Even with the challenges that change can bring, the authors said the U.S. might be at a good place to start implementing reforms to lower complexity and increase efficiency.
The U.S. health care system could save $265 billion annually by adopting reforms to reduce administrative complexity, according to a new report by McKinsey & Company.
The study is the result of a multi-year research effort and authored by four health care experts including two Harvard economics professors. The study was expanded on in a commentary in JAMA Viewpoint.
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The study noted that the U.S. health care system is a world leader in innovation, but its complexity also contributes to much higher costs across the board. The researchers focused on a number of reforms that could bring down administrative costs without resorting to large-scale systemic changes such as implementing a single-payer approach to health insurance.
"Administrative simplification may not be at the top of stakeholders' priority lists, but the potential to save $265 billion could be compelling to leaders across health care," the study's authors wrote. "Even better, these savings are available today. If fully realized, these savings would be more than three times the combined budgets of the National Institutes of Health ($39 billion), the Health Resources and Services Administration ($12 billion), the Substance Abuse and Mental Health Services Administration ($6 billion), and the Centers for Disease Control and Prevention ($12 billon). Put another way, $265 billion is greater than Medicare Part A spending ($201 billion in 2019) and is equivalent to $1,300 for each American adult."
Three areas of intervention
The study identified three types of interventions that could reduce administrative costs: "within," "between," and "seismic" changes.
The labels are descriptive; "within" interventions would be those controlled and implemented by individual organizations. These reforms could include automating back-office functions, such as human resources and finance, and adoption of tools and solutions to manage staffing and budgeting. The report estimated such interventions could deliver about $175 billion in annual savings, or 18 percent of total administrative spending currently.
The "between" interventions are those that involve collaboration between organizations, such as building payer-provider communications platforms. The authors say these would result in efficiencies while avoiding larger, industry-wide changes. Savings are estimated at $35 billion annually, or 4% of yearly administrative spending in the U.S.
Bigger, more difficult reforms are called "seismic" interventions in the report. These could include adopting a centralized claims clearing house, and standardization of medical policies, physician licensure, and health care quality reporting.
"Seismic interventions—including those that require technology platforms, operational alignment, or payment design—generally benefit from partnerships between the public and private sectors to align incentives for change," the authors wrote. This area of reform could result in $105 billion in annual savings, or 11 percent of total administrative spending.
"Profound" complexity in the current system
The JAMA Viewpoints article, written by three of the report's four authors, discussed the "profound" complexity of the health care industry in the U.S. It noted that while other industries have improved productivity, health care has lagged behind. "In 2019, the US spent an estimated $3.8 trillion on health care, including an estimated $950 billion on nonclinical, administrative functions, and that number has increased despite major technological enhancements," the Viewpoints article said.
The writers noted America's 6,000 hospitals, 11,000 hospital-affiliated physician groups, and 900 private payers—all working within a robust regulatory system. "The sheer complexity associated with so many entities makes administrative simplification difficult," the article said.
Even with the challenges that change can bring, the authors said the U.S. might be at a good place to start implementing reforms to lower complexity and increase efficiency. "Economic downturn often leads to health system change," the authors wrote. "With COVID-19 creating enormous disruption to the health care system, a known opportunity to capture more than a quarter-trillion dollars in the next few years without compromising the US health care system's ability to deliver care could be quite attractive. The sooner health care administration is simplified, the easier it will be for all to engage the US health care system."
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