AHA calls out 'skyrocketing' administrative costs for hospitals

By Mariah Taylor / September 11, 2024

"Skyrocketing" administrative costs and increasingly burdensome insurer policies are driving up care denials, straining hospital resources and delaying patient care, the American Hospital Association reported Sept. 10. 

"Hospitals and health systems already face many pressures that make their ability to care for communities more challenging," the AHA said in the report. "We shouldn't allow insurers or others to add to that with costly administrative practices that burden already overwhelmed health care professionals and decrease patient access to care."

Here are six takeaways:

1. Care denials increased an average of 20.2% for commercial and 55.7% for Medicare Advantage claims in 2022-2023.

2. More than 40% of total expenses hospitals incur in patient care come from administrative costs due to prior authorization appeals, according to a report by Strata Decision Technology. Additionally, McKinsey estimates that systems conservatively spend an estimated $40 billion annually on costs associated with billing and collections.

3. Machine learning and other AI tools are driving up the growth of denials and do not consider the patient's individual clinical circumstances or review the plan required. "Although the 2024 MA final rule offers some guidance regarding payment denials and prompt pay, the issue remains a significant concern," the report said

4. An estimated 75% of MA care denials are eventually overturned, an HHS report found in 2018. However, hospital staff still spend significant time and resources to get the denials overturned. One healthcare system reported a denial rate for MA claims of 10.5%-15.5%, but found 56% of denials were overturned on appeal. This created a cash flow challenge where unpaid claims outstanding for more than 90 days ranged between 27.1% and 46.7%.

5. Even when denials are successfully overturned, insurers add roadblocks. The time taken for commercial payers to process and pay hospital claims has increased 19.7% in 2023, a Vitality Payer Scorecard found

6. Commercial insurers use "unfair business practices," such as post-payment claims audits to cut reimbursement or recoup payments. An AHA survey found 50% of systems reported having more than $100 million in accounts receivable for claims that were six months or older in 2022.

"These cash flow challenges also are exacerbated when cyberattacks cripple the claims processing and payment systems that hospitals and insurance companies rely on as evidenced by the recent Change Healthcare attack," the report said. "The risk of such cybersecurity threats also adds to the administrative costs hospitals incur to operate, maintain and update the complex technologies that are required for hospital billing and collections.