Center for American Progress report on illusive administrative savings

Paper Cut - Reducing Health Care Administrative Costs

By Elizabeth Wikler, Peter Basch, and David Cutler
Center for American Progress, June 2012

This paper outlines the nature of administrative costs affecting both health care payers and providers, and considers ways to contain these costs. Many such efforts are underway, including the ongoing implementation of the Health Insurance Portability and Accountability Act alongside several different elements of the Affordable Care Act. Continued progress in these areas is thus a central step to lower administrative spending.

Even still, many additional actions will be needed. In the pages that follow, we outline a three-pronged strategy for addressing administrative costs:
* Integration: embedding administrative simplification rules and systems into existing reform efforts

* Coordination: bringing together similar administrative processes by different health care participants to maximize efficiency

* Leadership: creating a new federal office dedicated to simplifying health care administrative plans

Tackling wasteful administrative costs in our health care system in these three ways would result in savings we estimate at $40 billion per year.

These savings are eminently achievable. By integrating new performance standards to promote adoption of electronic transactions such as requiring that electronic health records include utilization metrics for electronic billing and other administrative transactions, we can achieve roughly $26.1 billion in annual savings. By coordinating similar processes by different health care participants—such as physician credentialing and enrollment, quality and safety reporting, and enrollment and retention systems for public programs—we can save $7.7 billion each year. And by ensuring leadership at the federal government level through a new senior-level office dedicated to ensuring that administrative simplification plans are carried through and that innovative results are achieved, we can save potentially much more.

Tackling excessive administrative costs offers a promising opportunity for reducing health care costs while improving the quality of care for all Americans.



About the Center for American Progress

The Center for American Progress is an independent nonpartisan educational institute dedicated to improving the lives of Americans through progressive ideas and action.

We develop new policy ideas, critique the policy that stems from conservative values, challenge the media to cover the issues that truly matter, and shape the national debate.

Founded in 2003 by John Podesta to provide long-term leadership and support to the progressive movement, CAP is headed by Neera Tanden and based in Washington, D.C.


By Don McCanne, MD

The Center for American Progress is dedicated to "improving the lives of Americans through progressive ideas and action." Yet they were involved in bringing us the Affordable Care Act (ACA) while working with others to keep single payer off the table. They understand that one of the more important features of single payer is administrative efficiency. Let's see how they would address that under ACA.

Basically, they have three proposals. They would move administrative functions such as billing into the patients' electronic medical records; they would coordinate processes such as physician credentialing and patient enrollment through information technology systems, and they would add a new governmental bureaucratic agency to provide oversight of these additional administrative functions.

They contend that this would save about $40 billion annually, though $34 billion of that is already projected through the provisions of ACA and HITECH implementation. They contend that their proposal would add another $6.21 billion to the savings.

Can you imagine the expense of these complex computer systems and the nightmare of trying to coordinate and integrate the various systems amongst aggressive competitors, each of whom would attempt to position themselves in a effort to dominate the market? And obsolescence? That's built in, both through efforts to perpetuate revenue flows to this industry, and through disruptive innovation designed to capture competitors' markets. This won't save costs. Costs will dramatically increase.

And adding another governmental administrative bureaucracy to our dysfunctional system is going to reduce administrative costs? In their effort to continue to suppress single payer they seem to have rejected the obvious concept that they need to REPLACE our current fragmented system of private plans and programs that wastes so much in administration. Instead, they would pile more onto the system.

It's not as if they didn't understand. They even cited a paper by David Himmelstein and Steffie Woolhandler, well known in the policy community as authors of landmark papers on administrative excesses in health care. But they didn't include one of the obligatory Woolhandler/Himmelstein papers that showed that the United States could recover hundreds of billions of dollars in administrative waste by switching to a single payer system. Instead, they pushed their own proposal purportedly showing a highly dubious savings of a mere $6 billion, even though it is much more likely that their proposal would increase costs instead.

Neera Tanden, president of the Center for American Progress has been deeply involved with the current administration in formulating and advocating for the Affordable Care Act. This article seems to be a dishonest vehicle for continuing to dismiss single payer, with the excuse that they are taking care of the administrative inefficiencies, and supposedly saving us money in so doing.

This article coincides with the pending release of the Supreme Court decision on the constitutionality of the Affordable Care Act. It seems to be a preemptive maneuver in anticipation of the imminent surge in demand for a single payer national health program when the decision is announced. They may think that, with this paper as a distraction, they're ready for us, but we've got their number. Let's lead the surge.