You know, we're constantly seeing rework because the healthcare system, you know, doesn't do a good job taking care of these patients. Not a lot of justification for that. Welcome to off the chart, a business of medicine podcast featuring lively and informative conversations with health care experts, opinion leaders and practicing physicians about the challenges facing doctors and medical practices. My name is Austin Littrell. I'm the Assistant Editor of medical economics, and I'd like to thank you for joining us today in this episode. Medical economics senior editor Richard Payerchin sits down with Dr. Kevin Schulman, an internal medicine physician and professor of medicine at Sanford University. Dr. Schulman is the co author of recent research arguing that US healthcare leaders should borrow lessons from other industries to tackle one of the system's biggest problems, the massive costs of administration. They're discussing the scale of the issue from hundreds of 1000s of billing codes to billions of negotiated prices, and how precedence thinking could help identify proven solutions from sectors like finance, aviation and Technology. Dr. Schulman explains why the problem isn't intractable, what standardized contracts and digital infrastructure might look like, and how healthcare could lower costs while making life easier for both patients and physicians. Dr. Schulman, thank you for joining us, and now let's get into the episode. You it. Dr Schulman, thank you for joining us today. Thank you for having me today. We're going to talk about a couple papers in which you were a lead or corresponding author regarding administrative burdens in the US health care system, and then also talking about precedents thinking as a means of hopefully alleviating some of that administrative burden, just to begin at the beginning. How would you describe the scope and scale of administrative burden in the US healthcare market. So the data suggests that we spend about a third of healthcare costs on administrative work, about 67% of two thirds of that money is going to things around billing and transactions. So at a high level we spend, we have to realize we spend more money to manage the US health care system than France, Germany and Italy combined spend on health care. We have 318,000 different health plans in the US market. We bill for 600,000 services. We have 57 billion negotiated prices, or 94,000 prices per SKU. So there's no justification for for that kind of complexity and that kind of chaos in the market. And that's what's driving. We believe that's what's driving, you know, these tremendous, you know, administrative costs in the US. This has been something that we've reported on quite a bit, both in academic studies as well as just anecdotal evidence. But as a physician and researcher, do you have any examples of feeling frustrated by administrative burdens in your own work? Yeah, so we looked at a couple years ago, we looked at the cost of submitting a bill, and for a primary care doctors submit a bill cost $20.49 and that was almost a decade ago. Now, you know, when I see patients on clinical service, I'm a hospital medicine. You know, as soon as I see a patient, I have to ask, I get a query about coding related questions. I have to document all kinds of data that really aren't clinically meaningful, that we use for billing, you know, and I'm fortunate because I'm not dealing with prior auth processes. I will tell you, when I discharge a patient, patients come to my service from the emergency room. When I discharge them, we spend, you know, we get them well, taken care of during their stay in the hospital. We come up with a really fabulous follow up plan, and then they're out of network for every, you know, follow up service that we can imagine. And so, you know, we're constantly seeing, you know, rework because the healthcare system, you know, doesn't do a good job taking care of these patients. And a lot, you know, not a lot of justification for that, like I said with your paper regarding precedents, thinking, frankly, I thought it was very interesting. Wasn't exactly familiar with that term when I when I started to read that. For those not familiar with the term, can you explain what is precedence thinking? Yeah. So you know this idea that descriptive data we had, we were pretty comfortable. We understand why administrative costs are so. High you know what the problem is? At its core, we took an analog business process and digitized it. We never created a digital process. So when you pull out your insurance card, you're paying 30% transaction costs. When you pull out your credit card, you're paying two or 3% as an exercise in class, I have everyone pull out their insurance card and take a look at it and see what's wrong. And if you do that exercise, you will see that there is no barcode, there's no chip. It's a totally analog process. Okay, you know, you go to the doc, they scan it, they type it. You know, it's great 1980s technology, but this is 2025, so we've characterized the problem. The other part of the problem that we've characterized is no one's in charge of these transactions. So every health plan has their own schema that makes sense for them, but there are multiple different health plans in the market. Nobody is responsible for building a single set of rails or pipes to make transactions efficient for health plans and providers across the market and to reduce the cost of health care for all of us. So so that's a you know, statement of the problem and descriptive work some of my colleagues, Stefano zenios and Ken fabro over at the business school, have been working on this theory. You know, Stanford's a lot about innovation, and we do design with, you know, our design school is about needs based innovation. It's an amazing kind of concept. You know, companies like DoorDash came out of this process. But the process is go very deep to make sure you understand that what the need is before you build a solution. And generally, the need based finding is, you know, really robust, but the solution is, go in a room with a bunch of really brilliant people and put little yellow sticky notes on the wall to see if you get an idea that might work. And Ken and Stefanos were not satisfied with that, and they said, you know, it's really hard to invest a lot of money in a sticky note, but for really large changes like the one that we're talking about, you know, there have to be better ways of doing this. And so precedence thinking takes design thinking to another level and says every business problem in the world has been solved by somebody somewhere. And if you could articulate a problem, you can actually develop a solution. You know, you can see whether you can identify other solutions and see whether that you can bring them back to your problem. And they just published on that and Harvard Business Review just this spring. But we were using that methodology for a year before that at the business school, and so we said, well, let's try it with administrative costs and this fundamental notion that we have an analog process that was digitized. It wasn't a digital process. And we don't have this standardization across the market. And when we did that, we had a great, a brilliant student team that went out and found us 82 different firms and markets that have analyzed some or all of this problem, or address some of all of this problem. Very few of them in healthcare, a lot of them in other industries, a lot in banking, for example. And then, you know, it's very easy to see that you can port those things back. I still she gets embarrassed when I say it's one of the students working on the project had been working on this issue, actually, with some consulting firms and some other researchers for a long time before she came to Stanford, and halfway through the project, said, Oh, my God, this is a solvable problem, you know. So it's been solved through the public sector, through public private partnerships and in the private sector. And so a couple of the precedents people who have solved analogous problems. One that I love to highlight is mortgages. So it turns out, in the 1960s banking was a great business. You know, the FDIC set, passbook interest rates, banks could then loan mortgages above the interest rates and go, you know, and the bank banker could go play golf all day. The way we wrote mortgages in the 1960s was a custom, you know, the reason why you would go to a certain bank is they would write a custom mortgage for you. So, the end of the 1960s we started developing money market funds. And so interest rates and money market funds were higher than passbook savings rates. And so people started moving their money out of banks, savings banks, and into money market funds. And all of a sudden, as the baby boom generation was about to buy a house, the money for mortgages dried up in the US market. So. Fannie Mae and Freddie Mac in 1970 were charged with syndicating mortgages as a way of generating capital for banks and for mortgages. And when they looked at the mortgage market, was a mess, because every contract was different. And so the first thing they did was Syndicate, or was standardized, all of the mortgage contracts in the US. And so today, if you buy a house, you're still using Fannie Mae or Freddie Mac contracts at its core. And so they were able to standardize the mortgage. And in fact, if you, if you go back in the statistics, there was no mortgage interest rate, you know, that's in the New York Times every week until the mortgages were standardized, and so that only dates to the early 1970s there was no interest rate, standard interest rate before that in mortgages. But that was a public sector approach. The exact opposite was in the private sector, with the SWIFT network the interbank transfer of funds was technology was developed by banks. You know, they had to move money around, and they did it before the government got involved. So that was swift. A couple other, you know, public private partnerships. A really interesting one is related to mobile phones. So we sell a billion mobile phones a year, and so the only way to sell a billion of any product is it has to be totally standardized. But none of us want to spend $1,000 for the same phone as last year. And so it has to they have to innovate as well. So they have to standardize and innovate, which is a really interesting set of challenges. And the way the phone market does that is through something called standard settings organizations. So your phone's a whole bunch of different components every all year, those component manufacturers are innovating to try and come up with a new and improved phone modem or whatever their piece of technology is. And then the industry literally sits down once a year and comes up with, you know, has everyone present their ideas, and then picks a winner. And if they pick your idea, then you get royalties from everybody else. And we use your idea, if you, you know, if you're using someone else's idea, you pay royalties, but you still get to use their technology, and then we move forward. So, you know, that's really interesting model of a public private partnership. The Federal Trade Commission sits on some of those ft, you know, standard segment organizations to make sure it's not monopolistic in terms of what the royalty rates are, but, but that's a private, public, private partnership model. You know, another public model was the origin of the FAA. So originally, airline operations, just like health plan, payment rules were totally the responsibility of the airline. And then, unfortunately, in 1956 two planes crashed into each other over the Grand Canyon in broad daylight. And the government said, This is ridiculous. We can only have one set of rules for flight operations, and we created the FAA to standardize route planning for airlines, you know, so we can easily imagine something analogous, where we say we don't like the current system. This makes no sense to have all this complexity, needless complexity. There's no studies that this complexity adds value, other than, I guess, the shareholders of some of the companies involved. But, you know, we could move forward to a different platform and different set of transactions that would still be computable, you know, customizable to the degree that they're computable. So you can have different offerings from different health plans, but we'd have one set of payment rules and one set of rail transaction platforms. Say, Keith, this is all well and good, but what if someone is looking for more clinical information? Oh, then they want to check out our sister site, patient care online.com, the leading clinical resource for primary care physicians. Again, that's patient care online.com. Dr, so far I've enjoyed our conversation, not least because you use a couple very tangible examples. I have my phone right here to help me record I'm thinking about my insurance card in my my pocket. It's in my pants pocket right now as we speak. And I really like some of those examples, just to play the devil's advocate here. There might be some people who say, with cell phones, even with something as complicated as a, you know, aircraft safety guidelines, flight plans. So, again, those are mechanical things. Healthcare is different. It's complex. Every patient is different. How would you respond to that? You know, I think you know complexity? Yeah. So we've looked at, you know, if patients are complex, we've looked at other markets. So we've looked at the administrative costs, you know, billing transaction costs in the US and other markets. Netherlands has a private multi payer market, very high performing health care system, life expectancy greater than the United States, and their transaction costs are 1/10 of ours. So, so, you know, yes, it's complex, but people have mastered that complexity in lots of different ways. We make it more complex by making an analog so at underlying our system, you know, everyone talks about prior authorization. So what's prior authorization? So health plan says, Well, I want to make sure that there's a reason to order, order this $5,000 test, or do this procedure, and, you know, based on whatever clinical criteria they come up with, if, you know, if they even have a standard set of clinical criteria, and and then they ask for clinical documentation. So, what's clinical documentation? Analog text, you know, fill out a form, send a fax. The only place we use faxes in the United States right now is in healthcare to communicate with health plans, and then someone has to read it and decide, make a judgment, well, is this justified or not based on our criteria? Totally an analog process. And then they go back, and then, you know, maybe they reject the claim. Then we got to do an appeal, and then we get on the phone, you know, you know, we have this peer to peer evaluation thing where someone at the health plan gets on the phone with the doctor to see why they're doing this. Well, the health plan has not taken care of the patient, you know, and but it totally, totally an analog process. So we just spent, you know, 500 $1,000 on utilization review when there's a 99 seven to 99% chance they're going to approve this thing anyway. Like, what's the what's the value of all that we are looking right now, actually, in Taiwan, Taiwan has a national health service. You know, one of the answers Bernie Sanders, you know, put forward a couple of years back was the administrative costs in the US are too high. And he's absolutely right. It's too complex, and it hurts people. So we should have a single payer system. So one of the things that our work says is those are two different sets of issues. How we run the payment models is different than how we finance them. And you know, the American public doesn't want to change the way we finance healthcare, it seems, but, and lots of good reasons to not do that, but that doesn't mean we don't want to change the way we run the payment rails. So I you know our work says those are two separate decisions. Fine, keep if you want to keep the financing structure the way it is, that's perfectly fine. We could still reform the way we pay for services and come up with a much more efficient solution. So I'd like to drive from 30% transaction costs to 5% transaction costs, you know, and I think that's totally doable. The other thing that's coming up now, as we're unfortunately excited about this as a catalyst for our work to move it forward, is an issue of fraud. So analog systems are really vulnerable to AI and bad actors. And so, you know, we're starting to hear things about digital spoofing of providers as a way of stealing money from health plans in the public and private sector, you know, so we might have to move to a more secure transaction platform to protect us from AI, and in doing so, we'd have to go to a pure digital payment model. And so that could be a great catalyst to bring forward a lot of the work that we're doing. You know, it's unfortunate that fraud is the reason why people might adopt these things rather than the inefficiency of the market, but, but I think we'll all be better off as a result. You've talked a little bit about the digitization in the market and potential improvements there. The paper also notes an important distinction between centralization and standardization when creating processes or protocols to solve problems in business. Can you talk about that distinction? Yeah. I mean, I think it goes back to 2020. Elizabeth Warren put together a proposal for how she would finance and administer the Medicare for All program, and it was. It was this two page spread in the New York Times they had that, you know, if anyone took a look at it, and it was the scariest document I ever saw. You know, the United States government's not set up to manage a $5 trillion health care economy. Frankly, you know, we, yeah, you know. And I got a lot of pushback at the time, like, you know, Bernie is saying, well, he's going to reduce administrative costs. But Medicare isn't the most facile of payers. So the Medicare program passed in 1965 Medicare didn't have a screening benefit till the 1990s so it didn't pay for screening, mammography screening, colonoscopy screening, PSA exams. Medicare passed in 1965 and didn't have an oral drug benefit until 2006 you know, so if you want a health plan where it takes 40 years to add critical benefits like prevention or drug oral drugs, you know, in a world that's changing with AI digital services, you know, think about a single payer system. So I think what we want, you know, we want our Kate. Kate. We want more efficient transactions and more efficient transaction processes. We don't necessarily want one healthcare czar in charge of health plans and what healthcare looks like. And we have lots of diverse opinions about what that could be, depending on which political party you're in, you know, or economic philosophy, you know. So I think, I think keeping the structure, if we could keep the current structure of a mixed public private system that has fostered huge amounts of innovation in the US healthcare market, but we don't have to pay these administrative costs to achieve that. Hey there. Keith Reynolds here, and welcome to the p2 management minute in just 60 seconds, we deliver proven, real world tactics you can plug into your practice today, whether that means speeding up check in, lifting staff morale or nudging patient satisfaction north. No theory, no fluff, just the kind of guidance that fits between appointments and moves the needle before lunch. But the best ideas don't all come from our newsroom. They come from you got a clever workflow, hack, an employee engagement win, or a lesson learned the hard way. I want to feature it. Shoot me an email at kreynolds, at mjh, lifesciences.com, with your topic, quick outline or even a smartphone clip. We'll handle the rest and get your insights in front of your peers nationwide. Let's make every minute count together. Thanks for watching, and I'll see you in the next p2 management minute to maybe continue along the lines of some of the items that would work with digitization, the paper mentions about using modularized, machine readable contracts and using those type contracts to sort of customize the agreements between payers and patients and providers. For example. Can you talk about the importance of that those modularized contracts in a new payment system? Yeah, so we we're saying we should start at the beginning and just rebuild this. So in the United States, every health plan and every provider have to negotiate a contract. Those contracts in they're all confidential, so I can't tell you, yeah, I can't generalize a lot, but, but in general, they cover exactly the same thing. You know? They might have three days, you know, I have to pay in three days versus seven. Here, I might have this kind of adjudication process or that, but again, going back to mortgages, where we're using, you know, when you bought your if you bought your house, you bought it on a Fannie Mae or Freddie Mac contract. You know, it would digital tools. Today, we can have this totally digitally adjudicated in terms of the contract we've gone through, contracts that we have access to. Almost everything in the contract can be digitized. You know, our friends in the legal profession won't love the fact that they renegotiate. You don't have to renegotiate from scratch every single year, but, but it, you know, why do that that doesn't doesn't necessarily add a lot of value. You know, again, when you end up with the almost exact same spot, the the place where there is difference is in, generally, in the provider manuals around the rules around prior authorization and again, lots of pushback on the industry. The industry even finally came out and said they were going to try and do something about standardization over the next three years, but I think we could accelerate that and again, move that to a digital tool. So at some level, this whole idea about prior authorization is, again, an analog discussion, right? It's, it's, I'm going to review the chart and see if your judgments and appropriate one for this patient. Okay, well, that's, yeah, obviously, that's what they're paying me to do in the first place. And you know, if they want to spend 45 minutes with the patient, interviewing them, and come to this decision, you know that'd be great, which is not what the process is, but but we we should think about fraud, waste and abuse, not as analog, but as digital and and again, fraud. I think we need to deal with fraud in terms of robust, digital and secure transactions, but the waste and abuse that prior authorization doesn't deal with fraud, it's waste and abuse. Well, we could do that digitally, like if we all had, if there was one set of transaction platforms, you'd know really quickly that this cardiologists practice pattern is, you know, over two standard deviations from the norm, and maybe you should go review their charts. So instead of prior off the entire 100% distribution of physicians around specific services, if we're worried about waste and abuse, let's go after people that practice outside of the norm. Leave the people practice within the norm alone, because they're doing a great job. But instead we, you know, we take these analog tools we apply, apply them to the entire population in an incredibly inefficient fashion and incredibly expensive fashion. You know, that basically destroys doctors lives. It destroys doctors motivation to continue to do what they're doing, you know, and again, in terms of productivity, to have three, four or five people in your office, to have to deal with getting paid for doing services, or a lot of times you're not even getting paid. You get prior off on a medication from a PBM. You're not getting any payment from the PBM in the first place. You're not getting paid to dispense that medication like it's, it's, you know, it's a total loss to the docs that spend any time on that. You know, what doctor? That's a great segue to a question I wanted to make sure I get to, because there's a financial component here, but there's also a kind of quality of work component, so to speak. And I made a long career as a community journalist when I came to medical economics. Frankly, I was really surprised to learn about the extent of burnout among physicians and other clinicians. And you yourself are a practicing physician. Just wanted to ask your thoughts about if the nation really embarked on a serious journey to reduce administrative burdens and health care, what do you think that that would do to help work environment and burnout among physicians and other clinicians? It'd be huge positive. I mean, the way this all gets pushed back on on Docs, on frontline docs, like at the end of the day one is, you know when the hospital, you know. So now you know, most docs are now employed by hospitals. The majority of docs are employed by hospitals, which is a shift over the last decade. And part of it was they just couldn't keep up with all this as a practice. It was incredibly inefficient. And you know, if the hospital doesn't know what the rules are to get paid for the service, then they have to be incredibly conservative, and they have to ask me to, again, code my chart to answer queries, all these payment related things, tasks that we never had before, that that, you know, are there right now because they can't predict it. You know, what the insurance companies can ask for to get paid for? You know, appropriately paid for services we're provided. Unfortunately, AI is going to be used to make that even worse. So I just saw some data from our place that using an AI query tool, you know, improved our ability to negotiate with health plans, but it doubled the number of queries that ox got, you know. So you know, our population is aging. The pressures on healthcare workforce are increasing, and our times being sucked into typing and epic, doing all these non productive things, rather than, you know, doing what we're trained to do, take care of patients, go talk to their families, you know, help them on their care journey. Help them get to from what you know, when I do hospital medicine, it's it, it's a crisis. There was some failure of the healthcare system for this patient that caused them to have to come to the emergency room, get them into the hospital. How can I help them figure out the next step in their journey? But instead, I'm answering. Inquiries to get help the hospital get paid, Doctor, this is a there's a couple questions that come up now in every interview, and I it makes me chuckle, only because these, there's a couple issues that have become so predominant so quickly in healthcare, but you and your colleagues use artificial intelligence programs to research the precedents thinking involved that could be, you know, could be helpful to healthcare. Can you talk a little bit about how you used AI in your research, and then what's going to be the role of AI in, hopefully, a revised approval system and payment system? Well, we used in the research after everyone got done brainstorming like, which industries, what, what might be good examples? We asked, AI, do you have any other ideas? And they came up with a couple more. So that was great, you know, right now, in a world without rules, no one's in charge of the healthcare system. And so if Cigna or Aetna or United puts in an AI, you know, process, first off, they're not, they're different, they're they're totally inconsistent with each other. And you know, that's going to drive changes in how Stanford submits its bills and drive more complexity, you know, in every other aspect, you know, the economy, AI is being used to drive productivity, and without some set of constraints. In healthcare, AI is going to exacerbate the administrative costs and will literally drive physicians out of the workforce. You know, our physician population is aging with the rest of the population, you know. And people have to make a choice, do I want to continue to work where we does? You know, we're short docs, short, potentially several 100,000 docs. But we also have a whole bunch of people that are retirement age or approaching retirement age, you know, and if they don't want to stay because it's just too much of a hassle, especially for an older physician who's been in practice 2030 years, this wasn't part of their lives. 2030 years ago, you only had a type 15, you know, literally typing notes and things like that, said a decade long. You know, I think, I think we have to really seriously consider if, if we use AI to drive down patient, you know, physician satisfaction, and drive people out of the workforce, there's no one to replace them. Frankly, kind of a scary thought in that regard. Moment ago, I had referred to kind of two questions that come up in every interview now, one deals with AI programs. And the other one, of course, is the new administration, still relatively new, and the initiative to make America healthy again, and you touched on this a little bit ago, about especially government efforts to root out waste, fraud and abuse, but with precedents thinking in revisions to the administrative process in healthcare. How do you see that fitting into the initiative to make America healthy again? Well, I think, you know, we're in the middle of a huge financial crisis in the United States. So productivity is a big piece of what the issues are with Medicare. Fraud is a big piece of what the issues are with Medicare. So I think it's totally consistent. And in fact, if anything, a huge opportunity for for this administration. Have big win by by really addressing something that touches every single American. I mean, there's, I can't imagine that. There's many people in the United States excited about the administration, how we administer our health benefits today. So it's a win, win, win, you know, and this administration has so much leverage over Congress. Congress usually is the rate limiting step where industry can lobby. You know, there is a generational opportunity to really do something transformative. One of the other questions I always like to ask in an interview, our main audience is primary care physicians. What would you like to say to them? Or what would you like them to know, whether it be about the administrative process or anything? Well, I think we don't have to accept this. You know, healthcare cost, the administrative costs, the administrative structure, is not it's not part of the 10 Commandments, not created by God, and it's a choice that people make. I think there's an opportunity for us to really advocate, and now is really the time. I mean, I think before this gets worse, we really have to come together and explain to people what's going on and why we need change one thing. And I'm glad you mentioned about among myself and my colleagues every it seems like everybody we talked to. Especially about the technology question, is one of the things that we've been noticing is some variation on the theme of, you know, doctors getting ahead of the locomotive, so to speak, getting get to the head of the train and really drive how AI is going to be used in health care. And that's, I think, just very interesting to, you know, it again. It's just a recurring theme, and I'm sure you already know this, but you're not alone in you know, talking about that and hopefully using it to an advantage instead of just simply reacting to it. So Dr Shulman, it's been a great conversation here to learn more about these administrative burdens and precedents thinking possible solutions. If I have questions, I'll reach out via email, but otherwise, I just appreciate you taking the time. No problem. My pleasure. Thanks. Thanks for reaching out and thanks for spending some time today, once again, that was a conversation between medical economics senior editor Richard Payerchin and Dr. Kevin Schulman, an internal medicine physician and Professor of Medicine at Stanford University. My name is Austin Littrell, and on behalf of the whole medical economics and physicians practice teams, I'd like to thank you for listening to the show and ask you please subscribe so you don't miss the next episode. Be sure to check back on Monday and Thursday mornings for the latest conversations with health care experts, sharing strategies, stories and solutions for your practice. You can find us by searching "Off the Chart" wherever you get your podcasts. Also, if you'd like the best stories that medical economics and physicians practice published delivered straight to your email six days of the week, subscribe to our newsletters at medicaleconomics.com and physicianspractice.com, Off the Chart, a business of medicine podcast is executive produced by Chris Mazzolini and Keith Reynolds and produced by Austin Littrell. Medical Economics, Physicians Practice and Patient Care Online are all members of the MJH Life Sciences family. Thank you.