Implications Of The Health Care System’s Design For Administrative Costs

Administrative costs account for almost a quarter of total US health care spending. Other nations spend a much smaller share (of their much smaller spending) on administrative costs. While high administrative costs certainly reflect some inefficiency within organizations, we focus on how the design of the US health care system contributes to high administrative costs. We posit that how the US has chosen to address inherent challenges associated with health care delivery and financing drives significant administrative spending.

Specifically, the US health care system, although highly regulated, is very decentralized with relatively little standardization. This approach values autonomy and innovation, but the associated complexity is an important contributor to administrative costs. Importantly, these costs extend beyond the administrative...