US Physician Admin Costs Quadruple Canadian Counterparts

The cost per physician of managing the variety of health plans offered by U.S. health care plan providers is nearly $61,000 more than counterparts in Canada, a new study by researchers at Cornell University and the University of Toronto shows.

Per-physician costs in the United States averaged nearly $83,000 annually, while Ontario-based physicians averaged $22,205. Canadians enjoy a fully funded federal health care plan that allows health care providers to deal with a single payer and just one set of rules.

The U.S.-Canada comparison was chosen because the two systems are “polar opposite,” said study co-author Sean Nicholson, an associate professor in the Department of Policy Analysis and Management at Cornell University.

We wanted to find out the extra costs incurred by the complexity of the U.S. system, versus the routine costs of running a practice, Nicholson said.

In the United States, health care red tape is estimated to cost physicians an additional $27 billion per year. Administrative duties require 20.6 hours per physician, per week, whereas in Canada the time spent is 2.5 hours.

Doctors have long complained to lawmakers of the frustrations associated with daily administrative requirements, such as gaining accreditation to honor new health care plans, identifying the particulars of what various health plans offer, determining patient benefits eligibility, filing and collecting claims, and so on.

Most doctors rely on nurses or clerical staff to make telephone calls, send correspondence, decipher requirements, and fill out forms to verify coverage for patient services and ensure payment. Very little in the way of standardization currently exists.

According to a letter sent to the Centers for Medicare and Medicaid Services this April by the American Medical Association, simplification of administrative requirements “have a significant potential for reducing the administrative complexity physicians face today in the claims processing cycle.”

There is no doubt that cutting red tape saves money, but administrative costs represent just 1 percent of total health care spending. It is important to keep this in perspective, said Nicholson.

It is also important to note that “some of these rules are in place because they create meaningful differentiation and variety for consumers … and U.S. consumers like variety,” Nicholson said.

Researchers stated that it would be wrong to assume that all of the extra U.S. costs represent waste. Certain differences are helpful, for example the use of formularies, or lists of approved drugs.

Formularies allow insurance plans to restrict coverage to lower priced items, and thus offer lower priced plans to those who need them. They also give insurers leverage in negotiating lower drug rates.

It is not clear whether the benefits outweigh the costs, or vice versa, Nicholson said. He recommends an additional study, “a careful analysis of the benefits and drawbacks of the various rules that are in place.”

Stakeholders would then have the information to decide where to retain the differentiation, and where standardization would be helpful.

Meanwhile, changes are already underway.

Section 1104 of the newly passed health care reform bill, the Affordable Care Act, instructs the secretary of health and human services to take steps to simplify interactions between providers and health plans.

On June 30, The U.S. Department of Health and Human Services issued a statement announcing a first step to cut red tape. The new rule, which is still under review, would standardize two health care transactions. Using only electronic requests, doctors will be able to determine whether a patient is eligible for coverage, as well as monitor the status of a health care claim that has been submitted.

The rule is the first in a series of federal requirements under the Act, which will affect health plans, health care clearinghouses, and health care providers.

The study notes that reforms of this type “are likely” to increase administrative burdens in the short term, while in the longer term, efficiencies should result in cost-savings.

“US Physician Practices Versus Canadians: Spending Nearly Four Times As Much Money Interacting With Payers,” is published in the August issue of Health Affairs.