Administrative Costs Associated with Physician Billing and Insurance-related Activities at an Academic Health Care System

Philip Tseng (Duke University Medical School)
Robert Kaplan (Harvard Business School)
Barak Richman (Duke Law School)
Mahek Shah (Harvard Business School)
Kevin Schulman (Duke University Medical School)

Abstract: Administrative costs have been estimated to represent 25% to 31% of total health care expenditures in the United States, a proportion twice that found in Canada and significantly greater than in all other OECD member nations. Knowledge of how specific billing activities contribute to administrative costs can help inform policy solutions to reduce these expenses, but prior studies have analyzed billing costs in aggregate without attributing the costs to specific component activities. Moreover, these studies were conducted over a decade ago and before widespread adoption of certified electronic health record (EHR) systems, which were in part intended to simplify the billing process. This study uses a state-of-the-art accounting method, time-driven activity-based costing, to develop estimates of billing-related costs in a single, large academic health care system for 5 key types of patient encounters: primary care visits, discharged emergency department visits, general medicine inpatient stays, ambulatory surgical procedures, and inpatient surgical procedures. We find that costs for billing and insurance-related activities range from $20 for a primary care visit to $215 for an inpatient surgical procedure and represent up to 25.3% of professional revenue. These findings reveal that significant investments in health information technologies and electronic health records have not reduced already-high administrative costs in the US healthcare system.

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