Healthcare Administrative Spending Increased by 50%

January 31, 2024 - Administrative costs in healthcare are rising as payers and providers navigate staffing shortages, cybersecurity threats, and other challenges coming off of the COVID-19 pandemic.

The eleventh annual CAQH Index report recently found a 50 percent increase in healthcare administrative spending in 2022. Spending was spread across nine transactions, including prior authorization, claim submission, claims status inquiry, and payment.

In total, healthcare administrative spending reached $82.7 billion. Claim status inquiry saw the largest increase in spending, rising 71 percent.

Healthcare administrative spending increased in the face of automated processes, CAQH reported. Electronic adoption across the nine transactions in the report improved or remained stable during the period, with the exception of claim payment and coordination of benefits. The same was true in the dental industry.

Across both the medical and dental industries, CAQH found an average increase in electronic adoption of 2 percentage points.

Electronic adoption helped the industries avoid $193 billion annually by streamlining the key administrative transactions. However, the report attributed overall higher administrative costs to more time needed to complete the transactions.

The Index report showed that provider time accounted for over three-quarters of the rise in total administrative spending in 2022. For healthcare providers, specifically, time spent completing the transactions grew by 14 percent, on average. In healthcare, that made up 77 percent of the increase in healthcare administrative spending.

Notably, provider time to complete prior authorizations was among the highest. The Index showed that providers, on average, spent 11 minutes on electronic prior authorizations and 16 minutes on prior authorizations conducted via a portal. Prior authorizations are one of the most burdensome tasks for healthcare providers.

Persistent staffing shortages may have led to less experienced new hires, contributing to longer competition times, according to CAQH. New hires typically require more time to understand how to complete processes and an organization’s requirements for the transactions.

A survey conducted by AKASA the same year as the data showed a substantial shortage of revenue cycle professionals in hospitals and health systems, with one in four survey respondents saying they needed to hire more than 20 employees to fully staff their department.

Hybrid work environments may also have created more security threats for organizations as providers set up automated workflows to accommodate remote work after the pandemic, according to the report. Health plans, in particular, reported devoting additional resources to security, servers, and maintenance over the last couple of years.

Cybersecurity threats to hospitals and health systems have also been on the rise, with Check Point Research finding healthcare to be one of the three most attacked industries in 2022. Global cyberattacks were up by 38 percent from 2021 to 2022, according to the company’s latest data.

Despite these challenges, the healthcare industry is leaving approximately $18.3 billion in savings on the table. About 90 percent of those savings could benefit healthcare providers directly, according to CAQH CEO Sarah Ahman.

“At a time when physician burnout is reaching crisis levels, the industry needs to work together to reduce administrative inefficiency, freeing providers to spend more time with patients and, ultimately, impacting the quality of care,” Ahmad said in a statement.

CAQH recommended in the report that providers continue electronic adoption with an eye on AI and machine learning. Providers should also focus on transactions with high savings opportunities through electronic adoption, such as eligibility and benefit verifications and claim submissions.