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Healthcare Billing Process – The Cost of Doing Business

It has been well-documented that healthcare in this country is much too expensive. United States per capita healthcare spending is more than two times the average of other developed countries. Prices, not utilizaton, explain high healthcare spending in our country. Yet, America’s health outcomes are generally no better than those of our peers, and in some cases, worse. But wait until you learn about the estimated time and cost it takes to perform billing and insurance-related activities. Could this be similar to the Department of Defense purchase of a $15 hammer for $600?

The Institute of Medicine indicates that at least 30 percent of total healthcare spending goes to unnecessary, ineffective, overpriced and wasteful services. Based on this estimate, with annual U.S. healthcare costs currently around $3.2 trillion, we are paying through taxes, health premiums and out-of-pocket, approximately $1 trillion with no benefit our health, let alone our pocketbooks.

To put the amount of this waste into some perspective, in 2015, the total discretionary federal spending for military, education, housing & community, international affairs, energy & environment, transportation and other services was $1.1 trillion. We spend just as much in healthcare WASTE than we do in many of the necessary national investments to keep this country functioning. WOW!

But what commonly goes unnoticed is that a good portion of the medical cost is NOT related to actual patient care, but rather, the cost it takes of collecting payments from the time a patient makes an appointment until the time the health provider receives payment for the services.

Researchers from Duke University and Harvard recently published a report in the Journal of the American Medical Association (JAMA) to determine administrative costs associated with billing and insurance-related activities at a large academic medical center using a certified electronic health record (EHR) system. Through numerous interviews with people involved at various points of the billing process – in addition to 34 doctors – they analyzed five types of “patient encounters” to calculate salary and overhead costs when developing billing costs to third-party payers and patients. The results are both interesting and troubling.

In just one year, researchers found the academic health system incurred a cost of $99,000 a year in billing and insurance-related activities just to collect payments for a SINGLE primary care doctor! Despite having a ‘certified’ EHR system, it appears the economies of scale in this large medical center are somewhat limited, as associated costs for all payer sources (Medicare, Medicaid, numerous health insurance carriers and individuals) provide challenging nuances on claim adjudication requirements.

Here are the specific results for each of the five patient encounters analyzed:

  1. Primary care visit – To get paid for a typical visit, it took 13 minutes of billing processing time and cost $20.49.
  2. Emergency room – For each typical ER visit, it took 32 minutes of billing processing time at a cost of $61.54.
  3. Hospital stay – For a typical hospital stay, it took 73 minutes of billing processing time and cost $124.26.
  4. Outpatient Surgery – For a typical outpatient surgical procedure, it took 75 minutes of billing processing time and cost $170.40.
  5. Hospitalization with surgery – For a typical hospitalization that required surgery, it took 100 minutes of billing processing time and cost $215.10.

Put another way, the authors estimated the costs associated with physician-billing activities, as a proportion of professional revenue, was 14.5 percent for primary care visits, 25.2 percent for emergency department visits, 8.0 percent for general medicine inpatient stays, 13.4 percent for ambulatory surgical procedures, and 3.1 percent for inpatient surgical procedures.

Here’s the kicker. The authors of this research believe that the true costs of billing are most likely higher than their findings, primarily because the life cycle of a bill excludes the cost of negotiating prices with insurance companies, the cost of training doctors to handle billing-related tasks, not to mention the cost to ensure that ALL potentially reimbursable services are added to the bill and eligible for payment.

Still not convinced that waste in healthcare billing is not significant? According to an editorial in JAMA that accompanied the above findings, authors Dr. Vivian S. Lee and Bonnie Blanchfield write: “While non-health care industries typically might employ 100 full-time equivalents to collect payment for $1 billion in services, health care employs an astounding 770 full-time-equivalents per $1 billion of physician services.” The authors suggest that “the process of moving money from payer to hospitals and physicians in the United States consumes an estimated $500 billion per year, and 80% of that amount may be waste.” The medical center in the study employs the equivalent of 1,500 full-time employees to handle the billing process. It is no wonder that healthcare has become the largest employer sector in the U.S. David Cutler of Harvard recently wrote an insightful piece about the pros and cons affiliated with growing healthcare employment in our country.

Simplifying the healthcare payment ‘system’ can be a good first-step in eliminating sizeable waste in the largest U.S. sector. Employing jobs for the sake of combatting complexity and inefficiency is not a smart long-term national strategy. A lack of standardized contracts and price schedules across payor markets might go a long way on explaining why administrative costs in the U.S. are grotesquely higher than those in other countries.

All of a sudden, that $600 hammer purchased by the Department of Defense appears to be a comparative ‘bargain.’

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