Standardizing claims can save billions of dollars

by Joyce Frieden

A standardized claim form and a single set of submission and payment rules for all health plans could save the U.S. healthcare system $7 billion annually, a study has found.

“Although not all costs of excessive administrative complexity have been captured in our study, both real costs in billing operations and opportunity costs in physicians’ practices are significant,” Bonnie B. Blanchfield, ScD, of Massachusetts General Hospital in Boston, and colleagues wrote in the June issue of Health Affairs.

“Our findings, on a national scale, translate into approximately $7 billion of direct savings for physician and clinical services billing operations as well as approximately 4 hours per physician and 5 hours per practice support staff member per week.”

Healthcare is much worse than other industries when it comes to administrative costs. “Many nonhealthcare sectors operate 100 full-time equivalents (FTEs) or fewer per $1 billion collected,” the authors wrote. “That compares to median staff levels of 770 FTEs per $1 billion collected for physician practices.”

To estimate how much simplifying the payment system might increase efficiency, the authors studied claims submission and payment at a large, urban-based academic teaching hospital’s physician organization.

The group contracts with multiple payers, each with different payment requirements. The physician organization’s professional billing office is the group responsible for submitting and processing all claims on behalf of the physicians.

After identifying the staffing and costs related to the billing, processing, and payment of fiscal year 2006 claims, the authors developed a revised staffing model, assuming that the same claims were being processed under a hypothetical set of simplified payment requirements which were the same for all payers.

Blanchfield and colleagues chose Medicare fee-for-service physician payment rules as the model for a single set of transparent payment requirements.

“The Medicare rules may or may not be ideal, but using them explicitly recognizes that there is the need for some level of administrative consistency to ensure fair and accurate payment,” they explained.

The authors found that much of the excessive administrative complexity of the payment system was in two areas: processing and receipt of payments for physician services in the professional billing office, and administrative functions of physicians and their staffs in the clinical practices.

That included extra paperwork related to successful appeals of denied claims, and reduced revenue due to rejected claims that would have been paid under the authors’ simplified rules.

In fiscal year 2006, the cost of excessive administrative complexity, including both expense and lost revenue, was nearly $45 million for the organization, or 11.9% of net patient revenue. “This represents $8.43 of net patient revenue per dollar of burden spent, or $50,250 in burden per physician,” the authors noted.

Of the total, $5.6 million was directly associated with the processing and billing of claims in the professional billing office.

But the largest portion of the administrative complexity burden — 74% — was attributed to the time costs incurred by physicians and their staffs in preparing paperwork and contacting payers about prescriptions, diagnoses, treatment plans, and referrals.

The physician time, estimated at 4 hours per week, accounted for $28.4 million of the estimated burden, while the practices’ administrative staff and nursing time of 5 hours a week accounted for $4.9 million.

Although eliminating many of these costs might not necessarily convert directly into into dollars saved for the organization, “value could be realized through improvements in physician and staff work life, more time with patients, or increased productivity,” they wrote.

On the revenue side, for non-Medicare payers, 12.6% of billed charges were denied on initial submission. After appeals, 81% of initial denials were eventually paid.

Overall, “mandating a single set of rules, a single claim form, standard rules of submission, and transparent payment adjudication — with corresponding savings to both providers and payers — could provide system-wide savings that could translate into better care for Americans,” Blanchfield and colleagues wrote.

The authors noted that because they focused on a physician organization, potential savings from administrative simplification related to inpatient costs were not included. In addition, staff costs incurred by the physician organization to measure, evaluate, and report quality indicators have not been identified.

Joyce Frieden is a MedPage Today News Editor.

Originally published in MedPage Today. Visit for more practice management news.