DNP 820 Module 2 Health Care Economics and Cost Drivers Example

Paying for Paperwork: Administrative Complexity as a Driver of U.S. Health Care Spending and Who Bears the Cost

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Doctor of Nursing Practice Program, Aspen University

DNP 820: Health Policy and Advocacy

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Month Day, Year

Paying for Paperwork: Administrative Complexity as a Driver of U.S. Health Care Spending and Who Bears the Cost

Discussions of health care costs often focus on expensive drugs, new technology or an aging population. Those matter, but international comparisons point to a less visible driver: the cost of administering a complex, fragmented financing system. This paper examines what drives U.S. health care spending compared with other high-income countries, the size and sources of administrative costs, who ultimately bears those costs, and what a doctoral nurse leader can do about the portion that touches nursing work.

What Drives the Difference

Set beside ten other wealthy nations, the United States in 2016 spent 17.8% of national income, measured as gross domestic product, on health care, against 9.6% to 12.4% elsewhere. Yet the United States did not differ substantially in the number of physicians or nurses per person, had a comparable number of hospital beds and had similar rates of hospital use for common conditions such as heart attack, pneumonia and chronic lung disease. It had the lowest life expectancy and highest infant mortality of the group. The authors concluded that the higher spending was driven mainly by prices, of labor, drugs and devices, and by administrative costs, not by Americans using more care (Papanicolas et al., 2018).

This finding reframes the economic problem. If Americans do not use much more care than people in peer countries, then reducing spending depends less on rationing services and more on what is paid for each service and how much is spent administering payment.

How Large Are Administrative Costs?

An analysis of 2017 data estimated that U.S. insurers and providers spent $812 billion on administration, or $2,497 per person, amounting to 34.2% of national health expenditures, compared with $551 per person, 17.0% of expenditures, in Canada's single-payer system. The largest differences were in insurers' overhead, $844 versus $146 per person, and hospital administration, $933 versus $196 per person (Himmelstein et al., 2020). The estimate includes costs incurred by providers to deal with multiple payers, each with its own rules for eligibility, billing, prior authorization and quality reporting.

A broader review of waste in U.S. health care estimated total annual waste of $760 billion to $935 billion across six domains, with administrative complexity alone estimated at $265.6 billion, the largest single domain. Notably, the review found no studies of interventions targeting administrative complexity, so it could not estimate how much of that waste could be recovered (Shrank et al., 2019).

Who Bears the Cost

Administrative costs are paid by the same people who pay for all health care, but often invisibly. Employers pay premiums that include insurer overhead, and economists generally find that rising premiums reduce the wages employers would otherwise pay, so workers bear much of the cost through lower take-home pay. Taxpayers fund public programs whose administrative costs, including payments to private plans, are part of federal and state budgets. Patients pay directly through deductibles and coinsurance and indirectly through the time they spend on billing disputes and prior authorization. Providers absorb administrative costs in their operating budgets, which compete with spending on nurses and other clinical staff.

Because these costs are dispersed and hidden, they attract less political attention than visible costs such as drug prices, even when they are larger.

Where Nursing Fits

Administrative complexity reaches nursing in two ways. First, nurses spend time on documentation driven by payer and regulatory requirements rather than clinical need, such as duplicate assessments to meet different programs' rules. Second, nurses in case management, utilization review and prior authorization roles are themselves part of the administrative workforce, doing work that exists largely because of the payment system's complexity. A doctoral nurse leader can reduce the first by auditing documentation requirements and removing items that serve no clinical or regulatory purpose, and can advocate for policies that standardize payer requirements, such as common prior authorization rules and electronic standards, which would reduce the second.

Measuring the Burden Locally

National estimates are persuasive in policy debates but abstract inside an organization. A nurse leader can make the burden visible locally with simple measures. A two-week time study on one unit can show how many minutes per shift nurses spend on documentation required only by payers or external reporting, compared with documentation used in clinical decisions. A review of case management workloads can count how many hours go to obtaining authorizations, appealing denials and completing payer-specific forms. Converting those hours into salary costs, and comparing them with the cost of an additional nurse, gives executives a concrete sense of what administrative complexity costs the organization.

Local measurement also identifies what can be changed without new law. Some documentation exists because of internal policies that outlived their purpose, or because a form was designed to satisfy several requirements at once and duplicates information recorded elsewhere. Removing or consolidating those items reduces the burden immediately, while the remaining, externally imposed burden becomes the basis for advocacy with payers and policymakers.

Policy Options

Policy options range from incremental to structural. Incremental options include standardizing claims and prior authorization processes, requiring electronic transactions, and simplifying quality reporting by aligning measures across payers. Structural options include reducing the number of payers or adopting uniform payment rules, as some other countries have done. Each involves trade-offs: standardization can reduce costs with modest disruption but may leave most of the difference in place, while structural changes could produce larger savings but face strong political opposition and transition costs. The absence of evaluated interventions noted in the waste review means that estimates of savings from any option are uncertain.

Conclusion

U.S. health care spending exceeds that of peer countries mainly because of higher prices and administrative costs, not greater use of care. Administration consumes about a third of spending, roughly twice Canada's share, and administrative complexity is the largest single category of estimated waste. Workers, taxpayers, patients and providers all bear these costs, often without seeing them. Doctoral nurse leaders can reduce administrative burden within their organizations and support policies that simplify the payment system, recognizing that evidence on which interventions work is still limited.

References

Himmelstein, D. U., Campbell, T., & Woolhandler, S. (2020). Health care administrative costs in the United States and Canada, 2017. Annals of Internal Medicine, 172(2), 134-142. https://doi.org/10.7326/M19-2818

Papanicolas, I., Woskie, L. R., & Jha, A. K. (2018). Health care spending in the United States and other high-income countries. JAMA, 319(10), 1024-1039. https://doi.org/10.1001/jama.2018.1150

Shrank, W. H., Rogstad, T. L., & Parekh, N. (2019). Waste in the US health care system: Estimated costs and potential for savings. JAMA, 322(15), 1501-1509. https://doi.org/10.1001/jama.2019.13978