Better Medicare Cost Reporting Could Cut Waste

The U.S. health care system has the dubious distinction of spending more than other countries while often achieving worse outcomes. Administrative costs, which account for an estimated 20% to 25% of health care spending, provide a potential area to lower costs without hurting patient care. But reforming such spending requires a clear understanding of how providers spend today.

A recent study by LDI Senior Fellow Ezekiel J. Emanuel and colleagues evaluates current national data from the only universal public source available: Medicare Cost Reports. They find significant shortcomings in what hospitals provide today, causing missed opportunities to improve policy. The authors examined reports on over 5,600 hospitals from 2010 to 2024 and found that the granularity, accuracy, and usability of the data are inadequate for benchmarking, making operational decisions, or targeting administrative cost reductions.

“Ultimately, consistent, reliable, and actionable data is an essential step toward reducing excess expenses and improving the efficiency of our health care system as a whole,” says Emanuel.

The researchers found:

More than three-quarters of hospitals file a single “administrative and general” line item without breaking it down into categories such as data processing, purchasing, or accounts receivable.
Among hospitals that do report subcategories, nearly one-third of entries appear mislabeled or incorrectly classified.
The current report spans about 200 pages across 30 worksheets and is accompanied by a 632-page instruction manual.

Here are three recommendations from the authors to improve Medicare Cost Reports and create opportunities to identify savings, drive efficiency, and reduce spending without compromising quality.

Require consistent reporting for all hospitals: Adjust reporting requirements so that every hospital must submit detailed subcategory data, rather than a single aggregate line.
Standardize subcategory definitions and labeling: Mandate a uniform taxonomy for administrative expense subcategories such as data processing, management, and purchasing, and provide clear definitions to reduce label ambiguity and misclassification.
Simplify the reporting format: Replace outdated templates with concise, standardized digital forms.

The authors suggest that priority policies to reduce administrative spending could include creating a centralized claims clearinghouse, standardizing physician licensure, or streamlining quality reporting. But reforms are hampered by the lack of accurate administrative data to assess the costs of current inefficiencies.

The study “Availability of Consistent, Reliable, and Actionable Public Data on U.S. Hospital Administrative Expenses” by Nikhil R. Sahni, Brooke Istvan, Heather Bello Thornhill, Karen E Joynt-Maddox, David Cutler, and Ezekiel J. Emanuel appeared in Health Affairs Scholar on May 5.

Author

Julia Hinckley