Mechanism
Why is US hospital administrative cost ~5x Canada's, even adjusting for wages?
I work clinically and the admin side is honestly its own building. We have an entire floor of people whose job is filing for reimbursement.
The standard story is "wages are higher" — sure, but adjust for that and the gap is still big. I think the real driver is payer count. Every payer (commercial insurer, Medicare, Medicaid HMO plan, Medicare Advantage variant, self-pay) has distinct forms, prior-auth flows, code interpretations, denial reasons, appeal processes. The provider has to maintain billing competence in each one.
So billing cost grows roughly as (payers × providers), not as (people). Canada has effectively one payer per province. We have hundreds.
I'd guess the share of US health spend going to people whose job is "talk to the insurance company so the doctor can get paid" is something like 12-15%. Anyone have a tighter number?
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Himmelstein & Woolhandler put it at ~31% of total health spend going to admin in some of their NEJM work, vs ~17% in Canada. Numbers depend a lot on what you count, but the direction is consistent across every methodology I've seen.
Worth separating two things: (1) billing/coding overhead at providers, (2) underwriting/marketing at insurers themselves. Single-payer talk usually means we'd kill mostly (2). (1) only shrinks if you also standardize codes and authorizations, which a single payer happens to do but doesn't have to.
Changed a mind:
- “the (1) vs (2) split changed how I think about 'admin savings' numbers. they're not the same lever.”
Built revenue cycle software for two years. The number of distinct denial reason codes across the payers we connected to was ~3000. Three thousand reasons your claim can fail. Half of "billing" is just translating between dialects.
Why hasn't private equity rolled up the back office and standardized? Feels like an obvious play. Are there structural reasons it hasn't worked?
They've tried. The roll-ups (athenahealth, R1, etc.) get some efficiency but the underlying complexity isn't fixable from the provider side — the payers are the ones writing the rules and they update them every quarter. It's a queens-of-the-castle problem.