Why is healthcare so expensive: part three

October 29, 2020
Alan Garcia

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In part three of our series, we’re looking at how data and technology can play a role in combating high healthcare costs. Specifically, we’ll be looking at how administrative costs contribute to high healthcare spending and how that can be remedied by strategic use of healthcare data and technology.

High administrative costs.

In a recent FCA Healthcare Economics paper, it was reported that 25 percent ($760 billion) of administrative costs is considered unnecessary and wasteful.

Not only that, but the U.S. leads in administrative costs for healthcare spending among other high-income countries. There are several takes on why administrative costs are so high, and there are several suggested solutions too. However, we’d first like to pose our own possible theory for why so much time and money is spent on administrative work.

From a macro perspective, as a country we are still fairly new at adopting technology. In particular, we are still figuring out how to effectively integrate  data  into critical aspects of our society, like healthcare. This is made even more difficult by the simple fact that the  ecosystem of healthcare data is massive and diverse, supporting treatment, medical research, and administration.

With respect to administrative data, there are dozens of software vendors, with no consistency in how they structure data, and their programs generally lack interoperability.  In addition, payers all have different guidelines for data entry (e.g. claims submissions) which increases complexity and often leads to billing errors.

Data silos.

We all know that healthcare is a highly siloed industry, meaning that there are several barriers and little communication between different facets of healthcare. Data is no exception. Of course, not all healthcare data is relevant to all areas of healthcare, but there are several types of data sets that would be relevant to different parties. One of the main issues is the lack of interoperability. A provider might have one way of recording their data, but then they have six different payers they deal with who all require the data in a different report or format. It wastes time and resources, which leads to extra expenses.

Another challenge is multiple platforms being used by a single provider. For example, U.S. hospitals have an average of  16 different EHRs (Electronic Health Records.) Large healthcare provider systems, like large corporations, have different divisions/organizational units that often operate like separate companies with separate profit and loss centers (P&L.) This allows them to move faster but also leads to coordination challenges as each P&L makes their own decision with respect to data vendors.

Medical organizations and facilities are trying to just get up and running to treat patients. The patient comes first and administrative technology is an after-thought. But without cohesiveness between organizational units, and without a clear standard, medical organizations will continue to utilize multiple, separate data platforms and spend more money.

So how can data and technology address high healthcare administrative costs?

As far as administrative data and corresponding costs go, we need to ask where the specific pain points are. If we think of administrative data exchange between healthcare entities (e.g. providers, patients, payers) as a network, we can assess the different pipelines of data being used to exchange data. Analyzing this network, you could find the slowest and most expensive lines of exchange and then address them systematically.

Another solution is to use vendors that promote interoperability. As healthcare technology adoption in the U.S. continues to mature, I believe we will see dominant vendors emerge who consolidate several data exchange tasks all-in-one. This would reduce the number of different platforms used by providers and create ways for different healthcare entities to communicate more efficiently.

Final thoughts.

The interoperability question is a huge part of healthcare costs. A big part of why we’re seeing administrative costs scale so rapidly is because we are struggling to adopt technology in a way that is standardized. Over a longer scale, as the healthcare industry gets better at adopting technology, there will be a plateau in costs. In the meantime, payers and providers have a responsibility to observe their data and use the results to address where they can reduce spending, and to utilize technology that makes interoperability of data easier to reduce time and resources spent.

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