Administrative costs are killing U.S. healthcare

May 21, 2016

The United States faces an unenviable paradox: the healthcare sector is an important source of job growth and economic output, but healthcare costs-now comprising nearly one fifth of economic output-are dramatically higher than those in other developed nations, and continue to rise.

Editor’s Note: Welcome to Medical Economics' blog section which features contributions from members of the medical community. These blogs are an opportunity for bloggers to engage with readers about a topic that is top of mind, whether it is practice management, experiences with patients, the industry, medicine in general, or healthcare reform. The series continues with this blog by Ryan Gamlin, a former health care management consultant and current medical student at the University of Cincinnati. The views expressed in these blogs are those of their respective contributors and do not represent the views of Medical Economics or UBM Medica.

 

The United States faces an unenviable paradox: the healthcare sector is an important source of job growth and economic output, but healthcare costs-now comprising nearly one fifth of economic output-are dramatically higher than those in other developed nations, and continue to rise.

Ryan GamlinWarren Buffet summed up this dilemma vividly, saying that healthcare is the “… tapeworm of the American economy… I think the healthcare problem is the No. 1 problem of America and of American business.

 

More from Ryan Gamlin: Reexamining the 80-hour medical resident workweek

 

Adding proverbial insult to injury, the United States-for all it spends on healthcare-gets far less for its money.

The Commonwealth Fund’s report on international health system efficiency ranks the United States last of 11 developed nations on measures such as quality of care, access to care, efficiency of care, and equity of care. The work of the Commonwealth Fund contributes to a body of evidence suggesting that what we’re doing to provide, administer, and finance healthcare is just not working.

The Lown Institute is one of a number of organizations working to understand the drivers of inefficiency, waste, and harm in U.S. healthcare, and I recently had the opportunity to attend their annual conference. While there, I presented my research exploring the relationship between a country’s administrative expenditures and health system efficiency. 

I’ll spare you the details [you can read the abstract here, and see one graph here], but the bottom line is that as countries spend a larger percentage of their healthcare dollars on administration (as opposed to public health, or providing patient care, for example), things get worse for patients and healthcare providers. High administrative expenditures seem to be associated with negative experiences of providing and receiving healthcare.

Next: Hope for the next generation of physicians

 

While other countries devote a large share of their resources towards the prevention and treatment of disease, the United States spends a huge portion of our healthcare dollars on feeding the system itself. These huge administrative expenditures “crowd out” other important areas of health investment like public health (US public health expenditures are the lowest among all OECD nations).

Not long after presenting my research on administrative costs, I had a curious experience. Listening to a medical school lecture on healthcare payment reform, I heard a number of second-year medical students arguing vigorously that the only way to reduce healthcare expenditures was to pay doctors less. I was amazed. As a percentage of total national healthcare costs, U.S. physician wages are small – approximately 9% – a number among the lowest in the developed world.

Not only were these students arguing in opposition to their own self-interest, they were arguing against the facts.

As a 2014 New York Times headline put it: Medicine’s Top Earners Are Not the M.D.s. The U.S. devotes a larger percentage of it healthcare economy to administration (doing things like moving a claim through the system, answering patient phone calls, and yes, paying the innumerable and sometimes incomprehensibly large salaries of administrators at insurers, hospitals, and healthcare systems) than any other country.

I know few physicians at any level of training or practice who believe that administrators are the primary determinant in their ability to deliver safe, effective, and humane care. How then, have we ended up with a top-heavy system, one in which decisions about how care will (or often won’t) be provided are made by those far removed from the experience of caring for patients? 

It’s my hope that the next generation of physicians will reverse this trend by contributing their perspective and expertise to serve as leaders within their hospitals, health systems, and beyond. Clinicians must first care for the sick, but our system itself is sick, too, and I believe that doctors are the best ones to cure it.