Tackling High Health Care Costs: Policy Considerations for Administrative and Prescription Drug Challenges
In December 2024, the National Health Statistics Group in CMS published an updated report on U.S. health care expenditures. Health care expenditures in the United States are extraordinarily high, surpassing other OECD countries by nearly 6% of GDP for equivalent or worse health outcomes. This well-documented burden affects not just the government but also the average American. A 2019 study found that medical costs contribute to over half of all bankruptcies. If unchecked, per capita health spending is projected to increase from $14,423 in 2023 to $21,927 in 2032.
After a decade-plus of concerted efforts to address the rising cost of care through population health, care coordination, and other value-based care strategies, the team at Coral took a closer look at what’s fueling our higher expenditures today. Administrative expenses and prescription drugs are two major drivers of high health care costs in the U.S. and the Trump administration has prioritized addressing these issues. High administrative costs divert resources to unnecessary complexities, with an estimated 25% of health care spending considered wasteful. Prescription drug costs also hinder access to high-quality patient care, making treatment unaffordable for many. Balancing the Trump administration’s priorities of reducing health care spending while also promoting transparency, protecting vulnerable populations, and lowering prescription drug prices presents a significant challenge. This blog offers actionable solutions to address these issues while balancing the goal of reducing overall health care spending.
Administrative Costs
U.S. health care’s administrative complexity stems largely from its multi-payer system. While peer countries spend an average of $194 per person on administration, the U.S. spends $1,055. Tasks like billing, coding, clinical documentation, and prior authorizations are further complicated by varying payer requirements, increasing administrative time and costs. Physicians spend up to 25% of professional revenue dealing with billing issues – resources that should be directed toward patient care.
Policy Considerations
To address the ever-increasing administrative complexities, the Trump administration could implement policies recommended by industry experts to simplify and standardize prior authorizations and the claims billing and submission process, aligning with their goals of reducing health care costs, promoting transparency, and improving patient care.
Simplify and standardize prior authorization requirements across insurers to reduce the time and resources spent by providers seeking approval for necessary treatments. A standard system for prior authorizations would minimize inefficiencies and improve both provider and patient satisfaction.
Medicare Advantage (MA), Medicaid, and Exchanges: Standard prior authorization requirements across MA, Medicaid, and the exchanges would eliminate waste generated from following different prior authorization rules and processes for each payer. In time, this could reduce errors, improve response time, and lessen the administrative burden for providers while improving access for patients.
Incentives for Adoption: Financial incentives or regulatory relief for private payers who adopt standard prior authorization processes would encourage the adoption of this practice. These incentives could include tax benefits or reduced reporting requirements.
Adopt standard coding systems and automate claims processing to eliminate many of the manual and redundant tasks that currently contribute to avoidable administrative overhead.
Directives to Federal Agencies: Standard claims processing protocols developed and implemented by direct agencies such as the Centers for Medicare & Medicaid Services (CMS), would allow these agencies to work with private payers to promote the adoption of these standards.
Set a Framework: Guardrails and a framework in which payers, hospitals, and physician groups operate can be set by federal and state bodies.
Test Public-Private Pilots: Public–private partnerships can be created to test interventions within a state, with successful initiatives scaled nationally.
Incentivize insurers to provide clear and predictable reimbursement timelines and denial reasons to help providers avoid unnecessary appeals and reduce the complexity of claims management.
MA/Medicaid MCOs: Clear and predictable claims processing and reimbursement timelines for MA plans can be set through CMS regulations. States, in partnership with CMS, can enforce similar requirements for Medicaid MCOs, through state contracts and oversight mechanisms that ensure compliance with federal guidelines.
Regulatory Relief: Regulatory relief for private payers that demonstrate compliance with standard timelines can include reduced reporting requirements or expedited approvals for other regulatory processes.
These initiatives, when implemented together, could significantly reduce current administrative inefficiencies and decrease overall health care expenditures.
Prescription Drug Costs
High prescription drug costs in the U.S. significantly hinder health care delivery and patient outcomes as clinicians are often prevented from prescribing medications in alignment with clinical guidelines. Incentives are often misaligned as seen through the dynamic relationship between list prices and complex rebate structures of pharmacy benefit managers (PBMs). Manufacturers increase list prices to accommodate larger rebates while patients face growing out-of-pocket costs. Unlike other OECD nations where government health systems negotiate drug prices directly with manufacturers, the fragmented US health care system lacks robust centralized negotiating power. American patients pay substantially more for the same medications compared to patients in other countries. This system strains household budgets and results in medication non-adherence and poorer health outcomes.
Policy Considerations
Several promising solutions have been proposed across the industry to address the high costs of prescription drugs.
Reform PBMs by increasing transparency in rebate arrangements, standardizing pharmacy network contracts, and eliminating spread pricing practices.
Expand Medicare’s drug price negotiation authority by implementing value-based pricing models, requiring manufacturers to justify price increases above inflation, and establishing an independent drug price review board to assess fair market values.
Adopt international reference pricing where U.S. drug prices would be benchmarked against those in other developed nations to align domestic costs with global standards.
These reforms combined with efforts to accelerate generic drug approval and market entry, could significantly improve medication affordability and access.
Path Forward: Implementing Effective Reforms
The U.S. health care system faces substantial, yet not insurmountable, challenges with unsustainable costs driven in large part by administrative complexities and high prescription drug prices. By implementing targeted reforms such as standard prior authorizations, streamlining claims processing, and enhancing Medicare's drug price negotiation powers, these solutions begin to address systemic issues. Comprehensive PBM reform, coupled with administrative simplification initiatives, could significantly reduce wasteful spending while improving both provider satisfaction and patient care.
If your organization is working to address rising health care costs and streamline system efficiencies, our team at Coral Health Advisors is ready to help. Reach out to explore how our expertise can support your efforts.