Health insurance maze a major financial burden on hospitals, doctors, businesses

“A terrible maze”

According to Woolhandler, the vast majority of the health care administrative costs are due to the complexity of the insurance system.

“The system is a terrible maze,” she said. “Every doctor has to get used to the headache that comes simply from trying to be paid.”

In addition to Medicare and Medicaid, there are more than a thousand health insurance companies in the United States. Individual physicians may only accept insurance from a few of them, but most insurance companies offer several different plans, which provide different coverage at different costs.

Navigating that system requires a huge administrative effort, Woolhandler said. Most physicians, even those in small, family practices, need to employ non-medical staff members to keep track of dozens of differing criteria depending on which insurance plan their patients are using. Nurses, physician assistants, and physicians themselves each are burdened with administrative tasks associated with billing and insurance.

“Billing is a nightmare,” Woolhandler said. She explained that physicians and their staff members are required to document, in detail, “every minute of time spent with a patient” for billing purposes. Every procedure needs to be translated into the code used by the insurance company, she said, and in order to prove that each procedure was “medically necessary,” physicians may also have to provide detailed documentation of a patient’s medical history. “The system demands a huge amount of information all the time,” Woolhandler said.

An additional level of complexity is added because the price and coverage of the insurance plans will often change every year, or sometime even more frequently than that, Kahn said.

“A doctor might have renewed the same prescription for the same patient every month for years, and then suddenly, he might get a call from the pharmacy saying that the insurance plan no longer covers that medicine,” he explained. “Then you have to get on the phone and try to figure it out, and that’s time you’d otherwise be spending with patients.”

The complexity then pervades visits with patients, Woolhandler said, because physicians have to try and keep track of what procedures and medications are covered by the patient’s insurance plan. “Every time I want to do something as simple as refer someone to a specialist, someone has to go through the effort of finding a specialist that is within [the patient’s] network,” she said. “I have to use my limited time with each patient discussing billing and insurance coverage, trying to help them make a decision about what kind of care they’re going to get.”

A burden on hospitals

Hospitals face similar issues, though on a much greater scale. Hospitals often accept dozens, even hundreds of different insurance plans, requiring them to staff large departments of employees whose primary job is processing billing requests, sending them to the appropriate insurance companies, and filing appeals — often with more documentation — if the claims are denied.

Individual hospitals and hospital associations have long complained that the complexity and the opacity of the insurance system places an undue burden on them. In 2008, for example, the American Hospital Association released a report titled, “Redundant, Inconsistent and Excessive: Administrative Demands Overburden Hospitals.” According to the report, hospital emergency departments spend the same amount of time doing paperwork as they spend caring for patients.

Karen Granoff, a senior director at the Massachusetts Hospital Association, explained that hospitals absorb administrative costs at every stage of the process. “First, hospitals have to figure out if the patient is eligible for care,” she said. “Then, if they’re covered, they need to make sure that all the correct authorization is in place if it’s a special procedure, like an MRI. Then they figure out what kind of co-payment to collect, which depends not just on the plan but can also depend on the kind of procedure or on the doctor. Or if there’s a deductible, then there will be the question of what the patient needs to pay up front.”

Finally, the patient can be seen. And then the billing process starts.

“You have to code the procedure and submit it,” Granoff went on. “If it’s denied, there’s an appeals process, but the appeals process is different for every insurer. And there’s no guarantee on turnaround time: some insurers might take two weeks and some might take nine months.” Handling the appeals process can require a remarkably large amount of staff time, she said.

According to Granoff, most large hospitals must have a massive infrastructure in place dedicated to interacting with insurance companies. “That isn’t because the hospitals are inefficient, it’s just that, for every procedure they do, they have to fight to get paid,” she said. “And hospitals do a lot procedures.”