Interventions to save $265B in healthcare administration

A new report lays out a roadmap for health systems and hospitals on how to save $265 billion on administrative spending for reinvestment across other areas.

A McKinsey & Company report released Oct. 20 lays out a guide for shaving off unnecessary spending costs in administrative functions. 

According to the report, medical spending makes up three-quarters of the nearly $4 trillion spent on healthcare in the U.S. The authors targeted the remaining quarter of total U.S. healthcare spending that goes into administration and parsed out which of that spending was necessary and which was unnecessary.

After defining the functional areas of administration in hospitals and health systems, they were able to target each area and suggest solutions for augmenting productivity. They came up with 30 pragmatic interventions that can be implemented at varying levels within or between health systems, with some interventions requiring seismic structural shifts. Some proposed solutions include automating repetitive manual work and reskilling workers, proactively sharing data in payer-provider platforms and standardizing physician licensure. 

The report estimates that across the 30 interventions, there is a potential for capturing 28 percent of current administrative spending, or $265 billion. 

Nikhil Sahni, an author of the report, partner at McKinsey's Boston office and Harvard University economics department fellow, told Becker's, "What surprised me the most about this report was that two-thirds of the savings could be done without an industry-level intervention." 

"All too often, the conversation around administrative productivity and healthcare ventures toward industry-wide or even regulatory- and policy-related actions. Our research shows and our industry experience proves the case that there's a significant amount of opportunity that can be affected by leaders within the four walls of their systems," Brandon Carrus, an author of the paper and senior partner at McKinsey's Cleveland office, told Becker's.

Here are the 30 interventions listed under several five functional areas :

Financial transactions

1. Simplify payer products offered

2. Streamline claims submission and communication process

3. Automate adjudication

4. Clarify explanation of benefits

5. Improve data management and coordination

6. Improve coordination and clarity on claims-related communications

7. Streamline claims payment tracking and recovery process

8. Align incentives between payer and provider through risk-sharing models

9. Sunset old prior authorization

10. Prescreen prior authorization using digital support

11. Increase proportion of automated prior authorizations

12. Align jointly on prior authorization criteria

13. Conduct targeted “gold carding”

Back-office, non-clinical administrative tasks:

14. Promote operational excellence using traditional levers for industry-agnostic functions

15. Build for “functions of the future”

16. Promote operational excellence using traditional levers for industry-specific functions

17. Build smart services

18. Empower a function through foundational data investments

Customer and patient services:

19. Reduce transaction volume through proactive issue resolution and interface improvements

20. Improve handle time and issue resolution via AI

21. Outsource to highly skilled vendors

22. Build strategic payer-provider platforms to reduce demand

Clinical support functions:

23. Digitalize manual administrative activities

24. Enable management of larger spans

25. Digitalize and automate processes in disease case management

26. Integrate suite of tools and solutions in disease case management

27. Improve operational discipline and ensure “top of license” practices

Seismic interventions:

28. Prioritize high-value interoperability use cases

29. Operational alignment through standardization

30. Payment design changes

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