July 12, 2021
Associate Professor Joshua Gottlieb

A new study finds that the administrative burdens created when physicians and insurers haggle over reimbursement payments result in substantial lost revenue for healthcare providers. The issue spans all forms of health insurance but is particularly acute with Medicaid, a key part of the social safety net. The administrative hoops result in what can be seen as a kind of additional tax that causes many doctors to choose not to see Medicaid patients, exacerbating disparities in healthcare access.  

Researchers from the University of Chicago Harris School of Public Policy, Columbia University, the National Bureau of Economic Research, the Bureau of Economic Analysis, and the Federal Reserve Bank of San Francisco use data on repeated, back-and-forth interactions – including claims denials and resubmissions – between a large sample of U.S. physicians and many different insurers to document the complexity of healthcare billing and its resulting impacts. 

The researchers found that 25% – fully one quarter – of Medicaid claims have payment denied for at least one service upon doctors' initial submission of a claim, a marked difference from other types of insurers. Denials are far less frequent for Medicare (7.3%) and commercial insurers (4.8%).

Following a denial, a physician has two choices. She can accept that the claim will not be paid, foregoing the potential revenue. Or she can commence a costly back-and-forth process to try to convince the insurer to pay.

“Even if insurers ultimately pay for some of the denied claims, in full or in part, this process is extremely costly for physicians – especially when submitting bills to Medicaid,” said Joshua Gottlieb, one of the study’s co-authors and an associate professor at Harris Public Policy. “Doctors and insurers often have trouble determining what care a patient's insurance covers, and at what prices, until after the physician provides treatment. This ambiguity leads to costly billing and bargaining processes. It’s costly, and a headache for all involved.”

Combining the costs of incomplete payments with the revenue never collected, the researchers estimate that physicians lose 17% of Medicaid revenue to billing problems, compared with 5% for Medicare, and 3% for commercial payers.  

The challenges associated with Medicaid reimbursement affect not only physicians’ bottom lines, but also Medicaid patients’ access to healthcare – an especially important finding for this population, which often has trouble finding providers. The study goes on to show that physicians respond to these billing problems by refusing to accept Medicaid patients in states that have more severe billing hurdles, further contracting the already smaller pool of providers who accept their insurance.  

These hurdles compound the effect of Medicaid’s lower payment rates. Billing incompleteness turns out to be quantitatively just as important as lower fees in explaining physicians’ relative lack of willingness to treat Medicaid patients.

 “Our findings illustrate the importance of well-functioning business operations in the healthcare sector,” Gottlieb added. “This system, which accounts for 13 percent of US GDP, is imposing administrative burdens with first-order impacts for doctors and patients – most notably for those who rely upon Medicaid. Anyone interested in equitable healthcare access should take a close look at how states manage their Medicaid programs.”