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Simplifying to save trillions in US healthcare

Simplifying to Save Trillions in US Healthcare

Improving Healthcare Delivery with Administrative Simplification

The world has been through unique changes in the last few years. And the pandemic just accelerated the process of tech integration across industries. Healthcare isn’t an exception.

US healthcare’s annual expenditure is around $4 trillion and administrative costs represent one-quarter of this total. Opportunities exist to generate savings that can reach $265 billion while improving care delivery and health outcomes.

Looking at the US healthcare system organization as a whole, its current expenses in administrative-related activities are around $950 billion.  McKinsey’s report breaks down areas, stakeholders, and functions to trace a possible roadmap that benefits savings and enables reallocation of budget. Therefore, showing it is possible to direct this to more digital-based care with less bureaucracy involved.

In this article, we explore the insights and conclusions of the report. And pay special attention to customer experience enhancement and patient care improvement. Thus, facing it as an opportunity for a more sustainable and accessible US healthcare system. 

Administrative Expenditure: The Main Focus for Improvement

According to McKinsey’s report, the first step to understanding where to save is to pinpoint which are the: 

  • Inevitable costs; and
  • Unnecessary costs.

The US healthcare system accounts for thousands of hospitals and provider groups with over 900 payers. So, benefits are found such as breaking ground in care innovation. However, these pieces aren’t glued together, causing unnecessary extra steps and transactional touchpoints. 

Being a highly regulated system, other unwanted and dispensable costs are made in several areas. These range from adherence to compliance, increasing the slice of unnecessary spending.

According to McKinsey, the main goal is, then, to make the most out of the administrative spending. Thus, being able to capture more value while contributing to positive healthcare outcomes with increased reach, access, and sustainability. 

To shift towards a more cost-effective model, one must focus on 5 functional areas that need reshaping, namely: 

  • Financial Ecosystem (includes payments, claims, and billing among payers, hospitals, providers, and customers);
  • Industry Corporate Functions (includes back-office and non-clinical functions, such as finance and human resources);
  • Industry Operational Functions (includes back-office and non-clinical functions that are industry-specific, such as underwriting, enrollment, quality reporting, and accreditation);
  • Customer and Patient Services (includes activities and processes related to customer service, now leaning toward digital and self-service options); and
  • Clinical Support Functions (includes administrative activities that have clinical components, such as nursing administration and case management).

You have to list the simplification possibilities. Only then, can you proceed with a roadmap. This is created to provide a clear vision of what changes must happen to achieve the desired $265 billion annual mark in healthcare savings. 

The 3 types of changes…

McKinsey’s report identifies 3 types of changes: “within,” “between,” and “seismic.” 

Single organizations pursue the “within” changes. They represent savings in the order of $175 billion annually. And, benefit from automation and tools integration. All for improved management of back-office functions and human resources. 

The “between” changes need collaboration between industry-related organizations to happen. These can represent an annual saving of $35 billion, benefiting from payer-provider common platforms and unified efforts.

Note that both “within” and “between” changes can help save a total of 22% of the total administrative expenditure. Furthermore, with an additional positive Return On Investment (ROI). Thus, you can pursue immediately through the current tech tools and solutions available.

The “seismic” changes have a wider set of enablers, cross-industry, benefiting from partnerships between public and private sectors. Their alignment represents savings of up to $105 billion annually. 

Globally, all 3 types of changes account for savings of about $265 billion. Therefore, meaning 28% of the total administrative expenditure. This may motivate stakeholders and healthcare leaders to embrace it and make it a priority for the upcoming years.

 Customer and Patient Services: Optimizing the Experiences

In the healthcare industry, the customer’s definition comprehends a complex collective. Payers (professionals, etc) and providers (patients) receive services. In this, journey stage interactions differ in both complexity and duration. 

The universe of customer services within the healthcare industry, comprehend:

  • Payers – professionals, hospitals, and provider groups; and
  • Providers – patients. 

These are now racing to adopt digital tools, namely digital channels and applications. Yet, still making massive use of traditional communication mediums such as the phone.

As a common ground, we find the lack of data standardization, as well as the insufficient collection, linkage, and analysis. Its annual spending is around $80 billion and it represents a slice of 8% of the total administrative expenditure. So, it can benefit from transparency and easier to manage processes.

What to consider…

The pain points to consider as priorities to solve are:

  1. Decrease the number of interactions; 
  2. Downgrade the complexity of the process; and
  3. Increase the human resources productivity. 

In the “within” changes, it is beneficial to decrease the number of possible routes to access the needed information. Because this can help diminish the customers’ questions/issues with fewer resources allocated. And technology, just like artificial intelligence, is part of the solution. 

In the “between” changes, a collaboration between medical groups, hospitals, and payers is needed. Particularly, in the form of unified messages and combined resources integrated and shared directly in customer-facing platforms.

These “within” and “between” changes, when accounted for together, can represent a potential saving of $20 billion annually.

Regarding the “seismic” changes, they require a broader industry-level action. Demanding both capability and motivation to innovate. That include:

  1. Infrastructure creation to test and validate;
  2. Abandon outdated models and tools;
  3. Consider the customer feedback on an ongoing basis;
  4. Have in place an incentive program for product and/or service improvement – financial or non-financial; and 
  5. Consider constraints related to end-users’ budget availability. 

The Takeaway

From McKinsey’s report, conclusions are drawn in regards to unnecessary administrative spending in US healthcare. Then, the main objective is the creation of a comprehensive roadmap. One that includes a list of identified functional changes that enable massive savings while allowing a clear vision of the roles played by each party to achieve it.

Considering the “within” and “between” changes, progress is already being made by some organizations. The simplification of administrative tasks and processes is a top priority. As well as the:

  • Adoption of digital tools and tech solutions within an agile model;
  • Creation of broader partnerships expanding capabilities and investment; and 
  • Allocation of resources based on productivity drivers. 

To capture the value underlined in the possible “seismic” shifts, different stakeholders must come into play with different contributions. Such as:

  • Standard operational frameworks available by the government; 
  • Testing possibilities increased through public-private partnerships; and 
  • Third-party data collection for independent and objective continuous analysis. 

More than a quarter-trillion dollars are in the books for savings in the upcoming years. All if following the roadmap of possible and ready-to-implement tech solutions. It can benefit care access, delivery, and available options contributing as well to a more sustainable healthcare system.