No. 20: What Does It Cost Physician Practices To Interact With Health Insurance Plans?

August 2009


Physicians in Canada express concerns over administrative bureaucracy and working time spent that is otherwise unavailable for patient care. This is in the face of our universal health care system, in which there is, in effect, only one insurer for medically necessary services in each Province and Territory. How might this be influenced if we were to expand private insurance schemes, with the concomitant time and cost of interacting with individual health plans? To gain some insight to this question, this month’s e-rounds reviews a recent paper based on American survey results of 2006.


The survey focused on physician practices outside of hospitals and randomly selected 750 doctors working in solo or two-physician practices, plus 500 working in groups of three or more practitioners. Excluded from the sample were physicians employed by the Federal Government, by health maintenance organizations (HMOs), by academic medical centres, those who spend most of their time in hospitals (eg. Emergency department physicians), and those with many self-pay patients (eg. Plastic surgeons). The sample included 730 primary care physicians (PCPs) and 580 specialists drawn from the American Medical Association Masterfile, and also included administrators for 629 groups drawn from the Medical Group Management Association (MGMA) Universal national file.

Three survey instruments were designed based on previous research and on interviews with physicians, practice administrators, and health plan executives: a “physician survey”, an “administrator survey”, and a “physician-administrator” survey.  They inquired about time spent interacting with health plans, and converted that time into a dollar value using external data on annual compensation. Specific categories of interaction with health plans included prior authorization requirements, pharmaceutical formularies, claims, credentialing, contracting, and data on quality. Extreme outliers were trimmed from the data and results were reported as medians as well as means. To account for the possibility that respondents would be unable to separate time spent on billing/claims interactions with health plans from similar interactions with Medicare (for those 65 years and older) and Medicaid, (for lower income patients) the researchers conservatively reduced the billing/claims time estimates by 38.4 percent, which is the percentage of gross charges attributable to these payers. If anything, the results underestimate the administrative time and costs spent dealing with health plans. The data provided the first national information available on costs, by the type of interaction and by the size and specialty type of practice.


Of the 1939 physicians and administrators surveyed, 142 were excluded because they were no longer in practice, were in an excluded category, or had moved, yielding an adjusted response rate of 57.5 percent. The mean time reported on health plan interactions was 43 minutes/day (m/d), equivalent to 3 hours/week (h/w) or 3 weeks/year (medians = 28 m/d or 1.9h/w). PCPs spent significantly more time (mean 3.5 h/w) than medical (2.6 h/w) or surgical specialists (2.1 h/w), with physicians in solo or two-physician practices reporting significantly more time than those in large group practices. By type of interaction, time dealing with formularies and authorizations accounted for most of the time at 1.7 and 1.1 h/w, respectively. Concomitantly, time spent on interactions dealing with quality of care was a mere 0.06 h/w. Calculations of the cost of this time amounted to USD $68,274 per MD per year (median USD $51,043), amounting to approximately 1/3 of PCP’s income and benefits. Extrapolated to a national level for average costs, this represents some USD $31 billion (USD $23.2 using medians). Using a 5-point scale to ask physicians if the costs of interacting with health plans had changed over the past two years, 77% responded that it had increased somewhat or a lot. The $31 billion cost to physician practices for time spent administering health plans on behalf of patients is equal to 6.9 percent of all U.S. expenditures for physician and clinical services. This amount is six times the amount the federal government spends annually on the Children’s Health Insurance Program (CHIP) for poor children.


Many limitations must be taken into account, including the fact that this study did not report on all physician types, and responses (58%) may have favoured those with a greater real or perceived burden, though other studies suggest that significant non-response bias is unlikely in physician surveys with response rates in this range. Moreover, results were based on respondent reports not direct observations as in a time and motion study, though four different studies found similar estimates of the time spent by physicians on administrative activities rather than on direct patient care. Finally, confusion may have occurred with time spent on billing claims or other administrative costs, which are not included; and cost results involved many assumptions, estimates and extrapolations. Costs did not include administration-related equipment, supplies, or office space for more billing staff. Moreover, as the authors admit, not all of the time spent was necessarily “a waste” and it is reasonable to assume such interaction time can never be reduced to zero.


To the extent that this survey captured the real time spent and cost of health plan interactions, exclusive of billing claims and general administrative costs, it is clear that 48 additional minutes per day or 3 weeks per year, or 1/3 of PCP’s income and benefits represent a substantial resource otherwise unavailable for patient care. Three former studies, though of lesser scope and of a different nature, showed surprisingly similar results.


For physicians in Canada who feel that the best fix for Medicare is to develop a parallel, multi-payer system, with a private insurance industry, it is important to bear these results in mind. It is expensive for physicians to deal with multiple health plans, each with its own requirements for pre-authorizations, formularies, billing, eligibility, co-payments, and deductibles. The benefits purported to flow from competition come with a cost, both to physicians and to patients. Even for those supporting Medicare, this is a sharp reminder that distractions from direct patient care cost both time and money and force us to be constantly mindful of administrative bureaucracy, which is totally unrelated to the quality of patient care.

What Does It Cost Physician Practices To Interact With Health Insurance Plans? Lawrence P. Casalino, Sean Nicholson, David N. Gans, Terry Hammons, Dante Morra, Theodore Karrison, and Wendy Levinson.  Health Affairs 2009: Web Exclusive.

Click here to read the pdf of e-Round #20: [ENGLISH] [FRENCH]

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