Analyzing the Cost of Administrative Complexity

September 2004

New research findings support current initiatives to simplify health care payment system 

Confirming estimates first set out in 2003, new research on administrative complexity in medical group practices, conducted by the Medical Group Management Association (MGMA) Center for Research, indicates large amounts of staff time, physician time and cost are devoted each year to administrative tasks that are redundant, wasteful, duplicative and add no value to a practice or its patients.

The study was the first using MGMA’s Group Practice Research Network (GPRN), a network of almost 300 group practices from which a statistically valid sample of medical specialties and geographic locations in the United States can be drawn to generate fast and accurate data. The research supports the need for simplifying the current system for financing and administering health care in the United States. MGMA last year proposed the Simplified Payment System Concept as a viable alternative to the current wasteful system, as well as an alternative to a single-payer, government-run health care system. Simplification would halt the waste and devote the resulting savings to areas that directly benefit patient care.

The research findings, which include costs for a small listing of administrative duties, indicate that in a medical group practice with 10 physicians:

  • More than $247,500 per year was spent on unnecessarily complex or redundant administrative tasks

  • $19,444 per year was spent on phone calls with pharmacies resolving drug formulary issues

  • $38,761 was spent per year verifying patient coverage, copayments and deductibles for thousands of varying health plans

  • $9,248 was spent per year resubmitting denied claims — 73 percent of which are eventually paid

  • On average, 4.6 claims per full-time-equivalent physician are denied each week because of lack of information about the insurer’s requirements

  • $7,618 was spent per year submitting credentialing applications for each physician. Practices submit 17 credentialing applications per physician each year on average

  • $33,800 was spent per year negotiating insurance contracts with an average of 20.5 different health plans per year, and renewing 14 of those each year

  • Administrators spend 5.5 hours negotiating each insurance contract.

Costs were calculated based on compensation, staff and physician minutes spent and the number of administrative tasks conducted each year. For full results of the research, please refer to the data sheet.

“In conducting this research, MGMA sought to gather cost figures for a handful of those administrative tasks that are most obviously wasteful and unnecessarily complicated,” said William F. Jessee, MD, FACMPE, president and CEO, MGMA and the Center for Research. “Even with this limited list, we found that medical groups spend large sums unnecessarily to compensate for a system that is wasteful as a whole and redundant in many of its administrative processes.”

“While we were certain that the waste generated by administrative complexity was extensive, we are dismayed at the figures reported in this research,” said Jessee. “Unnecessary administrative complexity accounts for a large portion of the $1.79 trillion our nation will spend on health care this year. We urge all the stakeholders in our system — patients, payers, employers, and providers — to face the real cost of this wasteful system and work toward redirecting wasted resources into activities that expand access and improve care for our nation’s citizens.”

View the full data sheet of resultsMicrosoft Excel Icon

About the Group Practice Research Network

The Group Practice Research Network (GPRN) is a collaboration of leading medical group practices across the United States interested in the development and implementation of research and practice improvement initiatives. GPRN was established by the MGMA Center for Research with funding by a contract from the Agency for Healthcare Research and Quality (AHRQ).

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For more information about GPRN, please call toll-free 877.275.6462, ext. 880 or e-mail

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