Administrative health care costs are extraordinary in the United States. Although heated debates continue about their causes and benefits, practice communication with health insurance plans seems to be responsible for a material amount of physicians’ administrative expenses.

Physicians and their staff have long expressed frustration with the time they spend interacting with health plans. Until recently, however, little information existed about the magnitude of these interactions. In What Does It Cost Physician Practices To Interact With Health Insurance Plans? (2009) L.P. Casalino et al conducted a national survey with physicians and practice administrators. The findings are shocking.

Revenue Deterioration

When time is converted to dollars, the authors estimate that the national cost to practices just from interactions with health plans is at least $23 billion to $31 billion each year. Furthermore, physicians reported spending three hours weekly interacting with plans while nursing and clerical staff spent materially more time.

Casalino et al estimate that medical practices spent an average of $68,274 per physician per year interacting with health plans.  The median value was $51,043. Shockingly, primary care practices spent $64,859 annually per physician. This is roughly one third of the income plus benefits of the average primary care physician!

Today, health plans proclaim that they have reduced the administrative burden they place on physicians. However, Casilino’s paper strongly suggests the contrary. Physicians continue to be dissatisfied with this burden. For example, (1) the average physician reports spending nearly three weeks per year on these interactions; (2) the nursing staff spends twenty three weeks per physician per year; and (3) clerical staff spends forty four weeks. Ironically with the emergence of electronic health records which were designed to improve administrative obstacles in the spirit of increased efficiency, the average physician is dedicating only two hours per week to providing quality data to health plans or to reviewing quality data for the practice.

Billing and administrative costs are no less onerous than time spent with insurance companies on the phone. California spends $167 billion on health care each year. Administrative costs account for approximately twenty-five percent of this sum or slightly over $42 billion per annum. While little was known about billing and insurance-related (“BIR”) costs until recently, James G. Kahn, et al. estimate in their paper, The Cost of Health Insurance Administration in California: Estimates for Insurers, Physicians, and Hospitals (2005), that physician offices spend a staggering 27 percent and 14 percent of revenue on administrative and BIR functions, respectively. Simply, this is grossly inefficient.

Billing and Insurance Functions Graph

As practices attempt to improve reporting coupled with an emphasis on measuring outcomes, the administrative costs, unfortunately, will only increase. While the thirst for more statistics will increase providers’ knowledge and ostensibly improve the ability to measure a wide variety of data points, the reality is that administrative burdens are increasing – not decreasing.

These findings are a grave concern for our health care system. The estimated $31 billion cost to physician practices for time spent with health plans is more than twice the GDP of Jamaica while the $23 billion that California spends on billing and insurance-related costs is roughly twice the GDP of Iceland. As legislative change – such as the migration of ICD-10 – continues to add complexity to our system, it is imperative that physicians take a more proactive approach to their revenue and cost structures.

For more information call Ken Alston at 949.250.0011 ext 233 or visit our website www.medvisioninc.com

By Ken Alston, MedVision  www.medvisioninc.com

For many medical practices, the idea of spending hours analyzing revenue, profitability, and accounts receivable trends is not high on the list of priorities. Nevertheless, as we are living in an environment of decreasing reimbursement and confusing new reforms, this is exactly what medical practices should do in order to optimize their revenue. When it comes to measuring performance, medical practices have fared poorly compared to other private enterprises. The reason? A lack of resources, time, and importantly, readily-available benchmarks. It is critical, however, that physicians employ a set of quantifiable performance indicators in order to better understand their practice. If indicators are to be successful, they must be easily definable and measurable. For example, “generating more new patients” is inadequate unless your staff monitors this on a monthly, quarterly, or yearly basis and distinguishes existing patients from new patients. “To be the most trusted cardiologist in Los Angeles” is flawed because there is no way to measure the practice’s trustworthiness relative to competition.

 A practice, therefore, must define a set of parameters it will use in order to assess its current financial or operational situation. If an oncologist’s collections ratio (as defined by collections divided by charges) is 35% for the last fiscal year and the national benchmark for this specialty is 45%, the team must launch a strategy to capture more revenue through greater efficiency. Just this one specific goal will set the practice on a more positive trajectory, which should lead to thoughtful questions such as (1) Are our contracts inferior to my competitors? Am I being reimbursed below Medicare? (2) Is my billing company capturing all of my charges and are my bills being submitted in a timely manner? (3) Are my collectors exhausting their resources to collect monies and are they utilizing appeals? (4) Are certain procedures worth the effort in terms of time versus reimbursement?

 It is important, however, to employ more than one goal or indicator. Using merely one will only address one particular issue. Goals and their key indicators should work in concert. The practice should not be forced to choose between financial and operational initiatives but rather balance both simultaneously. Of course, the quantitative benefits of measuring performance are numerous, but one of the most important qualitative benefits is an increase in staff morale. The achievement of mutually agreed-upon practice goals builds a sense of pride and accomplishment with the team – resulting in less employee turnover. This – alone – saves the practice money.

For more information call MedVision.