Billing and insurance-related waste in an academic medical center

Administrative Costs Associated With Physician Billing and Insurance-Related Activities at an Academic Health Care System

By Phillip Tseng, MEd; Robert S. Kaplan, PhD; Barak D. Richman, JD, PhD; Mahek A. Shah, MD; Kevin A. Schulman, MD
JAMA, February 20, 2018


Importance: Administrative costs in the US health care system are an important component of total health care spending, and a substantial proportion of these costs are attributable to billing and insurance-related activities.

Objective: To examine and estimate the administrative costs associated with physician billing activities in a large academic health care system with a certified electronic health record system.

Design, Setting, and Participants: This study used time-driven activity-based costing. Interviews were conducted with 27 health system administrators and 34 physicians in 2016 and 2017 to construct a process map charting the path of an insurance claim through the revenue cycle management process. These data were used to calculate the cost for each major billing and insurance-related activity and were aggregated to estimate the health system’s total cost of processing an insurance claim.

Exposures: Estimated time required to perform billing and insurance-related activities, based on interviews with management personnel and physicians.

Main Outcomes and Measures: Estimated billing and insurance-related costs for 5 types of patient encounters: primary care visits, discharged emergency department visits, general medicine inpatient stays, ambulatory surgical procedures, and inpatient surgical procedures.

Results: Estimated processing time and total costs for billing and insurance-related activities were 13 minutes and $20.49 for a primary care visit, 32 minutes and $61.54 for a discharged emergency department visit, 73 minutes and $124.26 for a general inpatient stay, 75 minutes and $170.40 for an ambulatory surgical procedure, and 100 minutes and $215.10 for an inpatient surgical procedure. Of these totals, time and costs for activities carried out by physicians were estimated at a median of 3 minutes or $6.36 for a primary care visit, 3 minutes or $10.97 for an emergency department visit, 5 minutes or $13.29 for a general inpatient stay, 15 minutes or $51.20 for an ambulatory surgical procedure, and 15 minutes or $51.20 for an inpatient surgical procedure. Of professional revenue, professional billing costs were estimated to represent 14.5% for primary care visits, 25.2% for emergency department visits, 8.0% for general medicine inpatient stays, 13.4% for ambulatory surgical procedures, and 3.1% for inpatient surgical procedures.

Conclusions and Relevance: In a time-driven activity-based costing study in a large academic health care system with a certified electronic health record system, the estimated costs of billing and insurance-related activities ranged from $20 for a primary care visit to $215 for an inpatient surgical procedure. Knowledge of how specific billing and insurance-related activities contribute to administrative costs may help inform policy solutions to reduce these expenses.

From the Introduction

Administrative costs have been estimated to represent 25% to 31% of total health care expenditures in the United States, a proportion twice that found in Canada and significantly greater than in all other Organization for Economic Co-operation and Development member nations for which such costs have been studied. The rate of growth in administrative costs in the United States has outpaced that of overall health care expenditures1 and is projected to continue to increase without reforms to reduce administrative complexity.

Most of the administrative costs in the US health care system (at least 62% based on prior studies) has been attributed to billing and insurance-related activities (described as billing hereafter). Billing costs are disproportionately high in the United States: for instance, in primary care practice, performing these activities in the United States costs nearly 4 times more than performing the corresponding activities in Canada.

From the Discussion

This study used a state-of-the-art cost accounting method to derive the costs associated with billing for physician activities at an encounter level. Across the 5 services examined in this study, billing costs for professional services ranged from 3.1% to 25.3% of professional revenue, which represented $20 to $215 in absolute costs per visit.

Previous studies of billing costs were developed before adoption of certified EHR systems. These studies used a variety of methods to estimate costs, including existing aggregate data, cost reports and departmental budgets, case studies, and interviews and surveys. They reported that physician billing costs represented 10% to 14% of revenue. This study, using a more accurate cost-tracing approach, estimated these costs to be 14.5% of primary care physician annual revenue, which is at the upper end reported in previous studies.

Billing activities were associated with these high costs despite specific efforts to streamline billing operations. Examination of the billing process did not reveal any significantly wasteful or inefficient efforts, such as overt duplication of tasks or the performance of low-skill tasks by high-wage personnel.

Certified EHR systems were implemented, in part, to address concerns about the significant administrative cost burden in the US health care system. The Office of the National Coordinator for Health Information Technology has suggested that adoption of certified EHR systems could have economic benefits for physicians and health systems by directly addressing these costs. However, the results of the current study suggest that administrative costs remain high even in the setting of a certified EHR. Although the EHR system can automatically generate bills for clinical visits, these systems require the time of high-cost physicians to perform coding and documentation activities that are unrelated to clinical services. In addition, the process maps revealed that despite the electronic system, the billing process still required multiple steps by many types of personnel. Full allocation of certified EHRs to billing activities significantly increased billing costs from the base-case estimate.

These findings suggest that significant investments in certified health information technology have not reduced high billing costs in the United States. To a large degree, the significant administrative costs measured in this study are the consequences of heterogeneous payment requirements across the multiple payers and health plans contracting with the academic health center. The lack of standardized contracts and price schedules within and across markets might explain why administrative costs in the United States are significantly higher than those in other nations that also make fee-for-service payments to private hospitals and physicians. Adoption of certified EHR systems by hospitals appears to have been unable to cope with the complexity of multiple payer contracts or to catalyze significant transformation of the administrative business processes in US health care.


Disentangling Health Care Billing For Patients’ Physical and Financial Health

By Vivian S. Lee, MD, PhD, MBA; Bonnie B. Blanchfield, CPA, ScD
JAMA, Editorial, February 20, 2018

In this issue of JAMA, Tseng and colleagues1 estimated the administrative costs associated with physician billing and insurance-related activities in one large academic medical center with a fully implemented electronic health record (EHR) system. Based on a time-driven activity-based costing method and interviews with health system administrators and physicians, the authors estimated that the costs associated with billing activities performed by physicians represented, as a proportion of professional revenue, 14.5% for primary care visits, 25.2% for emergency department visits, 8.0% for general medicine inpatient stays, 13.4% for ambulatory surgical procedures, and 3.1% for inpatient surgical procedures. For primary care visits, this translated to an estimated more than $99,000 of billing and insurance-related expenses annually for each primary care physician working in the system just to get paid.

As high as these figures are, they likely underestimate the true financial burden of billing for physicians in most health systems. For one, the hospital and physicians of this academic system share a single billing organization, an unusual efficiency for an industry in which hospitals and physicians are typically separate business entities. In addition, billing costs in this study did not include costs within clinical departments for credentialing and other billing-related functions or charge integrity costs (ie, the costs associated with ensuring that all health care delivery charges are accounted for and properly accrued to each patient visit or discharge). While annual operating costs of the EHR were included in this estimate of billing costs, the capital costs of the EHR were not. When the full costs of EHR installation and implementation were fully amortized and attributed to billing, the calculated costs of billing increased by another 44% to 68%.

Despite the preimplementation assumption that EHRs would streamline coding and reduce clinical documentation requirements, this study suggests that, if anything, administrative time needed for billing has increased for physicians and other staff as EHRs have become more widespread. In the health care system the authors studied, each primary care visit necessitated 3 minutes of physician time for billing, which amounts to about 5 hours per week for a typical primary care physician. These figures exceed previous estimates of 3 to 4 hours per week.

The results from the analyses by Tseng et al1 are consistent with previous reports and again highlight how much health care is an outlier compared with other industries. The unnecessarily complex, fragmented, and inefficient system of billing, coding, and claims negotiations in the US health care system employs enough people to populate small nations just to ensure that health care organizations and clinicians are reimbursed for their services. While non–health care industries typically might employ 100 full-time-equivalents to collect payment for $1 billion in services, health care employs an astounding 770 full-time-equivalents per $1 billion of physician services. The process of moving money from payer to hospitals and physicians in the United States consumes an estimated $500 billion per year, and 80% of that amount may be waste. Evidence of that waste includes the high rate of errors in remittances (3-fold higher than other industries) and the high rate of billed charges that are initially denied by insurance companies (12.6% in one study) but that are later paid (81%).

Increasing Payer and Hospital or Health System Mergers

Increasing market consolidation bringing insurers and health systems (including hospitals and physicians) under the same corporate umbrella could help simplify what could then be considered “internal” transactions. Along the same lines, discussions of a national single payer system suggest that such a model could reduce administrative costs substantially, although the political viability of this strategy is uncertain.

Rising Consumer Payments

These changes may be accelerated by the mounting pressure from consumers as payment obligations shift increasingly to them. Whether it is direct payment for noncovered services, a higher share of premium expenses, or increasing copays and deductibles, consumers now pay a larger share of health care costs than employers.

As the report by Tseng et al demonstrates, now is an opportune time to start unraveling the Gordian knot of health care billing and administration, ultimately, for the sake of the health—both physical and financial—of patients. Alternative payment models and EHRs may just be the 2 ends of the cord that the health care system has needed to find to help begin the disentangling.



By Don McCanne, M.D.

This report further validates previous studies demonstrating administrative excesses in our health care system, especially in billing and insurance related activities. If anything, this new study shows that the administrative costs in time and funds may be even greater than previous studies suggest. It further shows that the promise of greater efficiency through certified electronic health record systems was not fulfilled, and EHRs have even compounded the administrative waste.

To understand the magnitude of the problem, you should read the excerpts above. Also prior studies, several of which were done by some members of the academic leadership at PNHP can be found on the PNHP website (

An accompanying editorial states, "discussions of a national single payer system suggest that such a model could reduce administrative costs substantially, although the political viability of this strategy is uncertain." Yet they conclude, "Alternative payment models and EHRs may just be the two ends of the cord that the health care system has needed to find to help begin the disentangling."

It is ironic that the editorialists suggest that that the ineffective alternative payment models and disappointing EHR technology somehow hold the solutions to this egregiously expensive and wasteful problem of administrative excesses. Yet the mechanism that has been proven in other nations to be highly effective - a single payer national health program - seems to be dismissed because of uncertain political viability.

From a policy perspective, single payer is the right way to go whereas APMs and EHRs will never get us there. When the policy is right and the politics are wrong, you don't change the policy, you change the politics. This study shows once again that we have only one clear policy choice - an improved Medicare for all. Let's fix the politics so we can get there.

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