Administrative costs in the United States have a bad rap. You don’t have to look too far to find an article about how there’s now, like, 10 administrators for every 1 physician in this country. Or 3 to 4 billing people for every physician. Or find someone complaining about arduous prior auth processes and how long specialists sit on phones trying to get a prior auth approved while having a frustrating “peer consult” with a “peer” whose career has nothing to do with that specialty and, in fact, knows very little about it.
Also consider the time that specialists’ admin teams have to spend—or really any doctor’s admin teams have to spend—when they are required to send documentation validating some prior auth request or appeal. They, in many cases, have to send this documentation via old-school, drop-it-in-a-mailbox mail … literally. This documentation can and often does amount to a sizable box full of paper patient records. They have to drag a box into their office and fill it up with paper to send to the insurance company to validate whatever appeal. Think about who prints out all that paper. Who does all this stuff? And who on the insurance side is unboxing it all and, I don’t know, are they highlighting the good parts? Are they rekeying anything? What goes on there?
Or here’s another administrative cost: collecting and tabulating all the data needed to participate in some quality incentive program. Considering that each carrier has their own flavor of metrics … yeah again. Administrative burden, administrative costs.
Or consider what Dan O’Neill was talking about in EP359 the other day. He was talking about IPAs (independent physician associations) and other managed care entities. These entities hold the contracts with payers on behalf of smaller provider organizations or solo practitioners. So, these smaller (usually) individual practices contract with the IPAs—you know, for leverage and all that. And then it’s the IPA who then holds the contract with the payer. As Dan mentions, contracting with some of these IPAs is like an “I love 1990” flashback. The contracting process, again, transpires via mail. Not email, mind you. Mail. Like, stick-a-stamp-on-the-envelope mail.
So, in sum, there’s a lot of pretty well-founded complaining about administrative costs in this country. A lot of this administrative stuff is truly inefficient and a fantastical waste of time—valuable clinician time. So, here we are freaking out about staffing shortages, overlooking that doctors at the heights of their careers are spending some percentage of their time not counseling, treating, or diagnosing patients but twiddling their thumbs on hold with one insurance company or another slowly burning out by the inefficiency of it all. Or doing pajama time, and we all know that too much pajama time means also burnout on a silver platter.
Now consider this: Reducing admin costs are frequently cited as a fine way to reduce overall healthcare spending in this country. So then, let’s get granular here. If we’re trying to quantify admin costs, how you’d do that is to quantify how much each transaction costs. How much does it cost to send a bill and get paid for it? How much does it cost to file an appeal and a denial of a prior auth? Add all those transactions together and you get the full cost of the administrative burden.
In this healthcare podcast, we’re digging into a paper about admin costs written by David Scheinker, PhD (my guest today); Barak Richman, JD, PhD; Arnold Milstein, MD, MPH; and Kevin Schulman, MD, MBA.
I have the pleasure of speaking with David Scheinker, PhD (as I mentioned), who is the lead author on this paper. Dr. Scheinker is an associate professor of pediatrics and executive director of systems design and collaborative research at the Stanford Lucile Packard Children’s Hospital. He is the founder and director of SURF Stanford Medicine at Stanford. David Scheinker’s work centers around bringing together engineering PhD students and faculty with hospital administrators, leaders, doctors, nurses. The goal here is to design improvements to operations from an industrial engineering point of view. So, you can see how investigating administrative burden and costs and trying to reduce them fits in here.
Before we begin, I just want to point out one thing: I alluded to this earlier when I mentioned staffing shortages. As reported by Gist a few weeks ago, health systems saw an 8% increase in labor costs per patient day; and many are budgeting for a negative operating margin. In the past, most administrative challenges were solved by throwing bodies at the problem. That is now untenable. This is one promise of technology. Tech can automate, replicate, and scale much of what has required human labor in the past. Tech is used to automate administrative functions in many other industries also, so there’s a number of precedents for this.
Now, just to underline a major takeaway from this conversation with Dr. David Scheinker, he reiterates a recommendation to eliminate a big proportion of administrative costs.
I guess I should say spoiler alert here, but the major takeaway/recommendation is this: Standardize healthcare contracts between payers and providers. Every payer and every provider finds one contract template and uses it. I don’t mean one template per payer or per provider, although that probably would be a revelation in and of itself. But I mean that all payers use one basic provider contract.
A couple of specifics here: The template that I’m referring to (and that Dr. David Scheinker is referring to) consists of parameters. What do I mean when I say parameters? Consider what Airbnb does when you’re looking for a place to stay, as an example. How many bedrooms (that’s a parameter)? How many bathrooms (that’s a parameter)? How many amenities (that’s a parameter)?
After everybody picks their standard set of parameters, at that point, all parties can negotiate and come up with whatever they want for what is the price of an extra bedroom or whatever value you’re gonna assign to that parameter. Go nuts there, but from a data collection and analytic perspective and a getting paid perspective, it is way easier to do it that way—meaning it’s way easier to execute and report when all of the contracts use the same parameters. Also, you can build tech to do a lot of that because you don’t have to write algorithms with exponential variables. And anybody who has tried to write algorithms with exponential variables—and I am talking from firsthand experience here—it’s a hot mess right out of the gate.
You can learn more by connecting with David on LinkedIn and following him on Twitter.
David Scheinker, PhD, started his career as a research mathematician and switched to healthcare operations to work on an interdisciplinary team and have a more immediate impact. He is a clinical associate professor of pediatrics, the executive director of systems design and collaborative research at the Stanford Lucile Packard Children’s Hospital, and a member of the Clinical Excellence Research Center (CERC) at Stanford University. He founded and directs SURF Stanford Medicine, which brings together students and faculty from the university with physicians, nurses, and administrators from the hospitals. He studies clinical care delivery, hospital operations, sensor-based and algorithm-enabled telemedicine, the socioeconomic factors that shape healthcare, and policy.
07:23 What’s the quantitative administrative cost in an average transaction?
07:49 What’s the quantitative administrative cost in a healthcare transaction?
08:43 What does the healthcare billing and administration cost add to the US’s overall healthcare spend?
09:38 Is it possible to cut billing and administrative costs in healthcare?
11:01 “In some ways, the problem for healthcare should be simpler.”
12:14 What does the complexity of the current system look like in a doctor’s office?
15:26 How did David go about studying healthcare administrative costs?
18:17 “It doesn’t have to be simple; it should be standardized.”
21:41 What would be the pushback on standardizing contracts in healthcare?
22:35 Why is it possible to gain more value by losing customization in contracts?
24:11 “Never let a good crisis go to waste.”
24:33 “It’s much easier in healthcare to build something new than to change something that exists.”
27:39 What benefits does telemedicine have to cutting administrative costs?
29:09 What is another significant benefit of using standardized contracts?
30:17 Why haven’t standardized contracts become a common thing in the current healthcare system?