Morra D, Nicholson S, Levinson W, Gans DN, Hammons T, Casalino LP. Health Affairs. 2011;30(8):1443–1450.

Background

Much research has described the high administrative costs inherent in the U.S. multi-payer health care system as compared to the predominantly single-payer systems of some other countries. For example, a seminal 2003 paper by Woolhandler, Campbell, and Himmelstein found that in 1999, per-capita administrative costs in Canada were only 29% of the US administrative costs, more than 2/3 lower than in the US.¹ In this e-round, we describe new evidence about the burden of administering insurance claims, affirming that US physician practices spend nearly 4 times more money, and almost 60 more hours per week, than do Canadian physicians.

In Canada, most patients have full coverage for doctor visits from their provincial health plan, and billings are sent electronically to a single payer in each province. Prior authorization from the Health Ministry for treatment is not necessary. In the US, by contrast, most physicians must bill whichever payer insures each of their patients, from a selection of thousands of insurers, each with hundreds of different benefit plans, all having different claims processing protocols. In the name of “managing care”, prior authorization for care frequently is required, adding another administrative hurdle. Interacting with multiple insurance plans about claims and coverage, coupled with the time and labor devoted to billing patients, explains nearly all the higher administrative costs incurred by physician practices in the US as compared to Canada.

Methods and limitations

In 2006, the investigators sent paper surveys to randomly selected US and Canadian office-based, non-salaried, non-academic, non-hospital physicians (including 150 family practice and 180 specialist physicians) to determine the time they and their staff spend interacting with payers. Physicians whose revenues come predominantly from patient self-payment, such as cosmetic surgeons, were excluded. A different but related survey instrument was sent to business managers of large 93 multi-doctor practices. The US sample was nationwide, and those survey results and methods were previously published². The Canadian survey was limited to Ontario. The physician survey instruments were identical in both countries, except questions not relevant to Ontario were excluded, such as those relating to time spent by the single payer (Ontario Health Insurance Program, OHIP) to credential physicians (which is not OHIP’s role) or time spent by physicians to prepare pre-authorizations for treatment.

The findings are limited by the nature of self-reported data rather than direct observation, the inclusion of only one Canadian province, and the exclusion of physicians in hospital-based, salaried, and academic practices, which would have resulted in even higher total costs. The adjusted response rate (per American Association for Public Opinion Research standards) in Ontario was 78%, and in the United States it was 57.5%. This may introduce bias and affect the comparability of the data from the two countries.

Findings and analysis

US physicians spent 3.4 hours per week on payment-related activities compared with 2.2 hours for Canadian physicians. Even greater was the time spent on claims administration by staff employed by physicians: US clerical staff spend 53.1 hours per physician per week as compared to 15.9 hours in Canada, and US nursing staff spend 20.6 hours per physician per week, as compared to 2.5 hours in Canada. When adjusted for purchasing power parity and specialty mix, the annual cost in US dollars for the total time spent by physicians, clerical staff, and nurses on administrative activities was $22,205 per physician in Canada and $82,975 in the United States, nearly four times higher. If US physicians were to curtail administrative costs to the level of Ontario, the total estimated savings would be $27.6 billion per year.

These findings, like those of Woolhandler et al, suggest that the Canadian single-payer system is administratively far more efficient than the US multi-payer system. The researchers do not, however, rule out the possibility of some benefits in a multi-payer system. For instance, they suggest that requiring prior authorizations from payers may reduce unnecessary interventions, and a system of multiple competing payers may promote some benefits. Nonetheless, they admit that there are no reliable estimates of any cost savings arising from multi-payer, as compared to single-payer, systems.

Comment

This study shows that the multi-payer US health insurance system costs physicians, taxpayers, and employers significantly more in administrative costs than the Canadian single-payer health care system. Beneficiaries of the multi-payer system are the mostly investor-owned insurance companies, their employees, and investors, who reap wages and/or profits by closely guarding payments to doctors. In Ontario, and by extension Canada, physicians spend 1.2 hours less per week interacting with their single provincial health care payer than U.S. physicians spend interacting with multiple payers. This uncompensated time adds up; for every 50-week year, US physicians spend 60 hours, the equivalent of 7.5 eight-hour days. Canadian doctors use this time for treating patients (and earning more), for leisure activities, for teaching and learning, or even for reading about health policy. At least as significant as the waste of physician time are the 37 more clerical hours per week, and 18 more nursing hours, that US physicians must finance to administer insurance claims. In sum, US physicians must pay for 58.7 hours per week of personal, nursing, and clerical time to deal with claims administration, as compared to 20.6 hours for Canadian physicians, all of which makes a significant dent in the personal income of physicians, adds to more than double per capita health care costs in the US as compared to Canada, and reduces time available for patient care.

Although Canadian governments affirm their commitment to public funding for medically necessary hospital and physician services, there is discussion among politicians, doctors, and the populace about whether patients should be allowed to pay out-of-pocket for services that are currently publicly insured. At the moment, private insurance companies in Canada are allowed only to cover supplemental care – that is, care that is not otherwise insured by a provincial plan. One could imagine the slippery slope toward a future demand for private insurance to cover out-of-pocket costs, if patients were permitted to pay directly for care. This study provides a clear indication of the administrative burden – both in time and money –that private for-profit insurance adds to a health care system.

References

1. Woolhandler S, Campbell T, Himmelstein DU. Costs of health care administration in the United States and Canada. N Engl J Med. 2003;349(8):768–75.
2. Casalino LP, Nicholson S, Gans DN, Hammons T, Morra D, Karrison T, et al. What does it cost physician practices to interact with health insurance plans? Health Aff. 2009;28(4):w533–543.