Members of Congress Identify Ways to Cut Administrative Costs

A leading insurer advocate says national standardization for preauthorization requirements “has potential.”

July 31—Healthcare administrative costs could be cut in half over the next five years through a series of congressional and administrative actions, members of Congress were told this week.

Members of the Senate Health, Education, Labor, and Pensions Committee appeared receptive at a July 31 hearing to several approaches to reducing healthcare administrative costs, including hospitals’ regulatory costs.

David Cutler, PhD, a healthcare policy professor at Harvard, testified that 30 percent of healthcare costs are administrative, including a large share that go to meeting regulatory requirements. The federal government could help eliminate half of those costs by leading efforts to simplify billing and insurance requirements.

Specifically, Cutler highlighted the time and costs stemming from complexities in billing for individual patients. Providers aim to add more codes to increase specificity and generate more revenue from payers, while payers respond by adding additional billing complexities, he said.

Much of the cost related to insurance claims is driven by the extensive documentation requirements of prior authorizations, Cutler told the senators. The challenge is compounded by the wide variation in prior-authorization requirements among insurers, and those requirements sometimes also vary by provider.

The challenges and provider costs of prior authorization were highlighted by Sen. Lisa Murkowski (R-Alaska), who noted the process requires hospitals and other providers to hire increasing numbers of staff specifically to handle prior-authorization requirements.

“Are we at a point where we have effectively started a secondary business here—dealing with the insurance companies to get the sign-off and approval?” Murkowski said.

Sen. Bill Cassidy (R-La.) said eliminating prior authorization—which is not used in Medicare—could produce an “ungodly amount of fraud,” but he also favored nationwide standardization of preauthorization requirements.

But paring insurance billing requirements and reducing the variation in preauthorization “won’t happen on their own,” Cutler said. Those efforts need to be driven by the federal government, the dominant payer for healthcare services through Medicare and Medicaid. The federal role would be based on approaches to reform by dominant private companies in other sectors that have cut administrative burdens.

“The big player has to take part or it doesn’t happen,” Cutler said.

Sen. Tina Smith (D-Minn.) said many voters have told her about “Catch-22 situations” where they needed care but were “caught up” in gathering the required documentation.

Sen. Johnny Isakson (R-Ga.) said preauthorization requirements throughout health care, including for surgeries, testing, and minor procedures, were designed to reduce the amount of healthcare claims, but there were “so many different [requirements] that it is virtually impossible to keep up with them.”

What It Would Take

Matt Eyles, president and CEO of America’s Health Insurance Plans (AHIP), said nationally standardized prior authorization “has potential” but also cited concerns because some insurers feel they need different requirements.

Cutler said the reluctance of insurers to standardize their practices stemmed from the amount of effort and cost involved, as well as specific goals that drove their customized approaches. Similar to efforts to spur nationwide hospital adoption of electronic health records (EHRs), Cutler said a prior-authorization standardization requirement would carry large costs for insurance companies—but they are likely to be glad they did it once it is implemented.

He noted that European countries that rely on private insurers had cut their administrative costs through requirements that the process be “highly standardized.”

Eyles cited several ongoing private efforts, such as one led by CAQH, that aim to standardize insurers’ administrative practices and allow for real-time knowledge of patient costs.

Smith said she is working on legislation to support public-private partnerships as a way to “demonstrate success” in standardization efforts.

Private agreements between insurance companies could help in the effort to standardize some patient billing, “but in order to drive broad standardization and harmonization it would require the involvement of the federal government,” Cutler said. Most private insurers have not moved toward standardization because the federal government has not.

Cutler suggested that the U.S. Department of Health and Human Services work with healthcare organizations to develop a plan to simplify administrative practices within the next five years, with execution requiring both future legislation and administration support.

Cutting administrative costs also would require electronically integrating digital billing systems and EHRs to cut personnel costs. The lack of such integration requires labor-intensive provider efforts to move the data from EHRs into billing systems, so providers can be paid for their clinical efforts, Cutler said.

Those personnel costs are “extremely expensive,” Cutler said.

Cutler said the federal government already had the authority to force the integration of digital billing and clinical systems through the $38 billion EHR Incentive Program, and their failure to do so was a “lost opportunity.”

Senators repeatedly pressed Cutler about the feasibility of his three-pronged administrative cost-reduction approach—standardizing prior authorization, simplifying provider administrative practices, and integrating billing and clinical systems—and he stood by it.

Other Steps Discussed

Among cost reduction approaches that could concern providers was Cassidy’s suggestion to allow insurers in rural areas to index their payments to Medicare payment rates.

Becky Hultberg, president and CEO of the Alaska State Hospital & Nursing Home Association, testified that Medicare does not cover the full cost of treating those patients.

AHIP’s Eyles said insurers preferred to move payments toward paying for value instead of merely lowering rates to Medicare or Medicaid levels.

“I don’t want the best to be enemy of the adequate,” Cassidy said in response.

Hultberg also highlighted the administrative burden of complying with multiple payer surveys, which carries “tremendous direct costs and opportunity costs.” She urged a standard framework for surveys across states.

She also praised the Trump administration’s increased rural healthcare focus but said the approach should be variable to account for different types of rural geographies and different types of patients. She noted that hospital needs in rural Alaska are very different than those of rural hospitals in Iowa.

Cutler said state-specific regulatory-reduction strategies have provided savings and increased provider satisfaction, but they “also reach a limit on what they can do.” He noted that such efforts cannot impact Medicare or federally regulated ERISA plans.

However, such approaches can provide a “proof of concept” for national actions, he said.

Cassidy also hailed the potential administrative-burden reductions from direct primary care initiatives, which incorporate a monthly fee to a provider—and no deductibles or copays—along with coverage through a catastrophic health plan.

He has introduced legislation to promote direct primary care coverage.

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Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare