2009 May 14 Thursday
Insurance Costs For Medical Practices Measured

Medical costs as a percentage of the total US economy are approaching unsustainable levels. Medical cost cutting has become an important political issue.

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 costs are higher for smaller practices with fewer physicians. One can imagine that larger practices have administrative specialists who do some of the work and better information systems for automating the work.

Another study finds a large group practice spends 10% on billing and insurance.

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.

Then there are additional costs in the insurance companies. Plus, patients and their families have to spend some time dealing with insurance companies and bills.

To be fair to the insurance companies the biggest problem with medical payments is that the money doesn't flow in ways that maximize incentives for efficiency. That's mostly due to the fee-for-service model by which medical services are provided. Doctors and hospitals make more money by providing more services. They are not incentivized to manage care in ways that minimize costs. Insurance companies try to reduce the resulting waste by making treatment funding approvals harder to get. But this response by insurance companies does not address the underlying problem with incentives.

Political responses to the problem of high medical costs are in the offing. Will these responses make the problem of bad incentives better or worse? I fear the latter. America's elected leaders are an unimpressive lot. I do not expect wise decisions from them.

Share |      By Randall Parker at 2009 May 14 11:54 PM  Economics Health

James Bowery said at May 15, 2009 6:05 AM:

Again, it mystifies me that the Republicans aren't pushing Charles Murray's plan. It does include healthcare reform that would effectively contain costs. But more importantly, the Republicans could, by merely pushing for it, kill the Democratic Party. Republicans: Truly the Stupid Party.

But, then I'm even more mystified that more people don't express said mystification.

Ned said at May 16, 2009 6:52 AM:

Six percent sounds about right for billing costs for a typical medical practice. The problem is that Medicare and Medicaid, the government plans, use exactly the same coding systems as the private insurers. Plus they are slow to pay, unresponsive to complaints and impossible to negotiate with. Their low-ball fee schedules are all offered on a "take it or leave it" basis. Government bureaucrats don't care a bit if Grandpa can't find a primary care doctor who accepts new Medicare patients (and most of them don't).

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