Clearly healthcare is the most interesting and dynamic sector in the U.S. today. We are witness to an unprecedented transformation as healthcare stakeholders embrace new delivery entities and new reimbursement models, shift attention to building relationships with members, and explore new markets. There will be winners and losers in this game, and everyone is placing their bets.
The transformation underway is also forcing payers to prioritize where they are spending their money, and more attention is shifting to a corner of the ecosystem that has been neglected: the efficiency of the billing transaction process between payer and provider, what we term healthcare “payment integrity,” or to state it more accurately, the lack thereof. As one speaker at AHIP Institute said, “there’s a lot of money changing hands for no apparent reason.”
Payment integrity ensures that a health claim is paid correctly—by the responsible party, for eligible members, according to contractual terms, not in error, and free of wasteful or abusive practices. As every payer and provider knows, determining whether a claim has been paid correctly requires departments full of claims analysts, auditors, and investigators. And that’s the problem!
What is the cost of this waste and inefficiency? The Institute of Medicine, a well-respected independent think tank, estimated that 30% of health spending in 2009—$750 billion—was wasted on unnecessary services and care coordination problems, excessive administrative costs, fraud, and other failures. Focusing on payment integrity specifically, this included $190 billion in wasted administrative cost and $75 billion in fraud. Earning wide coverage in media such as the NY Times and elsewhere, this report called for a system-wide reform.
More recently, an April 2012 study by Donald M. Berwick, former administrator for the Centers for Medicare and Medicaid Services (CMS), and RAND Corporation analyst Andrew D. Hackbarth estimated that five categories of waste consumed $476 billion to $992 billion, or 18 percent to 37 percent of the approximately $2.6 trillion annual total of all health spending in 2011. This data suggests a problem of staggering proportions.
We estimate for healthcare payers that payment integrity problems cost them 3-7 percent of their paid claim dollars every year. That means, for example, a 500,000-member health plan with costs averaging $3,600 per member per year will pay $1.8 billion in claims, of which $56-131 MM will be wasted expense. This hidden leakage is a problem not just for the payers (and their providers) who bear the direct cost of this administrative inefficiency. It impacts the employers who underwrite the cost of group insurance, members who now shoulder more of the cost of care, and the economy at large as healthcare costs continue to consume more of our GNP.
Improved payment integrity is essential to a real healthcare transformation. It is also a hidden source of funding for payers that could be put to work to enter new markets, engage with members, and tackle the challenges of reform. It won’t be easy, and it won’t happen fast, but it is possible, as we’ll explore in future posts. We’ll examine how everything from technology to organizational structure can have a positive impact on payment integrity as we explore best practices, client case studies, and proven solutions. Stay tuned!