Eight Ways to Reduce Healthcare Administrative Costs

Keith Daniels

Wendy Karsten

David Grauer, MBA, MHSA

Rhonda Medows, MD

John Baackes

As the healthcare industry grapples with tumultuous times, organizations are eager for strategies and solutions that will stabilize their business, reduce administrative costs, and guide their shift toward a new standard of care for patients as the industry transitions to a focus on population health.

“When healthcare organizations can achieve clinical and financial success, they are better able to influence and care for the communities they serve,” says Rhonda Medows, MD, CEO, Ayin Health Solutions, and president, population health management, Providence St. Joseph Health, Portland, Oregon. “The current state of the healthcare industry has a need for modernization, revenue diversification, and cost-efficient, total healthcare.” The healthcare industry currently spends 12 cents of every dollar on administrative costs-costs that could be better spent on patient care.

Here are eight ways that health insurers and hospitals can put the squeeze on administrative costs.

1. Simplify provider engagement. Given the complexity of the healthcare ecosystem and the unique needs of payers and providers in managing their businesses, payer and provider interactions can be confusing and frustrating as well as result in unnecessary administrative costs. “For payers, simplifying how they engage with providers can reduce administrative costs and improve the provider relationship,” says Angie Meoli, senior vice president of network strategy and provider experience at Aetna, a CVS Health company in Blue Bell, Pennsylvania.

“That’s why payers need to have processes and technology that can efficiently support their relationship with providers from start-up through later steps in the journey,” Meoli says. “Using dedicated service teams, streamlining escalation processes, and integrating tools are some of the ways payers can create a simple, transparent, and welcoming start-up experience.” Also, enhancing processes and tools for data management can improve data accuracy, reduce rework, and ease administration costs.

2. Re-evaluate major expenses. Push vendors and shippers for not only better prices, but also better service levels that will help reduce inventory. For instance, Keith Daniels, a partner at Carl Marks Advisors, an investment bank providing financial operational advisory services to middle-market companies, says he’s recently seen many companies renegotiate to achieve just-in-time-deliveries as well as return privileges in agreements that historically had neither. Part of this requires taking a vendor inventory to see if you can consolidate to achieve fewer-but stronger relationships.

Hospitals looking to reduce administrative costs should also look at payroll. “The strongest companies have successfully implemented strategies that reduce both overtime and turnover,” Daniels says. “In lieu of that, we’ve also seen some healthcare companies increase outsource labor strategies.”

Wendy Karsten, president of Care N’ Care Health Plan in Fort Worth, Texas, is also a proponent of outsourcing. “Forcing managers to periodically shop for a vendor to whom they can outsource some of a department’s tasks-or an entire department itself-is a valuable exercise,” she says. “It keeps innovation at its maximum, helps to keep internal costs from running out of control, and keeps every manager in the know of what else is available.”

3. Determine if historical processes are obsolete. “Take a fresh look at processes that may have become outdated and no longer serve a purpose, but are still being done simply out of habit,” Karsten says. This often occurs whenever a vendor or system is changed-making it an ideal time to relook at all processes associated with that change. “We’ve found that some of the manual processes we’ve used for years to monitor vendors can be done more efficiently, cost effectively, and reliably through automation that has become an accepted part of vendor or client interaction. But far too often, staffs keep doing things the old way because that’s the way they’ve always been done.”

4. Adopt common technology platforms. Payers and hospitals can work together to reduce costs by having common technology platforms. Otherwise, it’s difficult to effectively manage data between them. “Innovative technology plays an important role in reducing costs by ensuring that data is shared efficiently and effectively,” Meoli says. Blockchain, for example, can play a role by improving transparency and interoperability.

Some states have tried to address this challenge by using data exchange databases. However, they have limitations. For example, some state databases aren’t state wide or are limited to high-volume facilities.

Aetna is a founding member of two healthcare blockchain alliances, which focus on data quality for provider directories and reducing friction, cost, and integration complexity between the various parties within the healthcare ecosystem, Meoli says.

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5. Measure performance and improve quality outcomes. Providers can earn more from value-based arrangements and offset the administrative burden with technology-driven capabilities. For example, Aetna makes a population health and point-of-care platform that shows a complete view of a patient’s health available to providers. This enables providers to be proactive and focus on patients who need care the most, such as those experiencing chronic conditions, quality gaps in care such as the need for colorectal or breast cancer screenings, or ensuring a smooth transition when a patient moves from one care provider to another.

6. Implement predictive modeling for patient billing and collections. Traditional consumer data points such as a credit score aren’t good predictors of patients’ true propensity to pay. “Without a better way to target their efforts, hospitals waste resources reaching out to patients who would have paid their full balance anyway and waste additional resources contacting patients who will never pay no matter what,” says David Grauer, MBA, MHSA, senior vice president at Health Catalyst.

Grauer’s company helped Minneapolis-based Allina Health, a not-for-profit health system, use predictive modeling of patients’ propensity to pay to help reduce administrative waste while also delivering stronger collections results. Allina stopped devoting any resources to contacting patients with a predictive high or low propensity to pay. Instead, they focused efforts on patients with medium-low to medium-high propensity to pay, and created workflows with targeted, automatically scheduled outreach actions to help further reduce waste in the collections process.

In the first year of implementation, Allina achieved a $2 million increase in overall collections, including more than $660,000 in additional patient payments collected by phone in the first two months. The propensity to pay machine learning model also improved Allina’s ability to engage with patients willing, able, and interested in paying their bill, which led to a 21% relative increase in the number of inbound calls from patients seeking to make a payment during the same first-year time period.

7. Use bundled payments. Under this model, multiple providers-a doctor and hospital-are paid a single payment for coordinating the total amount of services required for a pre-defined episode of care. In this system, the providers would be paid to manage a patient’s care, but they wouldn’t have to send the insurer a claim for each service rendered since they would have already been paid. They would only have to report the encounters. “Such a system would require developments in technology that aren’t available yet, and would require doctors and hospitals to have a business relationship that allowed for such coordination,” says John Baackes, CEO of L.A. Care Health Plan in Los Angeles, California.

“Of course, an insurer wouldn’t want to pay inaccurate claims, but if they were able to pre-pay hospitals for services based on knowing that an insured person will always use that institution, that could save both payers and providers a lot of administrative expenses,” Baackes says.

8. Improve data sharing. Health insurers and hospitals both have valuable data, and improved sharing of that data can help both entities reduce administrative costs. This is one reason why many health plans and hospitals are pursuing an integration strategy, while others are exploring new partnership models focused on targeted cost-reduction efforts that benefit all sides, Grauer says.

As an example, one of Grauer’s insurer clients leveraged its data to help a large provider organization identify previously hidden high-risk chronic disease patients. “This enabled the health system to make targeted changes in its care management program that ultimately resulted in more efficient, lower cost care-a win-win for both organizations and a win-win-win when you consider the patients who benefited from getting (and staying) on the right care pathway,” Grauer says.

Final thoughts

Administrative pressures can amplify quickly, and too often administrators wait to look for options until they’re in deep distress. “That’s not a good tactic,” Daniels says.

“We’re living in a time of rapid, escalating change, and while we cannot be certain of the future, we know that financial pressures will continue to increase for the foreseeable future. This means that every healthcare organization should look at their options now.”

Karen Appold is a medical writer in Lehigh Valley, Pennsylvania.