3 Strategies for Reducing Administrative Waste in Healthcare

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February 20th, 2013

healthcare administrative wasteAdministrative expenses in the US healthcare system are responsible for nearly one-third of all healthcare spending.  According to estimates, reducing complexity and standardizing administrative functions could save approximately $26 billion.

The administrative expense of the healthcare system is enormous and highly wasteful. Processes are fragmented, intensely manual, complex and error-prone. Complexities and inefficiencies in administrative functions can be directly linked to higher healthcare costs and can even impact the quality of care delivered to patients.

Streamlining administrative processes may entail the standardization of information passed between healthcare entities and the automation of certain administrative functions.  For example, AHIP suggests standardizing and automating five key administrative functions: claims submissions, eligibility, claims status, payment, and remittance. Eliminating manual transactions between payers and providers, maximizing self-service capabilities and standardizing payer and provider interaction processes all can lead to a more efficient administrative processes and promote cost savings in the health system.

Many payers (both public and private), facilities and providers have taken steps toward integrating billing and record systems to boost the efficiency of administrative efforts. Much of the progress that has been made has been spurred by healthcare reform, Meaningful Use, coordinated care models and payment reform. However, there is still a large variance in implementation and adoption of industry-wide standards. In a broad sense, policies that promote standardization, electronic connectivity and transaction automation are key in promoting efficiency in healthcare administration.

Below we highlight 3 system-wide strategies for reducing administrative waste in the US healthcare system:

  1. Using common technology and information standards, with enhanced interoperability and connectivity.
    1. Rapidly develop and adopt system wide data and transaction standards to simplify administration and improve patients’ diagnosis, treatment, and outcomes.
    2. Use of automated cards to validate patient eligibility and benefits at the point of services.
    3. Eliminate explanation of benefits for each transaction and replace with monthly personalized health statements, delivered through secure online portals where possible.
    4. Eliminate paper checks and paper remittance advice in favor of electronic funds transfer and electronic remittance advice.
    5. Implement multi-payer transactional capability on practice management information systems.
    6. Expand use of electronic data interchange for claims, eligibility, and coverage verification, notification/administration, and claims status.
    7. Integrate practice information systems and payer administrative systems.
    8. Integrate essential elements of electronic medical records and personal health records and promotes information sharing and use of data to improve prevention and coordination of care.
  2. Use of advanced system-wide techniques to improve payment speed and accuracy.
    1. Use predictive modeling to pre-score claims for coordination of benefits, up-coding, subrogation, fraud and medical management prior to payment.
    2. Create a national payment accuracy clearinghouse to settle underpayments and overpayments.
  3. Streamline provider credentialing, privileging and quality designation processes.
    1. Eliminate multiple payer credentialing and separate hospital privileging. Develop industry utility credentialing.
    2. Adopt common quality designation standards and create single health information database for quality determination.


  • Patrick Pine says:

    If we could somehow eliminate the 'chargemasters' developed on a hospital by hospital basis, require the publication of charge masters, and develop some general guidelines around billing - we could make huge strides in administrative simplification. I can think of no other significant industry where this wild variation in pricing occurs - even for other professional services like law and accounting it is not too difficult to at least get an idea of comparable charges between competing entities in any given marketplace - that is impossible to do for even the most sophisticated consumer/payer.

  • George Miranda says:

    Excellent ideas. HIPAA has proved that these kinds of efficiencies will only happen if federally mandated. The problem with federal mandates is exemplified in the way HIPAA improved one process by requiring standardized information transfer, and then made it nearly impossible again by creating such burdensome and restrictive privacy and security obligations. Now, we can easily share information between hospital and physician systems, except that we can't because it takes a gaggle of lawyers the better part of a year to hammer out the business associate relationship, followed by a herd of IT system managers lacing the interface with secure transmission bolt-ons that block any meaningful information from transmitting without appealing to a third-party (expensive) secure transmission website.