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Study: Use of EHRs Does Not Reduce Administrative Costs

February 21, 2018
by Heather Landi
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Administrative costs in the US health care system are an important component of total health care spending, and a substantial proportion of these costs are attributable to billing and insurance-related activities.

Researchers at Durham, N.C.-based Duke University and Boston-based Harvard Business School sought to determine the administrative costs associated with billing and insurance-related activities at an academic health care system with a certified electronic health record system (EHR). Although it had been assumed that the widespread adoption of certified EHRs would help reduce administrative costs for physicians in a variety of specialties, the study found that this benefit has not been achieved.

The study, “Administrative Costs Associated with Physician Billing and Insurance-Related Activities at an Academic Health Care System,” was published in the Feb. 20, 2018, issue of the Journal of the American Medical Association.

The study found that costs for processing a single bill ranged from $20 for a primary care visit to $215 for an inpatient surgical procedure, or up to 25 percent of revenue. By comparison, the cost to process most payments by credit card is normally 2 percent. Based on this analysis, the study estimates that billing costs for primary care services are about $100,000 per provider.

To conduct the study, the researchers used time-driven activity-based costing, a state-of-the-art accounting method, to determine the administrative costs associated with billing and insurance activities in a large academic health care system with a certified EHR.

Administrative costs are known to account for at least a quarter of total health care spending in the United States, twice that found in Canada and significantly greater than most other high-resource countries, according to the researchers in a press release announcing the study findings. “Administrative spending has outpaced overall health care expenditures, and experts estimate that almost two-thirds of these costs are related to billing and insurance. However, these data were developed before widespread adoption of certified electronic health record systems,” the researchers wrote.

The study looked at estimated billing and insurance-related costs for five types of patient encounters: primary care visits, discharged emergency department visits, general medicine inpatient stays, ambulatory surgical procedures, and inpatient surgical procedures.

Specifically, the study found that the estimated processing time and total costs for billing and insurance-related activities were 13 minutes and $20.49 for a primary care visit, 32 minutes and $61.54 for a discharged emergency department visit, 73 minutes and $124.26 for a general inpatient stay, 75 minutes and $170.40 for an ambulatory surgical procedure, and 100 minutes and $215.10 for an inpatient surgical procedure.

Of these totals, time and costs for activities carried out by physicians were estimated at a median of 3 minutes or $6.36 for a primary care visit, 3 minutes or $10.97 for an emergency department visit, 5 minutes or $13.29 for a general inpatient stay, 15 minutes or $51.20 for an ambulatory surgical procedure, and 15 minutes or $51.20 for an inpatient surgical procedure.

Of professional revenue, professional billing costs were estimated to represent 14.5 percent for primary care visits, 25.2 percent for emergency department visits, 8.0 percent for general medicine inpatient stays, 13.4 percent for ambulatory surgical procedures, and 3.1 percent for inpatient surgical procedures.

“We found no evidence that adoption of these expensive electronic health record systems reduced billing costs related to physician services,” Kevin Schulman, M.D., of the Duke Clinical Research Institute, the Duke University Department of Medicine, and Harvard Business School, one of the study’s authors, said.

“The high billing costs we observed in this study occurred at an institution that had already captured significant scale economies by streamlining all its bill paying functions within a single dedicated unit,” Harvard Business School’s Robert S. Kaplan, Ph.D., a co-author of the study, said in a statement “The high costs were not caused by wasteful, inefficient processes, duplicate or redundant tasks, or the inappropriate use of high-wage personnel to perform low-skilled tasks.”

Another study author, Barak Richman, Ph.D., of the Duke University School of Law and the Duke-Margolis Center for Health Policy, said in a statement, “To a large degree, the significant administrative costs measured in this study are the consequences of heterogeneous payment requirements across the multiple payers and health plans contracting with the academic health center. We need to understand better how complexity is driving these enormous costs within the system, costs that do not add value to patients, employers, or providers.”

Schulman also said this study could be the first step toward informing policy solutions that could reduce non-value-added costs largely hidden within the health care system.


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