Physician practice, payor interactions cost $31B annually

As policymakers consider ways to cut health costs as a part of healthcare reform, a new survey of U.S. physician practices finds that physicians are spending, on average, the equivalent of three work weeks annually on administrative tasks required by health plans, according to a study published online May 14 in Health Affairs.

Physician practices report that overall the costs of interacting with insurance plans is $31 billion annually or $68,274 on average per physician per year, and 6.9 percent of all U.S. expenditures for physician and clinical services, according to the research, which was conducted by Lawrence P. Casalino, MD, PhD, of Weill Cornell Medical College in New York City and colleagues.

The survey of nearly 900 U.S. physician practices 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. The U.S. 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," Casalino said. "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:

• Physicians, especially primary care physicians, in a solo or two-person practice spent significantly more hours interacting with health plans than physicians in practices with 10 or more physicians.
• Physicians, on average, spent nearly three weeks per year interacting with health plans, or three hours per week. Primary care physicians spent significantly more time (3.5 hours per week) than medical specialists (2.6 hours) or surgical specialists (2.1 hours).
• Across practices, physicians and their staffs spent substantially more time on authorization, formularies, claims and billing and credentialing than they did on submitting quality data or reviewing quality data provided by health plans.

"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 healthcare system is only possible with improved coordination and elimination of waste--not only between physicians and insurers but in all parts of the healthcare delivery system."

"To get to a healthcare system that is high-quality and delivers better value for everyone, we have to address the skyrocketing price of healthcare's administrative costs," said Risa Lavizzo-Mourey, MD, 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 healthcare providers who successfully reduce excessive care and provide the right treatment at the right time."

Billing and insurance-related costs

A separate Health Affairs study provided 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 noted that even though the practice studied used an EMR 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 healthcare system reform, standardizing health plan features and processing requirements presents a tremendous opportunity for improving efficiency in a multi-payor healthcare system," said the study's lead author Julie Sakowski, PhD, a senior health services researcher at the Sutter Health Institute for Research and Education.

The Commonwealth Fund and the Robert Wood Johnson Foundation's Changes in Health Care Financing and Organization Initiative co-funded the study.