Encore! EP363: How to Cut Healthcare Admin Burden in Half, With David Scheinker, PhD

For a full transcript of this episode, click here.

I’m gonna encore this episode with David Scheinker, PhD, for several reasons; but here’s a big one: Why are we as an industry not doing what David Scheinker suggests in this episode?

Why are we not doing, I don’t know, kinds of logical things to reduce admin burden in this country when everyone agrees admin burden is a problem?

But let me back up for a moment for context. Two things happened since this show originally aired. One is that I was invited to a fireside chat by the Advisory Board to talk with Abby Burns, one of the amazing hosts over at Radio Advisory; and we talked about value in the healthcare industry. And if you define value as benefit divided by costs, and you can cut costs—like cut admin burden costs in half—then you have created some really nice communal value, which we talked about at length during that aforementioned fireside chat.

Here’s the other thing that happened since this show originally aired. I read the book by Mike Leavitt, mainly because Steve Schutzer, MD, kept talking about it. The title of the book is Finding Allies, Building Alliances. Maybe I will do a book report about this at some point, but let me share a couple of key quotes just to get the party started here.

Mike Leavitt wrote, “A diverse alliance, well led and well managed, can bring resources to bear on a problem that no organization can match—even the largest of organizations. The synergy of resources—from financial to intellectual—can deal effectively with a wide range of issues confounding organizations today.”

I found that very interesting. Here’s the second quote, which deals with what the top reason is that such diverse alliances may wish to hook up. “[It’s] a common pain: A shared problem that motivates people and groups to work together in ways that could otherwise seem counterintuitive.” Hmm … so, back to administrative burden.

Let’s review the facts that David Scheinker, PhD, shares in the interview that follows. He says any given transaction will cost provider organizations 14% of the total transaction costs to manage to get paid. Yes, it costs 14% of a transaction merely to get paid for the transaction. This is a big reason why both Peter Hayes, in the episode with him (EP424), and also Marshall Allen (EP425) talk about for why cash prices can be a whole lot less than going through insurance prices because you can skip a lot of insurance burden.

Now, on the payer side, add to that 14% an additional 5% to 15% to pay said transaction. That 30% of healthcare is waste stat that keeps getting tossed around. Listen to the show with Will Shrank, MD (EP413) for more on that. But, yeah … here’s 20% to 30% of every transaction that is waste. And we haven’t even gotten into redundant care or inappropriate back surgery yet. Our industry spends up to 30% of our money just trying to get paid and pay.

Here’s a case study for you. You know who has already solved for this whole “it’s really hard to get paid and pay” dilemma? Derivative traders. It used to cost derivative traders $100,000 to do a contract, any given contract. And they worked together and got this down to $5000 by doing some of the stuff that David Scheinker talks about in the show. And, I don’t know, I feel like the healthcare industry could also do this, too, if they wanted to. But there are a whole bunch of reasons why our industry cannot seem to get together and be as ruthlessly practical as derivative traders—or banks, who have figured out how to work together to process credit cards to reduce their own common pain.

Here are but a few of the reasons, potentially, why the healthcare industry doesn’t get together to reduce administrative burden in some of the ways that Dr. Scheinker talks about.

1. Some organizations actually make a lot of money off of that transactional waste. As but one example—and not to just pick on one, but we don’t have all day—how about some RCM (revenue cycle management) companies who may or may not be owned by the same vertically integrated stacks as the payers themselves? As I have said any number of times, one person’s—or potentially an entire country’s, as the case may be—one party’s waste, is somebody else’s honeypot; and I am not sure if this is any exception.

2. Legacy technology and data systems and all the sunk costs therein

3. As Kaye Davis and Katrina Hubbard reminded me about the other day, there are some serious regulations in healthcare due to everybody being a vendor of CMS that adds a layer of regulatory complication to many collaborations. Also, state laws sometimes have an unintended side effect of making it tough to collaborate.

Now, are there any precedents for this type of collaboration in the healthcare industry? Yeah, actually Surescripts, which, don’t forget, was created by an alliance of PBMs (pharmacy benefit managers) who worked together because they all wanted to enable e-prescribing and needed a joint platform to do it.

Look, I could say a lot about this one, but nonetheless, so much of what gets talked about in the show today with Dr. David Scheinker is very, very actionable. Just want to note that since David Scheinker was on the show, he and his team have done some major research over the past few years into ways that contracts can be standardized. If enough of you reach out and say that you’re interested, we, for sure, can have David come back on the show and discuss.

David Scheinker, PhD, is a clinical professor of pediatrics. He’s the executive director of systems design and collaborative research at Stanford Children’s Health. He also founded and directs SURF Stanford Medicine.

And with that, here is your original episode.

Administrative costs in the United States have a bad rap. You don’t have to look too far to find an article about how there’s now, like, 10 administrators for every 1 physician in this country. Or 3 to 4 billing people for every physician.

Or consider what Dan O’Neill was talking about in episode 359. He was talking about IPAs (independent physician associations) and other managed care entities. As Dan mentions, contracting with some of these IPAs is like an “I love 1990” flashback. The contracting process transpires via mail. Not email, mind you. Mail. Like, stick-a-stamp-on-the-envelope mail.

So, in sum, there’s a lot of pretty well-founded complaining about administrative costs in this country. A lot of this administrative stuff is truly inefficient and a fantastical waste of time. So, here we are freaking out about staffing shortages, overlooking that doctors at the heights of their careers are spending some percentage of their time not counseling, treating, or diagnosing patients but twiddling their thumbs on hold with one insurance company or another slowly burning out by the inefficiency of it all. Or doing pajama time, and we all know that too much pajama time means also burnout on a silver platter.

So then, let’s get granular here. If we’re trying to quantify admin costs, how you do that is to quantify how much each transaction costs. How much does it cost to send a bill and get paid for it? How much does it cost to file an appeal and a denial of a prior auth? Add all those transactions together and you get the full cost of the administrative burden.

In this healthcare podcast, we’re digging into a paper about admin costs written by David Scheinker, PhD (my guest today); Barak Richman, PhD, JD; Arnold Milstein, MD, MPH; and Kevin Schulman, MD, MBA.

I have the pleasure of speaking with David Scheinker, PhD (as I mentioned), who is the lead author on this paper. Just to underline a major takeaway from this conversation with Dr. David Scheinker, he reiterates a recommendation to eliminate a big proportion of administrative costs.

I guess I should say spoiler alert here, but the major takeaway/recommendation is this: Standardize healthcare contracts between payers and providers. Every payer and every provider finds one contract template and uses it. I don’t mean one template per payer or per provider, although that probably would be a revelation in and of itself. But I mean that all payers use one basic provider contract.

A couple of specifics here: The template that I’m referring to (and that Dr. David Scheinker is referring to) consists of parameters. What do I mean when I say parameters? Consider what Airbnb does when you’re looking for a place to stay, as an example. How many bedrooms (that’s a parameter)? How many bathrooms (that’s a parameter)? How many amenities (that’s a parameter)?

After everybody picks their standard set of parameters, at that point, all parties can negotiate and come up with whatever they want for what is the price of an extra bedroom or whatever value you’re gonna assign to that parameter. Go nuts there, but from a data collection and analytic perspective and a getting paid perspective, it is way easier to do it that way—meaning it’s way easier to execute and report when all of the contracts use the same parameters. Also, you can build tech to do a lot of that because you don’t have to write algorithms with exponential variables.

You can learn more by connecting with David on LinkedIn and following him on X (Twitter).

David Scheinker, PhD, started his career as a research mathematician and switched to healthcare operations to work on an interdisciplinary team and have a more immediate impact. He is a clinical professor of pediatrics, the executive director of systems design and collaborative research at Stanford Children’s Health, and a member of the Clinical Excellence Research Center (CERC) at Stanford University. He founded and directs SURF Stanford Medicine, which brings together students and faculty from the university with physicians, nurses, and administrators from the hospitals. He studies clinical care delivery, hospital operations, sensor-based and algorithm-enabled telemedicine, the socioeconomic factors that shape healthcare, and healthcare policy.

10:39 What’s the quantitative administrative cost in an average transaction?

11:05 What’s the quantitative administrative cost in a healthcare transaction?

11:58 What does the healthcare billing and administration cost add to the US’s overall healthcare spend?

12:53 Is it possible to cut billing and administrative costs in healthcare?

14:17 “In some ways, the problem for healthcare should be simpler.”

15:30 What does the complexity of the current system look like in a doctor’s office?

18:42 How did David go about studying healthcare administrative costs?

21:34 “It doesn’t have to be simple; it should be standardized.”

24:50 What would be the pushback on standardizing contracts in healthcare?

25:43 Why is it possible to gain more value by losing customization in contracts?

27:20 “Never let a good crisis go to waste.”

27:41 “It’s much easier in healthcare to build something new than to change something that exists.”

30:47 What benefits does telemedicine have to cutting administrative costs?

32:17 What is another significant benefit of using standardized contracts?

33:26 Why haven’t standardized contracts become a common thing in the current healthcare system?