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The Cost of Healthcare Compliance

Healthcare compliance can be very costly, and some have even argued that some healthcare rules don’t even improve care. In a 2017 report, the American Hospital Association (AHA) and Manatt Health found that health systems, hospitals, and post-acute care providers spend nearly $39 billion a year on administrative activities associated with regulatory compliance in nine regulatory domains.

The nine regulatory domains in their study included quality reporting; new models of care/value-based payment models; meaningful use of electronic health records; hospital conditions of participation; program integrity; fraud and abuse; privacy and security; post-acute care; and billing and coverage verification requirements.

In addition, the study only examined the cost of compliance with federal regulations from the following four agencies: Centers for Medicare & Medicaid Services (CMS), the Office of the Inspector General, the Office for Civil Rights, and the Office of the National Coordinator for Health Information Technology.

In other words, the study didn’t cover the entirety of healthcare rules and regulations since it was limited to regulations in the above-mentioned nine domains, and within those domains the study only looked at costs incurred to comply with four federal agencies. As such, healthcare providers will almost certainly have additional healthcare compliance costs associated with rules and regulations in other domains and/or promulgated by other government agencies—not to mention the cost of complying with state and local healthcare rules, which can be extensive.

The AHA study found that average-sized community hospitals spent almost $7.6 million every year on administrative activities relating to compliance with federal healthcare regulations, a figure which jumps to $9 million for hospitals with post-acute care beds. This means that for each patient admitted to a hospital the facility incurs $1,200 in regulatory costs.

The study also found that among the full-time equivalents at facilities who are dedicated solely to regulatory compliance, over one-quarter of them consist of physicians, nurses, and allied health staff, which means that these healthcare professionals are unable to provide any direct patient care. The frequency and pace of regulatory changes also draws healthcare professionals away from providing direct care, according to the report.

Interestingly, the report noted that the bulk of healthcare providers’ regulatory costs—over two-thirds—is dedicated towards only two domains: documenting CMS conditions of participation and billing/coverage verification processes. Another major component of providers’ costs in buying and upgrading computer systems as required by CMS Meaningful Use guidelines, which provide incentives for providers who use computer technology in meaningful ways (i.e. ways that benefit both patients and providers). According to the report, the average-sized hospital spent nearly $760,000 per year in order to satisfy Meaningful Use administrative requirements.

The AHA report reserved particularly harsh criticism for what it called “duplicative and misaligned reporting requirements,” which it said create inefficiencies and consume significant financial resources and clinical staff time. Similarly, the report said that healthcare fraud and abuse laws are outdated, haven’t evolved to support new models of care, and can even be “impediments to transforming care delivery.”

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