Physician practice interactions with health plans cost $31 billion a year

May 14, 2009

Bethesda, MD--As policymakers consider ways to cut health costs as a part of health reform, a new national survey of physician practices finds that physicians on average are spending the equivalent of three work weeks annually on administrative tasks required by health plans. According to the study by Lawrence P. Casalino, M.D., Ph.D., of Weill Cornell Medical College and colleagues, physician practices report that overall the costs of interacting with insurance plans is $31 billion annually and 6.9 percent of all U.S. expenditures for physician and clinical services. The study, published in today's online issue of Health Affairs, was co-funded by The Commonwealth Fund and the Robert Wood Johnson Foundation's Changes in Health Care Financing and Organization (HCFO) Initiative.

The survey of physician practices across the U.S. inquired about time spent by all practice staff on specific activities, including prior authorization, pharmaceutical formularies, claims and billing, credentialing, contracting, and collecting and reporting quality data. This national survey is the first to ask directly about time spent by non-physician staff on interaction with health plans, and the first to provide data by the type of interaction, type of staff, specialty, and practice size.

On average, physicians spent three hours a week or nearly three weeks per year on these activities, while nursing staff spent more than 23 weeks per physician per year, and clerical staff spent 44 weeks per physician per year interacting with health plans. More than three in four respondents said the costs of interacting with health plans have increased over the past two years.

"While there are benefits to physician offices' interactions with health plans - which may, for example, help to reduce unnecessary care or the inappropriate use of medication - it would be useful to explore the extent to which these benefits are large enough to justify spending three weeks annually of physician time or one-third of the average primary care physician's compensation on physician practice-health plan interaction," said Casalino. "It would also be useful to explore ways to make the interactions more efficient, both on the health plan side and in physician offices."

Other study findings include:"Because many providers care for patients insured by numerous private and public plans, they must contend with multiple payment schedules, claims forms and credentialing requirements. These complicated requirements create wasteful excess costs and do little to improve the quality of care," said Commonwealth Fund President Karen Davis. "A high performing health care system is only possible with improved coordination and elimination of waste - not only between physicians and insurers but in all parts of the health care delivery system."

"To get to a health care system that is high-quality and delivers better value for everyone, we have to address the skyrocketing price of health care's administrative costs," said Risa Lavizzo-Mourey, M.D., M.B.A., president and CEO of the Robert Wood Johnson Foundation. "Administrative costs will never be zero, but we need to make sure that administrative interactions improve the quality of care by working to make care safer and more efficient and rewarding health care providers who successfully reduce excessive care and provide the right treatment at the right time."

A Closer Look at Billing and Insurance-Related Costs

A separate study, also published in today's online issue of Health Affairs and co-funded by The Commonwealth Fund and the HCFO, provides an in-depth look at the billing and insurance-related activities performed at a large multi-site, multi-specialty group practice in California to get paid for clinical services. The study found that clinicians spent more than 35 minutes per day performing billing and insurance-related tasks and that these activities also required the equivalent of 0.67 non-clinical full time staff per full-time physician at an annual cost of $85,276 per physician, representing 10 percent of operating revenue.

The authors note that even though the practice studied uses an electronic medical record system for billing and clinical record keeping and has implemented extensive automation, the complexity of serving patients covered by hundreds of specific insurance plans, each with different benefits, payment rates and billing procedures, greatly adds to the administrative workload. The challenge of managing these widely varying requirements increase the chance of billing error and dispute and the likelihood of requiring payment follow-up and collections.

"We believe that while minimizing billing and insurance-related administration activities is not the only goal of the health care system reform, standardizing health plan features and processing requirements presents a tremendous opportunity for improving efficiency in a multi-payer health care system," said lead study author Julie Sakowski, Ph.D., a senior health services researcher at the Sutter Health Institute for Research and Education.
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The article by Casalino and coauthors is available at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.4.w533 and the article by Sakowski and coauthors is available at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.28.4.w544

The Commonwealth Fund is a private foundation supporting independent research on a high performance health system.

The Robert Wood Johnson Foundation focuses on the pressing health and health care issues facing our country. As the nation's largest philanthropy devoted exclusively to improving the health and health care of all Americans, the Foundation works with a diverse group of organizations and individuals to identify solutions and achieve comprehensive, meaningful and timely change. For more than 35 years, the Foundation has brought experience, commitment, and a rigorous, balanced approach to the problems that affect the health and health care of those it serves. When it comes to helping Americans lead healthier lives and get the care they need, the Foundation expects to make a difference in your lifetime. For more information, visit www.rwjf.org.

Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print, with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org.

Commonwealth Fund

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