance what they will be paid, contrary to traditional business models. And this leaves aside the penalty that smaller providers face because of their limited ability to bargain with large payers.

The second problem for providers is just making sure they get paid. Four years ago, about 9% of reimbursement requests by providers were denied by payers. Today that number is closer to 12%, resulting in a hit of more than $100,000 to a practice with $1 million in billings.

But that tells only part of the story, because the 12% of billings ultimately written off by providers is less than half the initial rate of such denials, meaning untold hours spent trying to limit losses.

Third, growth in process automation may be leading to an even greater power imbalance in the administrative relationship between payers and providers. Well-resourced payers have begun to use artificial intelligence to find ways to deny bills submitted by providers.

While process automation can help providers keep up with payers, what they often really need is better data about their own operations. Many find it difficult to understand the cost of the care they are providing.

For example, knowing what it really costs to provide a hip replacement is crucial for numerous reasons. For one thing, it makes productive rate negotiations with payers possible. How can a doctor agree to perform hip replacements if the reimbursement being offered by a payer is below the cost of providing the service?

Conversely, if a practice discovers it is efficient at performing hip replacements, it may choose to focus on performing more of them and negotiating higher prices for them than other similar procedures. Meanwhile, efficiently capturing all the different contractual rates in place with payers into a common dataset can make tools such as accounts receivable reports more meaningful.

Over time, the American health care system may move from fee-for-service toward value-based care, in which providers are paid fixed rates to care for patients. Doctors would have the freedom to use that money for care as they see fit.

But while such an evolution might help with our trillion-dollar admin bills, it could also force providers to shoulder even more risk, further pushing smaller practices to seek refuge in larger, more bureaucratic groups. That’s because doctors would have to pay for cost overruns.

The best-case scenario would be if providers addressed the admin problem now rather than taking on a much bigger task that would further add stress. This can be done with automation, which also helps better position providers for transitioning to value-based care.