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National health care information clearinghouse would streamline prior authorizations while cutting administrative costs


Economist discusses medical equivalent to system already used in banking to transfer money.

health care business concept: © wladimir1804 -

© wladimir1804 -

A national health care clearinghouse to exchange patient information could save money while smoothing out the prior authorization processes that create delays in patient care.

Administrative spending is not showing any signs of slowing down in the U.S. health care system. But there is a way to save money and improve efficiency: Create a health care automated clearinghouse to share patient data, patterned after the automated clearinghouse that banks use to exchange money.

That solution could save $50 billion a year for the U.S. health care system, said David M. Cutler, PhD, the Otto Eckstein Professor of Applied Economics at Harvard University, and the author of “Your Money Or Your Life: Strong Medicine for America’s Health Care System.” He is a member of the National Academy of Medicine, has worked for the National Institutes of Health, and has advised the presidential campaigns of Bill Bradley, John Kerry and Barack Obama.

© Harvard University

David M. Cutler, PhD
© Harvard University

In March 2020, he published “Reducing Administrative Costs in U.S. Health Care,” a policy proposal that considers methods to lower that spending that accounts for up to one-third of health care expenses in the United States.

Cutler spoke to Medical Economics about administrative spending, why conditions are ripe for change, and an important lesson of the COVID-19 pandemic. This transcript has been edited for length and clarity.

Medical Economics: You published the proposal, “Reducing Administrative Costs in U.S. Health Care,” in 2020. In the four years since then, have there been any indications that administrative spending is decreasing in the U.S. health care system?

David M. Cutler, PhD: I think in the past few years, what we've seen is an increase in administrative expenses in health care. I think to a great extent, those are because prior authorization is increasing in prevalence a lot. So many insurers are adding to their prior authorization requirements, more different services, more different types of therapy that they want to use prior authorization for, and so that's been a lot of cost. And we haven't seen any real reductions of the form, like, OK, let's take a lot of things away from the administrative. Nor have we seen anything to simplify billing or streamline the payments or things like that. So, I fear that actually things have gotten a little bit more administratively costly, as opposed to less so.

Medical Economics: In March 2020, you cited at least four factors that made it a good time to address administrative costs: a large number of people obtaining insurance, improving technology, bipartisan support, and without the need for additional legislation. Do those conditions still exist?

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"Reducing Administrative Costs in U.S. Health Care," by economist David M. Cutler, PhD, proposes the nation create a new automated clearinghouse for health care information.
© The Hamilton Project - Brookings

David M. Cutler, PhD: They do. The issue of addressing administrative costs still has a large amount of bipartisan support and it still has a lot of impetus behind it because of the need to save money. I think like a lot of things, it's difficult because it's not just a single thing. In the 1990s, we did HIPAA (the Health Insurance Portability and Accountability Act) and we were like, a common claims form, that'll solve everything. And so we introduced the common claims form. And then what happened is, every payer said, yeah, that's great, we have a common claims form and by the way, here's my supplemental form, so I want you fill out my supplemental form, in addition to the common claims form. So just like sort of mandating, OK, you have to do this because this is the outcome we want, is not right. It's got to be a lot more nuanced in terms of the kinds of things that we put out there and the incentives, not just saying OK, we need to do X and X is going to solve everything. I think the biggest issues at the moment are not the political ones, not the desire to do things. You know, there's no political constituency for wanting to make things more complicated. But it's the practicality of like, what would you actually do and how would you actually get it to happen?

Medical Economics: Your paper came out as the nation was preparing for COVID-19 pandemic. Post-COVID, what lessons from the pandemic do you think could apply to reducing administrative costs in health care?

David M. Cutler, PhD: I think one of the things we learned during COVID is that the health system, when it really needs to, can move faster than people thought. So, for example, for years and years, people have been saying, oh, why don't we have telehealth right away? You know, it's a shame, doctors can do it, the technology is there, patients want it, and so on. And then within a matter of weeks, we had set up telehealth in enormous parts of the country. And the provider systems just did incredibly, like, heroic jobs with it, they just did a ton of things with it. All the complaints about oh, it's going to take us so long – basically when it comes down to it, when you really, really put your mind to it, you can do it. I think the same thing here, that is, we really need to say, we really want to do this and this is a big priority. And I think the experience of COVID is that something that's a big priority in that way, is something that we can get done.

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