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Five ways to reduce healthcare administrative costs


Administrative costs are a huge burden in healthcare, but there are several process changes that can result in huge savings.

Administrative costs make up about 15% of all healthcare expenditures-well over $300 billion annually, according to the 2016 index report from the California Association for Healthcare Quality. Outdated, manual processes and rejected claims eat up a large portion of this cost.

The key to reducing administrative costs lies in refining these processes and changing with the times, according to industry leaders.

Here are five strategies to consider implementing at your organization.

Strategy #1: Digitize processes, verify benefits

One of the biggest drains on healthcare is the administrative cost associated with the revenue cycle. Minor mistakes associated with benefit verification, denial management, and claims resubmission can become very costly.


Greg Snow, vice president of provider portfolio strategy at the healthcare IT company Availity, says when a mistake is made in the revenue cycle, it affects the entire process. And, even if efficiency improvement opportunities are identified at the back end, there often isn’t a good feedback mechanism to make changes to clinical functions at the front end.

When it comes to billing, coding, and getting paid, Snow says 48% of denials come from the patient access point. For example, a staff member fails to verify the benefit levels or insurance coverage. This problem is compounded by the new class of underinsured patients created over the last several years that may only have benefits covering preventive or outpatient services, he says. Often, these patients don’t pay for uncovered services, which leads to lost revenue or higher costs due to collection attempts.

“It’s a lot of little stuff that doesn’t seem like much at the time it’s occurring, but it’s a big deal,” Snow says. “Only about 76% of all providers verify insurance coverage and benefits electronically.”

But electronic benefit verification is critical. It can help health systems recover more revenue and save money, Snow says. Electronic benefit verification costs about 49 cents per patient. Manually, the cost is more than $8, he says. To provide some scope, Snow says there were about 72 million benefit verifications done manually last year alone.

When rethinking your collection strategies, Snow suggests aiming to reduce denials first. Make changes to front-end processes to eliminate errors that result in denials, since amending and resubmitting claims can cost $25 a pop. “You have the products, you have the services, you have the tools,” he says. “You have to educate people that there aren’t a hundred ways of doing things. There are a finite number and you have to make that process as efficient as you can.”

Strategy #2: Streamline physician work flow

Happy workers make successful workplaces, and it goes without saying that recent changes in healthcare have increased the administrative burden on clinicians. Helping them streamline their work flow will increase efficiencies and savings, says Jay Anders, MD, chief medical officer at Medicomp Systems, a medical device manufacturer and developer.

“Ask any physician now using an EHR and they would say their administrative burden has increased three-fold,” Anders says.

That’s why looking for EHR efficiency improvements is a good place to begin when seeking to reduce administrative costs. Physicians are more productive if they aren’t bogged down in the system, says Anders.

This is exactly what Phoenix-based Phoenix Children’s Hospital found when it started using a software plug-in that optimized the clinical charting process.  The plug-in improved work flow and allowed physicians to see 30 percent more patients, says Anders.

The plug-in takes the history, physical, and assessment data entered by the physician, reviews the patient’s previous medical record, and helps the clinician formulate a clinical decision. Then, it populates a note within the EHR. The program also takes data from the physician’s note and converts diagnoses directly to billable codes

Physicians and other caregivers are a great resource for finding ways to streamline the processes that are a drain on their time and resources, says Anders. “For so long, a lot of people have ignored them,” he says.  “… No one has asked them if there is anything they can do to make it better for them. Listen to the people who do the work.”

Next: Strategy #3



Strategy #3: Use digital engagement solutions


Jean Drouin, MD, MBA, CEO, and cofounder of the healthcare analytics firm Clarify Health Solutions, says payers and providers are facing the question: How do we create more effective and efficient care models that deliver the same or better outcomes at lower costs?

“The private physician will now make more if he or she steps the patient down as fast as possible,” Drouin says. “Longer stays means higher costs, and if costs are higher than allowed in that period, the physician will be penalized. In order to change the behavior, we need to be providing far more patient and physician level data so clinicians are able to make better choices and reward them for making those choices.”

A huge aspect of success in the transition to value, of course, is getting patients to engage in their own care. Digital solutions can help, says Drouin, noting that retailers have learned that roughly 50% to 60% of customers engage over the phone or web. The same percentage would likely do so with their physician or clinical team, making for a more timely, effective, and flexible communication channel, he says.

Digital solutions can also extend the reach of the clinical team and improve outcomes on a larger scale. For example, data surveillance methods (such as remote health monitoring) can trigger alerts when a diabetic patient’s sugar is out of range. A member of the clinical team can then coach the patient over the phone or ask them to come to come in for a visit.

“Just in the way there is air traffic control to help route a plane to go around a storm, we need the same sort of concept around care traffic control. There is more than enough data out there that, if we were able to stitch it together and take it out of its silos, could create algorithms,” says Drouin.

Strategy #4: Open communication to let data flow


Mark Martin, director of payer and vendor services at Availity, says interactions between plans and providers have gone from bad to worse during the transition to value-based reimbursements. “The communication between health plans and providers is archaic, and for the most part that just leads to just bad communication back and forth,” he says.

Many providers and payers still communicate by letters and fax. In situations where a payer might have cost-saving data that could help drive costs down in a high-risk patient, this is not an efficient process. 

Often, a health plan has useful information about high risk, high cost patients and the care they should be given, but they can’t get it into the hands of the care provider before or during the patient visit. Instead, they deal with the historic 60- to 90-day gap after the claim comes in, Martin says. “The existing model creates so much more additional work and bogs down the system. If you moved that communication to right before the patient came in, you eliminate a tremendous amount of overhead and you drive toward quality results.”

Martin says that even when there is a seamless process for data sharing between payer and provider, there needs to be a better way to prepare providers to accept the data.

“It’s not easy, and technology wise we’re getting to the point where data can be shared, and now we’re just dealing with humans,” Martin says. “We’re aligning around quality measurement that will force the issue, and we’re getting newer people in healthcare that are more tech savvy and communication-aware than historical folks. It’s not uncommon to have physician, PA, or care coordinator be far more tech savvy,” he says. He adds that knowing what form of communication is preferred by providers can help them operate more effectively.   

Strategy #5: Outsource with purpose


Anand Natampalli, vice president of global business development for the business process management firm HGS, says outsourcing allows certain processes to be completed by outside experts-leaving health systems to focus on patient care.

Health systems have been hesitant to let this happen, but healthcare leadership is bringing in more executives from outside healthcare to meet the changing needs of the industry, he says. “What has happened is that the industry is full of legacy systems and grandfathered processes, and has been a closed environment that has not been open to change or flexible. Now, it’s rapidly evolving as a function of consumerism,” Natampalli says. “The key driver is that medical costs are going through the roof and everyone is trying to figure out how to bend the cost curve.”

By outsourcing various administrative tasks and processes, health systems can improve processes and save 25% to 30% on administrative costs, he adds.


Jay Deady, CEO at health IT company Recondo Technology, says many health systems should combine outsourcing with improved internal automation processes. For example, internal systems should be able to review a claim status early on and flag it if it is not being processed appropriately. This can reduce the cost to outsource these claims for further processing and help health systems and payers move claims through in a more streamlined manner.

“It reduces outsourcing fees or manual touches on claims touch ups by over 89% and allows more efficiency and increases yield,” Deady says. “We’re grabbing information about all claims early on and removing the need to write an outsourcing check for that. The ones that are not processing are put into work queues, and we cut the need for outsourcing related to claim status and reduce the claims that require human intervention by 80%.”

Reducing the number of claims that need human intervention also allows back-end workers more time to work on the more difficult claims, he adds. “While the claims submittal process has been automated for a long time, the follow-up and acceleration of claims that need work has been a very manual process and we are automating it.”


Rachael Zimlich is a writer in Columbia Station, Ohio.

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