Physician Administrative Costs

By August 9, 2011Commentary

One negative attribute of the US health system is that it seems to have very high administrative costs compared to other national health or national health insurance systems.  Research reported in the journal Health Affairs follows up on an earlier study by attempting to quantify what it costs Canadian doctors to interact with their single-payer system and compare that to the findings on administrative costs for American physicians.   (HA Article) Canada is often used as the poster child for single-payer advocates in the United States, although Canadians are concerned about the amount of and rate of growth in their health spending and about other attributes of their system, such as long wait times and limited access to new technologies.  One of the alleged benefits of the single-payer system is it reduces provider administrative expense and frustration.

The study found that Canadian doctors spent 2.2 hours a week on payer interaction, compared with 3.4 spent by US doctors.  Almost the entire difference was accounted for by prior authorization activities.  For nursing staff the numbers were only 2.5 hours per week per physician in the practice versus 20.5 hours in the United States, an enormous difference, which again is largely accounted for by prior authorization activities.  Clerical staff saw a difference of 53.1 hours in the US as opposed to 15.9 in Canada; with the total cost difference supposedly being $82,975 per physician per year in the United States versus $20,410 in Canada.   If US doctors had the same administrative cost for insurer interaction that Canadian ones do, we would save $27.6 billion annually.  But if all that time were freed up, would we need fewer doctors and nurses to provide the same number of services or would they just perform more services that someone has to pay for.  And, as the researchers point out, there may be a value from these activities in reducing health spending.

As we pointed out in our post on the earlier research, this study is based on survey data, which has limited reliability when used for items like asking people how much time they spend on tasks.  The authors say it would be too expensive to do an observational study, but given that the results inevitably are are used to support single-payer reforms, it is pretty important to know that you are being accurate. In addition, the purchasing power parity currency conversion is based on 2006 rates, which not only are dated but inaccurate because in that time the Canadian currency and its purchasing power have appreciated significantly.  There is no doubt that administrative costs in the United States are higher and that part of that greater spending is interacting with multiple payers, often through inefficient means, but it appears likely this study overstates the difference in such costs and there is no analysis of whether there is a net cost savings because of the more intensive administrative interaction.  At a minimum, payers in the United States need to figure out how to standardize and lower the time and cost of administrative interactions.

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