Administrative Costs: Trying To Find the Balance


Anyone who's ever said that government should be run as a business doesn't understand government — or business. Governments provide services. That's a job as sloppy as collecting trash and one in which the bottom line isn't the only consideration. The government/managed care analogy may not be seaworthy when tossed upon the currents of logic, but there is at least this similarity: Managed care provides a service and also has masters other than the bottom line.

Every physician, HMO, hospital, lab, pharmacy and other participant in health care has a stake in how the total health care dollar is divided. Does increasing administrative costs a certain amount restrain medical costs to the degree that overall costs are not increased or, at least, increased at an acceptable rate? Can savings be generated with no decline in quality of care and extent of coverage? What is an administrative expense?

Some health plans speak apples while others speak oranges. If a DM program improves quality but doesn't lower cost, will one plan call it medical instead of administrative? And customary considerations of HMO administrative costs don't even take into account how much of the so-called “medical loss” (basically, what plans pay providers) is really administration.

Providers, for their part, all have administrative components, and while capitation cuts down some claims traffic, the hassles of utilization review, written referrals, chart review visits and all the other managed care control mechanisms do exist.

My feeling is that we're still swaying on the high wire, unable to really relate component administrative costs to changes in overall health care costs. And it's likely that different components will have different effects as managed care matures. For example, an HMO's contracting office might have contributed greatly to the organization's success over the past five years, but that won't be the case in the next five if fees have indeed hit rock bottom. Administrative costs are a slippery fish. No doubt about it.