Comparing healthcare costs to other countries reveals ways for savings

Aug. 30, 2022

A new Stanford Medicine-led study has found that borrowing certain billing- and insurance-related procedures from other countries could lead to policies that drastically lower healthcare costs in the United States.

The new study, published in the August edition of Health Affairs, compares costs of healthcare administrative processes in the U.S. with those of five other high-income countries. In the U.S., administrative processes account for about 30% of healthcare costs — the highest in the world.

Topping the list of practices that drive excessive costs in the U.S. is a process called coding, which is the assigning of a numeric code for each service a patient receives. The code is used by insurers to determine reimbursement. Coding costs in the U.S. run more than $172 per bill, compared with $50 per bill in Australia, the second highest in the study, and about $16 per bill in the Netherlands, said Kevin Schulman, MD, professor of medicine and faculty at Stanford’s Clinical Excellence Research Center. 

Earlier studies, including a Stanford-led one published in Health Services Research last year, have tried to quantify the drivers of high administrative costs in the U.S. healthcare system. “This new study provides validation of this analysis using real data from several different markets,” said Schulman, the paper’s senior author.

“In the U.S., the high administrative and billing costs have led for calls to change the financing system from a multipayer market to a single-payer public system,” Schulman added. “These new data show that the financing model is not the sole driver of high billing costs, since other markets with private insurance have lower billing costs than the U.S. Rather than debate a hypothetical single-payer model as a solution, we can focus on how to improve our current market so that it is as low cost per transaction as other private markets.”

The most effective way for the U.S. to reduce billing costs would be to make insurance contracts with providers simpler and more standardized, Schulman said. Germany and the Netherlands, for example, have much simpler administrative strategies for payment, even as private multipayer markets. The U.S. has an overemphasis on coding for incremental features of clinical care that drives up coding costs.

A look at diverse systems

In 2018, the researchers recruited an international team to analyze administrative costs per bill for inpatient stays at six healthcare systems in five high-income nations — one in Australia, Canada, Germany and the Netherlands; and two in Singapore — and compared these with estimated costs per bill at a U.S. academic health system based on data from 2016 and 2017. The countries were selected to represent a diversity of size, medical specialty and national payment systems. The healthcare systems of Germany and the Netherlands include multiple private insurers, making them the most similar to the U.S. system.

“Germany and the Netherlands have competitive insurance markets with multiple private insurers, yet they manage systems with far lower administrative costs,” said Barak Richman, JD, PhD, lead author of the study and a professor of law at Duke University and senior scholar at CERC. “That suggests they have lessons we can readily apply in the U.S.”

Besides coding, other opportunities for cost savings include eligibility, which refers to verifying insurance for the visit; submission, referring to invoice preparation; and rework, correcting billing errors and resolving disputes between the payer and a provider.

Schulman said that the research also highlights the burden of an outdated U.S. administrative system, a legacy of the paper-based system that was in place before adoption of electronic health records. “What we’ve done in healthcare billing in the U.S. is taken the analog process and digitized it, whereas other countries have created fully digital processes and optimized them, leading to enormous savings,” he said. “The savings have been identified in the literature on the order of $250 billion annually but are likely even greater.”

More possibilities for cutting costs

For some countries, savings also come from assigning tasks to workers in lower-skill job categories. “What we find is an over-reliance on medical coding in the U.S. system, requiring significant input by clinicians in the process. Other countries don’t have clinicians involved at all and have drastically limited the complexity of the coding process,” Schulman said.

Some countries, most notably Singapore, reduce costs by offering pretreatment financial counseling, in which a patient services team meets with patients to explain expected charges, what their insurance covers and what their out-of-pocket cost will be. This lowers costs downstream in the billing process, primarily by reducing rework.

The researchers noted that other health systems have their own unique trade-offs. But learning from successful processes in other countries, Schulman said, could lead to dramatic improvements in efficiency without requiring an overhaul of the entire U.S. healthcare system.

Stanford Medicine release