News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

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Clinical Laboratories and Pathology Groups

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Administrative Costs Highest in US, According to NEJM and Health Affairs Studies; Reduction Efforts Will Impact Clinical Laboratories

Clinical laboratory test claims make up a substantial proportion of all claims filed each year. Thus, any effort to streamline or reform claims adjudication and administration in the US will alter how labs and pathologists conduct business

Clinical laboratory managers and anatomic pathologists know how costly and complex the US healthcare system can be. However, expenses associated with care and treatment are only part of the total picture. Resources devoted to paperwork and administrative costs apparently increase overall expenditures associated with healthcare to a much higher degree than is generally known.

That’s according to several studies The New York Times reported on in July.

US Administrative Costs Higher than All Other Nations

One study conducted by The New England Journal of Medicine (NEJM) in 2003 estimated administrative costs account for approximately 30% of all healthcare expenditures in the US. The researchers examined data from 1999 to reach those conclusions. In today’s economy, those numbers are higher. On average, $5,700 of every $19,000 that US workers and their employers pay for family coverage each year goes towards administrative costs.

A 2014 study published by Health Affairs compared administrative costs for US hospital expenditures to those of seven other countries: Canada, England, France, Germany, the Netherlands, Scotland, and Wales. This study evaluated data from 2010/2011 and found that hospital administrative costs in the US far exceed rates in other nations. According to the study, administrative costs accounted for:

  • 25.3% of total hospital expenditures in the US;
  • 19.8% in the Netherlands;
  • 15.5% in England; and,
  • 12% in Canada and Scotland.

According to the Health Affairs study, more than $150 billion could have been saved in 2011 by reducing per capita spending for administrative costs to the levels observed in Canada and Scotland.

“The extraordinary costs we see are not because of administrative slack or because healthcare leaders don’t try to economize,” Kevin Schulman, MD, Professor, Department of Medicine, Duke University, and co-author of the Health Affairs study told The New York Times. “The high administrative costs are functions of the system’s complexity.” (Photo copyright: Duke University.)

Complexity of Payer System Partly to Blame

One reason for the costliness in the US healthcare system is the myriad of payers that healthcare organizations have to grapple with to receive payment. Private health insurers and public health programs like Medicare and Medicaid, each have their own procedures, regulations, and forms that need to be submitted to receive payments. This translates to more employee time devoted to billing.

Another factor driving costs is the staff time devoted to the collection of debts. A 2017 Health Affairs study examined medical claims data from 88,000 healthcare providers contracted with Athenahealth to determine the percentage of bills paid within one year from the initial service.

The study found that 93.8% of patient bills under $35 were paid within a year. However, that percentage decreased as the patient obligation increased:

  • 90.5% of patients paid bills between $35 and $75 within one year;
  • 83.7% paid bills between $75 and $200 in the same time period; however,
  • When bills increase to $200 or more, just 66.7% were paid within a year’s time.

Providers wrote off approximately 16% as abandoned or bad debts, with an additional 17% going to collection agencies.

Another study, published in Health Affairs in 2009, surveyed 895 physicians about the time they spent dealing with administrative tasks. On average, physicians reported spending 43 minutes per workday interacting with health plans. This number is the equivalent of three hours/week and almost three weeks/year. Those numbers have reportedly increased since then.

EHRs Do Not Reduce Administrative Costs, Contrary to Belief

Efforts have been made to reduce administrative costs in the US healthcare industry. One such measure involved increased use of certified electronic health record (EHR) systems, which the federal government spent billions of dollars promoting and incentivizing providers to adopt on the claim that EHRs would reduce healthcare costs, in part by removing most of the paperwork.

However, a 2018 study published in the Journal of the American Medical Association (JAMA) reported the adoption of EHRs did not reduce administration costs. Researchers at Duke University and Harvard Business School utilized a cutting-edge accounting method to determine the administrative costs within a large academic healthcare system that was using a certified EHR.

Their study determined the administrative costs for processing a single medical bill ranged from $20 for a doctor visit to $215 for an inpatient surgical procedure. These costs accounted for 3%-25% of total professional revenue for the provided services.

“We need to understand better how complexity is driving these enormous costs within the system, costs that do not add value to patients, employers, or providers,” noted Barak Richman, JD, PhD, Duke University School of Law and Margolis Center for Health Policy, one of the study’s authors.

Clinical Lab Test Claims a Major Portion of Administrative Costs

Nevertheless, administrative costs are a necessary part of doing business and not always as negative as perceived. An article published by Health Affairs in 1992 divided administrative costs in the healthcare industry into four categories:

  • Transaction-related: claims processing, billing, admissions, and tracking employee hiring/terminations;
  • Benefits Management: quality assurance, plan design, statistical and internal analyses, and management information systems;
  • Selling and Marketing: strategic planning, underwriting, and advertising; and,
  • Regulatory and Compliance: waste management, licensing requirements, and discharge planning.

“We hope that this work is the first step toward informing policy solutions that could reduce these non-value-added costs largely hidden within the healthcare system,” Schulman stated in a Duke University news release.

The issue of costly paperwork and administrative expenditures is significant for the clinical laboratory profession as lab test claims make up a substantial portion of all medical claims filed annually. Efforts to streamline or reform claims adjudication and administration will have an impact on the way clinical labs and anatomic pathology groups conduct business in the future.

—JP Schlingman

Related Information:

Hidden from View: The Astonishingly High Administrative Costs of U.S. Health Care

NEJM: Costs of Health Care Administration in the United States and Canada

Heath Affairs: A Comparison of Hospital Administrative Costs in Eight Nations: US Costs Exceed All Others by Far

Heath Affairs: Inside the Black Box of Administrative Costs

Heath Affairs: As Patients Take on More Costs, Will Providers Shoulder the Burden?

Heath Affairs: What Does It Cost Physician Practices to Interact with Health Insurance Plans?

Electronic Health Records Don’t Reduce Administrative Costs

Simplifying Administration of Health Insurance

Pathologists Performing Molecular Autopsy in Cases of Sudden Unexpected Death Could Identify Genetic Clues That Help Surviving Family Members Assess Their Own Risk

Pathologists could benefit if postmortem genetic testing becomes more commonplace following incidents of sudden unexpected death

Pathologists are discovering that molecular autopsy, also called postmortem molecular testing, could boost the chance of discovering the likely or plausible cause of sudden unexpected death, according to preliminary results from a study published in the Journal of the American Medical Association (JAMA).

Researchers led by Ali Torkamani, PhD, Director of Genome Informatics at the Scripps Translational Science Institute (STSI) and Assistant Professor of Molecular and Experimental Medicine at the Scripps Research Institute, sequenced samples from 25 sudden death cases. They identified: (more…)

New Study Indicates Shopping Tools Alone Might Not Lower Medical Spending, Even Though More Patients Want to Know Prices for Clinical Laboratory Tests and Other Procedures

JAMA study finds that most workers with access to web-based price comparison tools did not use them, nor did they spend less on medical care than other workers

Can shopping tools designed to help patients compare providers (including medical laboratories), quality, and prices, make a contribution to reducing the increase in healthcare costs? A new study suggests that such shopping tools make only modest contributions to controlling the cost of care.

Published May 3 in the Journal of the American Medical Association (JAMA), the study found that only 10% of the 150,000 employees at two large companies offering web-based transparency tools logged on to compare healthcare costs during the calendar year. In addition, providing workers with the ability to shop for healthcare services did not bring down employees’ average outpatient spending. Instead, employees with access to transparency tools spent slightly more than workers who could not price shop.

“Our findings temper the enthusiasm around the idea that price transparency is some sort of panacea … that price transparency alone, coupled with high deductible health plans, are going to lead to reduced spending,” stated Sunita Desai, PhD, a Seidman Fellow in Healthcare Policy at Harvard Medical School who led the study. She was quoted in a Washington Post article. (more…)

Internationally-respected Experts in Clinical Pathology and Laboratory Medicine Ask: Why Don’t We Know More about Theranos’ Technology?

This secretive start-up medical laboratory testing company has not disclosed how its diagnostic test technology works, nor has it given laboratorians an opportunity to examine the technology

Several internationally-respected clinical laboratory experts are asking serious questions about Theranos and its diagnostic testing technology, and they’ve gotten few answers to date. Though the number of experts is small, their credentials in the clinical laboratory profession are impressive. In addition, some have published their critiques of the start-up medical laboratory company in well-respected medical journals.

One question these clinical pathologists and laboratory directors ask is why Theranos has so far been unwilling to provide more information about the lab testing technology it uses to deliver medical laboratory test results to patients and their referring physicians. Even as the company has declined to speak to the medical laboratory profession, Theranos has mounted a major public relations campaign designed to make a big impression on investors, business partners, and most recently on health insurers.

The clinical laboratory company in Palo Alto, Calif., gets plenty of attention because it claims to have disruptive technology that will allow it to perform medical laboratory tests equivalent to the current standard of care. Theranos says it can do this using a capillary specimen and return results in four hours, while charging a price that is just 50% of Medicare Part B lab test fees. Given these assertions, it is natural that pathologists and laboratory scientists who perform tests for patients, are curious about the scientific basis of Theranos’ proprietary diagnostic technology and what evidence Theranos has developed to support its claims of comparable accuracy and reproducibility. (more…)

Two Lab Leaders Present Different Ways to Help Physicians Get Greater Value from Clinical Pathology Laboratory Testing

In response to healthcare’s transformation, a pathologist and a lab CEO describe two powerful ways that medical laboratories can collaborate with physicians, patients, health systems, and health insurers to deliver more value

DATELINE: Phoenix, Arizona—It may be appropriate that, with the pace of change heating up in both healthcare and the clinical laboratory industry, it was here in the hot Sonoran Desert that more than 500 medical laboratory professionals gathered last week for the annual Sunquest User Group Conference (SUG) hosted by Sunquest Information Systems. (more…)

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