JAMA Forum: Administrative Costs and Health Information Technology

By Elsa Pearson, MPH, and Austin Frakt, PhD

Image: metamorworks/Thinkstock

Identifying effective and sustainable ways to temper the growth of US health care spending has proved to be challenging. One source of high spending in the United States is administrative costs. Taming them is one approach to bending the cost curve, and health information technology (HIT) has often been considered a promising solution.

Although published 15 years ago, the most cited and comprehensive study on US health care administrative costs suggests they account for about 30% of total health care expenditures. More recent numbers vary but the bottom line is still the same: the United States spends far more than other wealthy nations on health care administration.

The research literature has paid particular attention to billing and insurance-related (BIR) costs, a subclass of administrative costs pertaining to billing and collection of payment for care. The United States’ multipayer health care system leads to considerable complexity in this realm. Systems with less BIR complexity—such as the global budgets of Canadian or Scottish hospitals—tend to have lower administrative costs.

BIR costs accounted for almost 17% of total US health expenditures in 2012, or $471 billion. Studies suggest BIR costs add up to a substantial proportion of revenue for individual health systems as well. In 1 academic system, Phillip Tseng, MEd, of Duke University School of Medicine, and colleagues calculated that BIR costs total 14.5% of revenue from primary care visits and more than 25% from discharged emergency room visits. At the clinician level, the researchers found the annual administrative workload of primary care physicians costs nearly $100 000 per physician. Lawrence P. Casalino, MD, PhD, MPH, of Weill Cornell Medical College, and colleagues estimated time spent interacting with insurance plans costs more than $68 000 per physician per year.

Reducing the BIR Cost Burden
Although the burden of BIR costs in the United States is well documented, how to effectively reduce this burden is unclear. Findings from a 2010 study suggest that standardizing BIR protocols could help minimize administrative costs. Others agree.

The range in billing complexity among insurers—public and private—is substantial. These differences, however, demonstrate that there is room for improvement. Maintaining multiple payers while implementing standardized practices across them all could mimic the potential administrative cost savings of a simpler system structure.

This streamlined approach is often considered possible through the use of HIT. A recent editorial in JAMA argues that the current push towards HIT, particularly electronic health records (EHRs), gives rise to a natural opportunity to streamline BIR processes. Often cited as a way to improve efficiency and productivity, HIT could also theoretically reduce costs, or, at the very least, slow cost growth.

In 2005, the RAND Corporation projected significant cost savings and improved health outcomes with widespread implementation of HIT. Acknowledging annual implementation costs of $8 billion, they estimated that annual overall savings could total $77 billion resulting from increased efficiency (including reduced hospital stays and administrative burden). Computerized physician order entry could result in an additional $1 billion in annual savings.

A few years later in 2009, the Health Information Technology for Economic and Clinical Health (HITECH) was passed, in part, to incentivize EHR implementation. A 2015 US Centers for Disease Control and Prevention report suggests that it may have been successful in doing so. The report shows that the annual percent increase of outpatient departments using a basic EHR system after the law was passed was 4 times greater than the annual percent increase prior to the law.

David Cutler, PhD, of Harvard University, and colleagues suggest that the HITECH Act lays the groundwork for comprehensive electronic correspondence, expanding beyond EHR to tasks such as the transmission of billing and claims data. This could save the health care system $2 billion annually, if successfully implemented.

Questionable Savings but Better Outcomes?
However, in reality, HIT doesn’t actually seem to be providing substantial savings. A 2014 review of early adoption of HIT among thousands of US hospitals showed no notable cost savings 5 years after implementation. One study of an EHR implementation pilot program in Massachusetts found the average projected 5-year return was negative, with a loss of almost $44 000 per physician.

Additionally, C. Scott Kruse, PhD, MSIT, MHA, MBA, of Texas State University, and colleagues  found cost to be the most cited barrier of HIT implementation in long-term care facilities, and a 2012 study of computerized physician order entry for a particular medication found no reduction in daily cost of therapy.

Instead, studies show HIT contributes to something else: improved clinical outcomes.

Kruse and colleagues noted a correlation between HIT and error reduction, improved efficiency, and improved health outcomes. Other researchers reported that HIT implementation increases guideline adherence and disease surveillance and may be associated with a reduction in medication errors and adverse drug events. HIT may also reduce disparities in access to care and adverse birth outcomes while improving patient-centered care.

High administrative costs are among the reasons for high US health care spending. But the hoped-for administrative savings from HIT have not materialized, even as HIT seems to have had a positive impact on clinical outcomes.

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About the authors:

Elsa Pearson, MPH, is a policy analyst with the Boston University School of Public Health. She tweets at @epearsonbusph. (Image: Elsa Pearson, MPH)

 

 

 

 

Austin B. Frakt, PhD, is the director of the Partnered Evidence-Based Policy Resource Center, Veterans Health Administration; an associate professor at Boston University’s School of Public Health; and an adjunct associate professor with the Department of Health Policy and Management at the Harvard T.H. Chan School of Public Health. He blogs about health economics and policy at The Incidental Economist and tweets at @afrakt. The views expressed in this post are that of the author and do not necessarily reflect the position of the Department of Veterans Affairs, Boston University, or Harvard University.  (Image: Doug Levy)

About The JAMA Forum: JAMA has assembled a team of leading scholars, including health economists, health policy experts, and legal scholars, to provide expert commentary and insight into news that involves the intersection of health policy and politics, economics, and the law. Each JAMA Forum entry expresses the opinions of the author but does not necessarily reflect the views or opinions of JAMA, the editorial staff, or the American Medical Association. More information is available here and here.

 

 

 



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