The Cost of Healthcare in the United States: Addressing Rising Administrative Costs and Burdens
- Signature Performance
- 2 hours ago
- 5 min read
While the purpose of healthcare is healing and recovery, business administration has become an increasingly essential part of the system. Healthcare administration enables organizations to manage resources, maintain regulatory compliance, and deliver high-quality care to patients. But in recent years, healthcare administrative costs have skyrocketed at an unsustainable rate, creating a massive burden on the system. Administrative expenses now account for 40% of total healthcare expenditures, a drastic increase from a few decades ago. Signature Performance is dedicated to transforming healthcare through our strategic solutions designed to lower healthcare administrative costs and burdens.
Impact on Patients
The administrative complexity of the U.S. healthcare system creates challenges for patients, who spend considerable time dealing with bureaucratic red tape. These compliance hurdles come with significant financial costs. One study found U.S. employees spend nearly $21.6 billion in time and resources coordinating with health insurance administration each year (2). For patients, these cumbersome tasks also add to the emotional toll of accessing healthcare. Patients who should be focused on healing must instead use their energy to make calls and handle insurance paperwork, adding unnecessary stress to what can be an already difficult journey.
Administrative barriers can also result in decreased access to care. For example, in one study, one-quarter of patients (24.4%) experience challenges to receiving care because of administrative tasks, such as addressing billing issues or obtaining prior authorization. Among those patients, 22.6% delayed getting care and 15.7% avoided getting care entirely (3). By delaying or avoiding care, patients risk exacerbating medical conditions that could have been treated earlier at lower costs.
Impact on Providers
The brunt of administrative burden has arguably fallen on healthcare providers, including physicians, nurses, and support staff. Administrative tasks, such as documentation and billing, have become a chief complaint of healthcare providers, resulting in increased levels of burnout (4). In turn, burnout has become a primary driver behind the recent crisis of healthcare providers leaving the industry (5).
Providers have been forced to shift their priorities from delivering patient care to handling administrative duties. Physicians in ambulatory practices spend nearly twice as much time on desk work as they do on clinical time with patients (6). These administrative tasks cost the industry $83 billion annually on staff time, with 97% of those costs coming from provider transactions (7). Additionally, administrative inefficiencies can occur when working within a complex system that features 900 private payers (8) and thousands of different health plans (9).
Impact on Communities
While healthcare spending in the United States has increased, it has not produced additional resources or better health outcomes for communities. In fact, high administrative costs can be crippling for healthcare institutions in many regions.
Rural hospitals, for example, spend roughly half of their overhead costs on general administration (10). In the past two decades, nearly 200 rural hospitals have closed or converted to emergency or outpatient care (11). These closures have deep impacts on local communities, forcing millions of rural Americans to travel longer distances for medical care.
Historical Trend of Increases in Healthcare Administration
Healthcare spending continues to increase in the United States. In 2023, health spending grew to $4.9 trillion, accounting for 17.6% of the country’s gross domestic product (12). A substantive portion of this increase can be attributed to higher administrative costs. Data shows the cost of administration accounts for 40% of total hospital expenses (13). Inflated administrative costs, along with the prices of labor and goods, lead the United States to have much higher levels of health spending than other countries (14).
In other wealthy countries, healthcare spending has increased at a more sustainable rate. While the United States spends more than $11,000 per capita each year on healthcare, other countries spend an average of $4,300 per capita annually (15).
Despite the country’s incongruous spending levels, the United States ranks well below other countries in many health outcomes. The average U.S. citizen lives to be 77 years old — three years lower than the average life expectancy of 80.4 years in high-income countries. The inverse relationship between spending and outcomes suggests the United States allocates its healthcare expenditures inefficiently. The rapid increase in administrative costs must be considered in discussions about how the country can reverse this alarming trend.
Healthcare Administrators Outpace Healthcare Providers
One driving factor behind rising healthcare administration costs has been an increase in the number of administrative professionals working in the industry. Data shows the growth of healthcare administrators has greatly surpassed the relative increase in the number of providers. Between 1975 and 2010, the number of physicians working in the United States grew by 150%, a reasonable increase that correlated with population growth. Over the same period, the number of healthcare administrators grew a staggering 3,200% (16). While there’s a need for administrators within the industry, this heavily lopsided growth signals a cause for concern.
Signature Solutions for Healthcare Transformation
The cost of administering healthcare in the United States has become unsustainable, presenting serious challenges for patients, providers, and communities. The industry cannot continue on the current path without grave risks to its ability to provide effective care and produce positive health outcomes. There’s no single solution to this complex problem, but various improvements, such as automation, AI, and interoperability, have the potential to significantly reduce administrative costs.
Solving this challenge is both a critical responsibility and a remarkable opportunity. Consider a healthcare system where administrative costs no longer overshadow the mission of healing. This vision is within reach, but it requires bold action and a collective effort. Signature Performance, which has the unique perspective of representing payers and providers in both the public and private sectors, aims to be a catalyst for change in the healthcare industry.
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2.Pfeffer, J., Witters, D., Agrawal, S., & Harter, J. (2020, October 29). Magnitude and Effects of “Sludge” in Benefits Administration: How Health Insurance Hassles Burden Workers and Cost Employers. Academy of Management Discoveries. https://journals.aom.org/doi/abs/10.5465/amd.2020.0063
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4.National Academies of Sciences, Engineering, and Medicine. (2019, October 23). Factors Contributing to Clinician Burnout and Professional Well-Being. Taking Action Against Clinician Burnout: A Systems Approach to Professional Well-Being. https://www.ncbi.nlm.nih.gov/books/NBK552615/
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10.Cost of rural hospital services – saving rural hospitals. (n.d.). https://ruralhospitals.chqpr.org/Costs.html
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14.Papanicolas, I., Woskie, L. R., & Jha, A. K. (2018). Health care spending in the United States and other high-income countries. JAMA, 319(10), 1024. https://jamanetwork.com/journals/jama/article-abstract/2674671
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16.Cantlupe, J. (2017, November 7). Number of healthcare administrators is rising. Athenahealth. https://www.athenahealth.com/knowledge-hub/practice-management/expert-forum-rise-and-rise-healthcare-administrator