While it is true that organizations across all industries experience a certain degree of inefficient administrative processes, the size and the cost of the problem in the US healthcare industry is colossal.

Indeed, administrative system inefficiencies have been estimated in the range of $100-150 billion annually, and the actual costs could be even higher. According to a position paper by the Medical Group Management Association, “simplifying our healthcare system’s administration could reduce annual healthcare costs by almost $300 billion.”

These structural administrative overhead inefficiencies ultimately increase healthcare cost and decrease the overall quality of public health.

Administrative Costs Are Unsustainable
Some of the causes are structural and include market fragmentation around multiple providers and the large number of payers. As a result, we have a complicated set of health delivery systems and a correspondingly complicated set of administrative and billing procedures that must be followed by the patient, provider and payers.

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Healthcare providers negotiate rates and enter into contract deals with dozens of health and benefit plans in order to be reimbursed for their services, essentially meaning that each health plan supports its own systems for underwriting, claims administration, provider network contracting and broker network management. The implementation of different systems and approaches for medical coding, billing systems and data feeds creates additional cost to the patient.

A 2011 study showed that if US physicians spent a similar amount of time as their Canadian counterparts on administrative work, the savings would amount to $27.6 billion annually. What’s more, healthcare staff in the US (nurses and medical assistants) spend nearly 10 times more hours on administrative support compared to their Canadian counterparts. The average US hospital spends nearly one quarter of its entire budget on billing and administrative costs.

Some additional quantifiable administrative inefficiencies include:

• American physicians spend nearly eight hours per week on paperwork
• Nurses and medical assistants spend 20+ hours per week per physician on administrative tasks not including data quality reporting
• There are about 14 to 35 health insurance employees per 10,000 plan enrollees
• Estimates on the percentage of clerical personnel in the US healthcare workforce range from 18 to 27 percent
   

A key step provider and payer agencies need to take to reduce healthcare costs and improve quality is to identify these administrative inefficiencies and use big data tools to significantly reduce these non-value added costs.

3 tips to reduce administrative costs
Right now, the healthcare administrative systems are a set of clumsy transactional systems that don’t play well together. Three areas associated with administrative healthcare costs that can be addressed by big data include:

1. Addressing the costs associated with the administrative transactions to automate (and standardize) the medical approval and billing process between participants in the healthcare system.
2. Enhancing the coding process between clinical diagnosis and the financial billing systems by upgrading to a modern code system.
3. Improving the logistics of managing devices and supplies within the hospital and clinical environment.

Progress already underway
The current healthcare network consists of large chains of hospitals and linked physicians’ practices that have entered into blanket contracts and fee-for-service arrangements with insurance companies and other medical reimbursement providers. Hospitals (provider organizations) are complicated businesses offering a multitude of services to multiple stakeholders.

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At the same time, new entrants such as Wal-Mart and CVS’s Minute Clinic are coming into the market and offering convenient basic medical services right where you shop. If you have the flu you can see the nurse right around the corner at your favorite local drug store. These competitors are taking the low-end part of the healthcare market away from hospital and traditional healthcare providers.