How complex is U.S. health care administration?

Brookings Institution economist Henry Aaron described the U.S. health-care system as “an administrative monstrosity, a truly bizarre mélange of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird.”

For example, Johns Hopkins Health System in Baltimore deals with about 700 different health plans, employers and other payers. Each payer has an annually negotiated rate for each service. Each also has different payment cycles and eligibility rules that must be tracked. The sheer complexity creates its own redundancies in several Hopkins departments, which the organization calculated to be more than $40 million annually.

Simply moving money from the payer to the provider based on negotiated rates is extremely expensive. Billing and insurance-related functions can account for more than half of administrative expense at a hospital or large physician practice. For an insurance company, the share can exceed 80 percent. Health-care clerical workers outnumber physicians 9 to 1, and registered nurses 3 to 1.

The U.S. spends about three times as much on health administration and insurance per capita as Canada. Brookings economist Aaron estimated in 2003 that the U.S. would save more than $213 billion annually if it had a single-payer system similar to that nation’s.

The complexity of the health-care system places an enormous administrative burden on physician offices. For example, many economic sectors other than health care devote 100 or fewer full-time equivalent employees (FTEs) to collect $1 billion. By comparison, the median number of physician-office FTEs to collect $1 billion is 770. For a 10-physician practice, those extra FTEs cost $250,000 annually.

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