Overhead

The Healthcode System  ...  Chapter 4

Every business carries overhead. It is the cost of keeping the lights on and the doors open: the rent, the utilities, the back office, the necessary expense that sits at the edge of an enterprise, distinct from the thing the business actually makes and sells. A reasonable question to ask of any industry is how large that edge has grown. Ask it of American medicine and the edge stops being an edge.

In 2017, by the most careful accounting available, insurers and providers in the United States spent eight hundred twelve billion dollars on administration  ...  roughly twenty-five hundred dollars for every person in the country, and a little more than a third of all national health spending.[1] A third of every health dollar. None of it sets a bone, reads a scan, or sits with a frightened patient. It pays for billing departments and claims processing, for prior authorizations and appeals, for the vast clerical machinery that exists to turn care into the codes of the previous chapters and to argue, endlessly, over whether the translation was done right.

This is not a law of nature, and the cleanest proof is to look north. Canada spends about seventeen percent of its health dollar on administration, half the American share, and reaches that figure through a payment system simple enough not to require the apparatus.[2] The pattern holds across borders. In a comparison of eight wealthy nations, American hospitals carried the heaviest administrative burden, a quarter of their total spending, while hospitals in Scotland and Canada ran at less than half that, and the lightest burdens of all fell where hospitals were funded by a single lump-sum budget rather than paid code by code.[3] The lesson is uncomfortable and unambiguous. The more a system pays for individual coded services, the more it must spend proving the codes. The overhead is not incidental to the health-code system. The overhead is what the health-code system costs to run.

The dollars are only half the bill. The other half is paid in the one currency medicine cannot print: the clinician's attention. Time-and-motion research finds that for every hour a physician spends with patients, nearly two more go to the electronic record and the desk work around it, with another one to two hours of documentation waiting at home after the children are asleep.[4] The exam room shrinks; the screen swells. A profession trained for years to read a body now spends most of its day feeding a database. That this ranks among the leading drivers of physician burnout is no mystery to anyone living it.[5]

Here is where the accounting word becomes a lie. We call it overhead  ...  the term itself insists the work sits overhead, above and apart from the real labor of healing, a manageable margin at the top of the ledger. It is not at the top of the ledger. A third of the money and the larger part of the clinician's day is not a margin around the system; it is the system... asserting itself in every coded line. The paperwork is not a tax on the economy of care. The paperwork is an economy  ...  with its own millions of workers, its own software vendors, its own quarterly growth and its own career ladders  ...  and the product it manufactures is not health. The product is the successful conversion of a human being's care into a string a payer will honor.

Recall the rule from the first chapter: the code is not the record of the care, the code is the condition of the care. Four chapters in, that condition has a price tag and a payroll. It employs more people than many of the country's largest industries, consumes a third of the most expensive health system on earth, and quietly takes the scarcest thing a sick person needs, which is a clinician's undivided minute.

The overhead, then, is not overhead. It is the building. The patient pays for it twice  ...  once in the bill, once in the rushed and screen-lit visit. The public pays for it in a third of every health dollar that buys no health at all. All of this, the staggering sum and the borrowed hours and the burnout, describes only the cost of claims the system means to pay. The next chapter takes up the other kind: the claims engineered, from the start, to be denied.

Notes

1. In 2017 U.S. insurers and providers spent $812 billion on administration  ...  $2,497 per capita, or 34.2% of national health expenditures. David U. Himmelstein, Terry Campbell, and Steffie Woolhandler, "Health Care Administrative Costs in the United States and Canada, 2017," Annals of Internal Medicine (2020).

2. Canada spent roughly 17.0% of its health expenditures on administration, about $551 per capita  ...  half the U.S. share. Himmelstein, Campbell, and Woolhandler, Annals of Internal Medicine (2020); coverage in Time and Healio.

3. In an eight-nation comparison, U.S. hospital administrative costs were the highest at 25.3% of total hospital spending (2011), against 11.6% in Scotland and 12.4% in Canada; the lowest burdens occurred where hospitals received single lump-sum (global) budgets. David U. Himmelstein et al., "A Comparison of Hospital Administrative Costs in Eight Nations," Health Affairs (2014); Commonwealth Fund summary.

4. Time-and-motion research finds physicians spend nearly two hours on electronic-record and desk work for every hour of direct patient care, plus one to two additional hours of documentation after hours. Altarum Healthcare Value Hub, "Excess Administrative Spending in Healthcare," citing time-and-motion study data.

5. Administrative burden is identified as a key driver of physician burnout. Altarum Healthcare Value Hub, "Excess Administrative Spending in Healthcare."