Decreasing Overhead Expenses

The term overhead expenses refers to healthcare payments that do not go to healthcare providers; this includes administrative costs, malpractice insurance, and corporate profits (in for-profit hospitals and insurance companies).
Ways to decrease overhead expenses include the following:

  • Decreasing payer overhead: Governmental healthcare plans in developed countries, including the United States, along with private health plans outside the United States, have overhead costs that are usually between 3% and 5% of total costs. However, in the United States, private insurers have overhead costs ranging from around 20% to 30%, partly due to the fact that insurers need a large number of staff members for the purpose of underwriting to evaluate claims for denial and to adjudicate appeals by providers. They also need to show a profit. No evidence indicates that the activities described here and their higher administrative costs improve clinical outcomes. Strategies that may help to minimize these overhead costs include the following:
  • Increasing the use of standardized electronic health records
  • Increasing the use of government plans, and possibly nonprofit plans
  • Competition among payers to encourage increased efficiency (but it also increases incentive to deny claims)
  • Decreasing provider overhead: Any payer reform that eliminates the need for billing and claims personnel who manage the billing of multiple payers, negotiate appeals, and justify claims will decrease provider overhead. For example, some countries with multiple insurance companies vying for business, such as Germany and Japan, require the following:
  • Payment amounts and rules must be the same for all insurance companies.
  • In many cases, payers are required to pay all providers’ bills.
  • The cost for services are the same throughout the country.
    Although malpractice costs are a small fraction of overall costs, for certain physicians they can consume a considerable amount of annual income. Reforms that decrease the number of lawsuits and settlements should eventually lower premiums and benefit the physicians in question; such reforms may also decrease the use of unnecessary medicine.

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