Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

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Medical Billing Complexity Wastes $375 Billion Annually

By Ryan Mcaskill

A new study found that the red tape of medical billing is leading to billions of dollars in wasted resources.

- There are a number of factors that impact medical billing that are unavoidable. However, it is the waste created by the avoidable factors that will drive healthcare revenue cycle management teams crazy and the amount here is substantial.

According to a new report from a four-member research team, medical billing paperwork and insurance-related red tape have a price tag of $471 billion in 2012. An estimated 80 percent of that is waste caused by inefficiency of the nation’s complex, multi-payer way of financing care.

To determine these numbers, a team consisting of physicians and health policy researchers with ties to the University of California, San Francisco, the City University of New York School of Public Health, and Harvard Medical School, reviewed the billing and insurance-related (BIR) micro-costing studies across healthcare sectors. Costs were calculated in each sector as the product of the 2012 U.S. national health expenditures and the percentage of revenue used for BIR.

“In a well-functioning health care system, sound administration is required to ensure efficient operations and quality outcomes,” the report reads. “In the United States however, the complex structure of health care financing has led to a large and growing administrative burden.”

Using the studies, it was determined that BIR costs are significant. In 2012, physician practices spent $70 billion on bureaucratic paperwork. Other sectors of healthcare spent comparable numbers. Hospitals spend $74 billion and other facilities including nursing homes, home healthcare, prescription drug and medical supply companies spent an estimated $94 billion. There was a significant difference between private insurers ($198 billion) and government-sponsored programs ($35 billion).

The report makes the case that because of greater use of deductibles under the Affordable Care Act and the American Recovery and Reinvestment Act are unlikely to substantially reduce BIR cost and administrative burden. In fact, the belief is that it could increase administrative costs to handle processing and value adjustments. There is a cost to the added complexity of healthcare.

The need for a single payer system

The report makes the case that with a single payer healthcare system, similar to the one operating in Canada or the U.S. Medicare system, 80 percent of the expenditure would disappear by eliminating the current fragmentation. Furthermore, a simplified financing system would result cost savings exceeding $350 billion annually, which is nearly 15 percent of healthcare spending.

“Implementation of a simplified financing system offers the potential for substantial administrative savings, on the order of $375 billion annually, which could cover all of the uninsured and upgrade coverage for the tens of millions who are under-insured,” the report reads.

This certainly is something to think about. It is important to note that the report cites a need for further research into areas like home healthcare, nursing home care, prescription drugs and the impact of the ACA before it can be considered complete.

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