Dealing With Health Plans Costs Physicians Billions

Two studies¹,² published in May 2009 in Health Affairs have drawn attention to the administrative costs that physicians endure in dealing with health plans. One study estimated the cost, to US physicians, of handling authorizations, prescriptions, and other patient-care issues with health insurers to be up to $31 billion, an amount that researchers called equal to nearly 7% of all expenditures for physician/clinical services nationally. The second study, which focused on a single, large, multispecialty, multisite practice in California, claimed that the annual time spent on billing and insurance-related matters cost at least $85,276 per FTE physician, or 10% of practice revenue. The Nitty-gritty Casalino et al surveyed 730 primary care physicians and 560 specialists, as well as administrators for 629 medical groups, and sought the time spent processing materials related to health plans, whether they involved authorizations for services, prescriptions, quality markers, or other administrative matters. Based on a response rate of roughly 50%, the researchers calculated time spent on various activities and converted those results into costs, based on annual physician and staff compensation. The study found that physicians spent an average of 43 minutes per day on interactions with health plans. This added up to 3 hours per week, or nearly 3 weeks per year. Primary care physicians spent 3.5 hours weekly on these interactions, compared with 2.6 hours for specialists and 2.1 hours for surgeons. Additional time spent by registered nurses, licensed practical nurses, and medical assistants averaged 3.8 hours per physician, per day, or 19.1 hours per physician, per week. Clerical staff spent an average of an additional 7.2 hours per physician, per day, or 35.9 hours per physician, per week. In solo or two-physician practices, the times spent by physicians and staff was slightly higher (with the exception of time spent by nurses, which was slightly lower). Physicians spent more time dealing with formularies than any other category of interaction (for primary care physicians, 1.7 hours per physician, per week), but primary care nurses spent far more time on authorizations (13.1 hours per physician, per week) than on any other type of interaction, and more time than any other staff members spent on any single activity. Primary care physicians spent 1.1 hours on authorizations, and their clerical staffs spent 5.6 hours per physician, per week. Converting time into dollars, the Casalino et al study found that practices spent an average of $68,274 per physician, per year, on interactions with health plans. Costs were lower in practices of 10 or more physicians. For primary care physicians, the costs amounted to nearly a third of average income plus benefits. Casalino et al then multiplied these expenses by an AMA physician list of 453,696 physicians to reach the total of $31 billion in gross expenditures. The total dropped to $23.2 billion if physicians’ median income, instead of average income, was used. Participants were asked to rank how back-office expenses had changed in the past two years; 41% of respondents said that expenses had “increased a lot,” while an additional 36.4% said that they had “increased somewhat.” The study noted that under any scenario, administrative costs could never be zero, and acknowledged that interactions with health plans for prescriptions and authorizations might reduce health care costs. The Sakowski et al study found that the medical group for which it tracked time spent on billing and insurance-related tasks expended 0.67 FTEs of nonclinical staff time for every FTE physician. In addition, clinicians themselves spent more than 35 minutes per day on these insurance-related tasks. The cost to the medical group was at least $85,276 per FTE physician, or 10% of group revenue, the study found. The researchers noted that they took into account overhead, supplies, technology, and other costs related to insurance-carrier interactions (which the Casalino et al study did not consider). The authors proposed standardization as a partial cure for the high administrative costs physicians face. The investigators wrote, “Standardization of benefit plans and billing procedures appears to offer great potential to decrease complexity and thus billing/insurance costs. However, to yield efficiencies, such standardization must be strict. Our respondents reported that even with standard coding and claims guidelines, the lack of consistency and transparency in payors’ interpretation of those guidelines requires considerable resources to manage.”²