Health Care Administrative Sludge Is $ 200 Billion And Increasing

John Tozzi at Bloomberg walks us through the network of middlemen who increase health care costs while often working against each other:

https://www.bloomberg.com/news/features/2025-03-13/middlemen-in-us-health-care-are-driving-up-costs-frustrating-patients?accessToken=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJzb3VyY2UiOiJTdWJzY3JpYmVyR2lmdGVkQXJ0aWNsZSIsImlhdCI6MTc0MTk4NDcyNywiZXhwIjoxNzQyNTg5NTI3LCJhcnRpY2xlSWQiOiJTVDJZQ0pEV1gyUFMwMCIsImJjb25uZWN0SWQiOiI5NzY3NTdDMzJDNTk0OEJDOUJFQUFEODY1QzRDODAxMSJ9.1zJ_pFxDTCo1IgCA5T7eynS8PUYLtqfxGxIu0WyuV6U&leadSource=uverify%20wall

Cancer Patient's $100,000 Bill Shows Chaos Rocking Health Care
The US health-care system spends as much on billing and claims processing as it does on treating cancer.
By John Tozzi - March 13, 2025

After she was diagnosed with advanced breast cancer, Julie Simons and her doctor sought approval from her insurance company to pay for a form of precise, high-dose radiation treatment.

The confusing responses they received presaged a struggle to come. UnitedHealth Group Inc.’s insurance division told the doctor that type of radiation wouldn’t be covered during a phone call in February 2024, according to the company. The same day, it sent Simons two conflicting letters: One denying the request as “not medically necessary” and another that approved it.

Relying on the approval letter, Simons got the treatment. Months later, the insurer declined to pay for it, leaving her on the hook for more than $100,000 in medical bills from ProHealth Care, the cancer center where she was treated in Waukesha, Wisconsin, according to a lawsuit Simons filed in federal court in January.

Like countless Americans, Simons was caught in a conflict between her insurer and her provider. These clashes, long a fixture of the US health-care system, are intensifying as both care providers and insurers employ supercharged tactics to maximize their financial advantage. They’re turning to a growing brigade of middleman companies that face off over prior authorizations, denials, appeals and payments.

Those businesses — sometimes backed by private equity, sometimes units of powerhouse incumbents — police the money insurers pay out or, on the other side, help hospital systems and medical practices boost their revenue.

The result is a medical billing arms race that increases friction for patients and doctors. It has fanned some of the widespread frustration with insurers that erupted on social media after the December killing of a UnitedHealth executive. About 12% of medical claims were denied in 2023, according to data from UnitedHealth’s Optum subsidiary, up from 9% in 2016. The data is based on claims from more than 1,400 hospitals, and describes denial rates across the industry, not just UnitedHealthcare plans.

Facing rising constraints from insurers, providers invest in new ways to capture revenue. “These equal and opposite forces increase each year while canceling each other out and creating no aggregate value,” according to a viewpoint in JAMA in 2021 coauthored by Bob Kocher, a physician and venture capitalist.

In Simons’ case, UnitedHealth — which operates the biggest US insurer — is involved on all sides. The company wasn’t just her insurer, it was her employer, too. Simons works for the company’s Optum Insight division, which also does the billing for the health system where she was treated.

The system, ProHealth Care, announced a deal with UnitedHealth in 2023 to “enhance the health care experience” and turn over some operations to Optum, according to a news release. Those included “revenue cycle management,” industry jargon for the systems hospitals and doctors use to get paid. Simons was one of hundreds of employees of ProHealth Care who joined the Optum payroll in the outsourcing arrangement. Her coverage on the company’s UnitedHealthcare plan began weeks after she was diagnosed, according to her lawsuit.

After Bloomberg News inquired about Simons’ case, a UnitedHealth spokesperson said her situation had been “resolved.” The spokesperson said in an email that “there was an administrative error that caused some confusion regarding the coverage” of Simons’ claim and that it had been paid in full.

Layers of Complexity

The administrative sludge that patients must slog through to get care — and doctors must wade through to get paid — drives staggering costs in US health care. The costs of billing, claims processing and prior authorizations doctors must get for treatments have soared to around $200 billion a year — about as much as the US spends to treat cancer.

A raft of companies has sprung up in that morass. Some help hospitals bill top dollar for their services and navigate insurance bureaucracies. Others help insurers review claims and requests for care, and audit payments after they’ve been made. Some, including Optum, do both.

Together, these little-known businesses add fresh layers of complexity and expense to an already convoluted system.

“It’s like paying an arsonist to put out fire”

“They’re making money on both sides and driving up the costs across the board,” Linda Blumberg, a Georgetown University expert on health insurance, said of the growing number of intermediaries in the health-care payments chain.

She calls them “profit-enhancing middlemen” and says they’ve escaped scrutiny from regulators and the public. Because there’s no limit to the prices providers can charge, and little oversight of insurers’ denials, each side has turned to these companies to counter the other side’s practices.

In some cases, the same companies are selling software or services to both providers and insurers. “It’s like paying an arsonist to put out fire,” said Kevin Schulman, a Stanford University doctor and economist who has studied administrative costs.

An Optum spokesperson said the company has “firewalls between provider billing and payer services” and that the company aims to reduce administrative waste.

Apparent Contradiction

Sometimes divisions of the same business are dueling over the same claims.

Before it was purchased by UnitedHealth, the health tech company Change Healthcare bought up a series of businesses in obscure corners of the health-care payments and technology world.

One of its services for health plans sent letters warning doctors that they were billing costly visits far more often than their peers, according to three former employees who asked not to be named discussing private information. But some of those doctors relied on a different Change Healthcare service to submit their bills, the people said.

Doctors getting the letters were frustrated by the apparent contradiction that bills submitted by one arm of the company were being questioned by another, they said. One unit of Change Healthcare even avoided using the parent company’s branding on its letterhead, so providers wouldn’t realize that letters questioning their payments were coming from the same company that some of them used for billing, two of the people said.

A spokesperson for UnitedHealth said those practices predated the company’s ownership of Change Healthcare and are no longer in place.

‘Growth Opportunity’

Hospitals and providers spend more than $170 billion per year on revenue cycle management, which includes everything from verifying patients’ benefits at the front desk to chasing payments after the visit. On the other side, $9 billion a year goes into payment integrity companies that help insurers keep a lid on how much they have to pay out.

While that may sound like insurers are overmatched, the figure doesn’t count the billions spent on processes like prior authorizations and claims denials that are built into their day-to-day operations. Major insurers including Elevance Health Inc. and Cigna Group have units devoted to reviewing requests for care, for their own health plans and external clients.

Investors are putting big money behind these businesses. In 2024 alone, the revenue cycle company Waystar Holding Corp. went public in one of the year’s largest initial offerings by a US company; it’s now valued at $6 billion. Private equity firms took a rival, R1 RCM, private in an $8.9 billion purchase. Another deal by KKR & Co. reportedly valued payment integrity company Cotiviti at $11 billion, while New Mountain Capital formed a new $3 billion payment integrity firm from existing assets.

It’s a business expected to gobble up more and more money. “We see a material long-term growth opportunity” for revenue cycle management software, William Blair analysts wrote in a July report on Waystar. Investing in the software was a top priority for health-care executives, a survey from Bain & Company found.

Provider Strategies

Much of the recent spate of consumer outrage about the health sector was focused on claims denials by insurance companies. They are the ones saying no, sometimes contradicting a doctor’s judgment.

But the strategies that providers — and the large health systems that increasingly employ them — use to boost their own profits have gotten less attention.

In November, UCHealth in Colorado agreed to pay $23 million to resolve allegations brought by a whistleblower who accused the hospital system of fraudulently billing patients for emergency care. According to the settlement, UCHealth billed emergency visits at the highest, most costly level of care automatically if a patient had their vital signs checked more than once an hour.

The billing system inflated patients’ costs by thousands of dollars, according to the whistleblower complaint. UCHealth didn’t admit liability in the settlement. A spokesperson said the hospital system denies the allegations but settled to resolve costly litigation.

“The cost of an MRI in the whole scheme of cancer is like nothing”

While doctors and patients chafe at insurers’ efforts to manage costs, some constraints on care exist for good reason. The US health-care industry is rife with exorbitant prices, inappropriate care and outright fraud. Improper payments in the Medicare and Medicaid programs alone top $100 billion a year, according to the Government Accountability Office.

That means health plans must balance getting their members access to care with safeguards against overpaying — and they’re often relying on middlemen to do it.

Angela Riley is a physician who oversees coverage for Unite Here Health, a union health plan for hospitality workers that covers 200,000 people nationwide. She’s had to intervene when, for example, a company hired by one of the plan’s insurers denied requests for scans to diagnose possible cancers in the name of containing costs.

“The cost of an MRI in the whole scheme of cancer is like nothing,” Riley said.

The group is beginning to contract directly with cancer centers and lift prior authorization requirements for those that have demonstrated top quality, eliminating the companies in the middle. “We can cut all that out,” she said.

Still, she sees the need for prior authorizations and other checks to ensure the plan doesn’t waste money that ultimately is part of the union members’ compensation.

Unite Here Health recently added prior authorization requirements for certain surgeries after it found procedures performed in hospital outpatient departments were costing far more than in other settings.

Physicians say the same factors driving the billing arms race are encroaching on how they practice medicine. They say they face increasingly burdensome requirements for prior authorizations and approvals.

“The insurance companies are now in my clinic,” said Jerome Cohen, a gastroenterologist in Loch Sheldrake, New York, who leads the state medical society. Often, he said, they’re “directly in the way.”

More than three-quarters of US doctors work for hospitals or corporate bosses. They’re losing professional autonomy to “profit-making corporate entities,” says Barak Richman, a health policy expert at George Washington University Law School.

In Wisconsin, Simons’ claim was ultimately paid — after she filed a lawsuit that drew media scrutiny. Though her lawsuit sought additional damages, her attorney Daniel Schlessinger said federal law limits what plaintiffs like Simons can pursue in such cases beyond the cost of the treatment. That it took a lawsuit to resolve the mess “is not how the system is supposed to work,” he said in an email.