U.S. doctors' administrative costs 4 times higher than in Canada

By Mark Crane
Medscape Today, Aug. 4, 2011

American physicians spend almost four times as much in money and staff time on administrative costs as physicians under the single-payer system in Ontario, Canada, a study published online August 3 in Health Affairs has found.

Dealing with multiple health plans on claims, prior authorizations, and pharmaceutical formularies is estimated to cost at least $82,975 per physician annually in the United States, compared with $22,205 in Ontario, according to the study, partially supported by The Commonwealth Fund, which favors single-payer systems.

If American physician practices had administrative costs similar to those in Ontario, the total savings for US health spending would be about $27.6 billion per year, according to estimates by lead author Dante Morra, assistant professor in the Department of Medicine at the University of Toronto, and colleagues.

The authors surveyed 141 Canadian physicians, 45 Canadian practice administrators, 668 American physicians, and 194 US administrators.

US physician practices interact with multiple health plans with different insurance products, each of which may have its own formulary of approved drugs and its own rules for prior authorization, billing, submitting claims, and determining payment. Canadian physicians generally interact with a single payer with a single product.

"The U.S. spends nearly twice as much per person on health care as any other country, and high administrative costs due to our inefficient and fragmented insurance system are a contributing factor," Commonwealth Fund President Karen Davis said in a statement. "Greater continuity of insurance coverage and insurance administrative simplification reforms in the Affordable Care Act can begin to streamline health care administration and reduce the time medical staff must spend on billing and authorization issues."

The biggest single factor in the cost disparity is due to the single-payer system in Canada, the authors state, adding that “it would be incorrect to assume that all of the extra US costs represent waste.…Having multiple payers clearly generates more administrative costs than a single-payer system. These costs should be balanced against possible benefits generated by such a system — for example, benefits that may arise from competition, innovation, and choice among insurance products.

"Prior authorization requirements increase administrative costs for physicians and health plans but may reduce the amount of inappropriate care provided; savings and increased quality generated by reducing inappropriate care should be matched against the costs of prior authorization. To our knowledge, no reliable estimates of these savings exist," the authors write.

There are many other differences between the Canadian and American healthcare systems. For example, Ontario introduced a capitation model for physician funding 10 years ago. Doctors are paid according to the number of patients on their roster, not how many times a patient is seen.

Waiting lists are common in Canada. The median waiting time between referral from a general practitioner to the receipt of elective treatment is 18.21 weeks in 2010, up from 16.1 weeks in 2009, notes a 2010 survey by the Fraser Institute, a Canadian think-tank that favors a free-market approach to healthcare issues. Canadians wait on average 4.2 weeks for computed tomography, 9.8 weeks for magnetic resonance imaging, and 4.5 weeks for ultrasonography, the survey found.

Other findings from the Health Affairs study include the following:

* Nurses and medical assistants spend 20.6 hours per physician per week on administrative tasks, nearly 10 times the time spent by Canadian practices. The main reason is obtaining prior authorization in the United States.

* US clerical staffs spend 53.1 hours per physician per week on administrative tasks related to insurance, compared with 15.9 hours in Ontario.

* Senior administrators of US physician practices spend 163.2 hours a year overseeing claims and billing, compared with 24.6 hours a year in Ontario.

* Very little time is spent submitting quality data to health plans in either the United States or Ontario.

How can administrative costs be reduced in the United States? The authors cite recommendations from the Institute of Medicine and others that include "creating common, possibly mandatory standards for billing, claims payment, prior authorization, etc.; making all standard interactions electronic; using a single credentialing process; using a single quality measurement process; and using automated verification at the point of care of patient eligibility for health insurance benefits."

They also note that "Section 1104 of the Affordable Care Act of 2010 instructs the Secretary of Health and Human Services to take steps to simplify interactions between providers and health plans."

In addition, the reform law's emphasis on new payment methods, such as bundled payments and pay-for-performance, and new ways of organizing healthcare delivery, such as accountable care organizations, could move US health care away from fee-for-service payment, and "reduce the administrative costs involved in producing, reviewing, and processing claims for each service provided."

[PNHP note: See Dr. Don McCanne's "Quote of the Day" comment on the study described above. For a more extensive comparison of U.S. and Canadian administrative costs, see "Costs of Health Care Administration in the United States and Canada," by Dr. Steffie Woolhandler, Terry Campbell and Dr. David Himmelstein in the New England Journal of Medicine.]