The cost of health care administration: An introduction

The U.S. health care system is a huge part of the American economy — so much that the nation spends more pushing health care paperwork than some developed countries spend on health care. Kevin Schulman, MD, MBA, is an internal medicine physician and professor of medicine at Stanford University and the co-author of a paper suggesting health care leaders need to look to new, old solutions to reduce the costs of health care administration.

Medical Economics: How would you describe the scope and scale of administrative burden in the U.S. health care market?

Kevin Schulman, MD, MBA: The data suggests that we spend about a third of health care costs on administrative work, about 67% of two thirds of that money is going to things around billing and transactions. So, at a high level, we have to realize we spend more money to manage the U.S. health care system than France, Germany and Italy combined spend on health care. We have 318,000 different health plans in the U.S. market. We bill for 600,000 services. We have 57 billion negotiated prices, or 94,000 prices per SKU. There's no justification for that kind of complexity and that kind of chaos in the market, and we believe that's what's driving these tremendous administrative costs in the U.S.