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HEALTH PLANS/CONSUMERS/POLICY: Administrative costs–bad and will get worse with CDHPs

PNC Bank has a new survey out saying that 30% of all health care costs are to do with administration—actually it may be more than that if you believe the study in Health Affairs that said it was 20-22% of all provider costs, when the public provider payer segment is keeping an additional 3–20% of all the dollars too. I think that PNC is trying to promote HSAs et al, and perhaps wants to suggest that this will solve the administration problem. As I’ve been saying for a while, the current set up of CHDPs just means that instead of chasing down health plans for the money, providers will be turned into consumer collection agencies.

And PNCs own survey shows that most providers agree with me:

Nearly three-quarters of hospital executives surveyed (72 percent) expect high deductible health plans, which require consumers to pay more upfront costs for care out of their own pockets, to add another layer of complexity to the claims, billing and payment process.

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  1. “A recent research trip to a local NJ Minute Clinic in a CVS store showed that the charge for most of their procedures is $59, and that’s to see a nurse practitioner, not a doctor.”
    Sure but their diagnostic tests and treatment plans are EXTREMELY LIMITED. Their entire portfolio of things they are allowed to diagnose/treat is less than 40 items.

  2. Barry, my memory of what he said is correct, but what he meant or meant to say may be another thing. I would be interested to hear from docs out there and see how many people and how much time, their’s and their staff, devote to insurance/collections.

  3. Peter,
    I don’t think five billing people per provider is correct. In the busy group practice I go to in NYC, 5 or 6 administrative support people handle all of the administrative work for the six doctors and one NP in the practice. A specialist I see, who is in solo practice, has two administrative people and one clinical assistant. Perhaps Eric Novack and some of the other docs on the blog can tell us how many administrative people they need to support them and how much of the support staff’s time is spent on billing and related matters. An efficiently run group practice should be able to function with a one to one ratio, I think.
    The Bureau of Labor Statistics data that I cited in an earlier comment indicates that 2.05 million people worked in physicians’ offices in 2004. Of these, 60% are doctors, nurses and other clinical assistants while 40% are administrative support people who do numerous other things besides bill and talk to insurers.
    Sometime back, on another thread dealing with administrative costs, Tom Leith said that doctors who outsource their billing function to a third party firm are charged approximately 5% of the revenue actually collected. Specialists who bill much more per procedure can often negotiate a discount from 5%.
    Finally, costs must really be low in NC. A recent research trip to a local NJ Minute Clinic in a CVS store showed that the charge for most of their procedures is $59, and that’s to see a nurse practitioner, not a doctor.

  4. All this talk about deductibles and co-pays is about insurance and not healthcare. It’s about restricting access and promoting insurance profits not promoting health. If we continue to be drawn into the “insurance” argument, as I’m sure is what the insurance industry wants, then we will never come up with an innovative and completely new way of doing the things that KSJ longs for.
    KSJ, there is a doctor in a local community here that got out of the insurance game all together (direct pay). He is able to charge $45 per visit and has suffered NO decrease in income. Even insured go to him. He is also better able to look after his patients because he is not controlled by the insurance companies. One statement he made (Barry) was that when he was in a group practice with insurance paying the bills each provider needed about 5 support staff to handle the day-to-day and it was all about billings not healthcare. The question always is striking a balance between cost, access and health. Canada is doing a pretty good job, but continues to have to work on it. Going to single pay reduces claims overhead while giving people access and providing healthcare, paid for efficiently in the existing income tax system.
    If we want to keep costs rising as they are then we will just find new ways to cut the existing pie – but we still will have the same old pie.

  5. With gjudd I agree. Consider that the deductible is an arbitrary amount paid during an arbitrarily defined time period, either of which may be varied. Like auto insurance, health insurance could be recast to pay for ‘event occurrences’; in other words, the patient pays out of pocket at the time of service for maintenance care, with only catastrophic care (being defined by the market) being insured.
    One could readily envision adapting the current model of HSA’s to eliminate bean-counting hassles. Let’s say my deductible is $3500. I, or my employer, or whoever (the government?!?), deposits $3500 into my ‘prepaid’ account at period’s start, and I use my debit card linked to this account to pay for all eligible care. Once the account is depleted, the deductible is met, then the bureaucratic wrangling of collecting 80% from the insurer and 20% from the patient can commence (or whatever amounts are dictated by the policy the patient purchased). Only these services would need claims filed, as the insurer implicitly trusts (crazy idea… trust) that the patient paid for legit healthcare he/she valued, ergo the insurer valued. If, as John Graham states, 90% of people don’t hit their deductible, the 90% of patients never have claims filed. Further building on the HSA idea, let the money roll over from year to year. Bingo! Even fewer claims as presumably fewer would hit this increased ‘deductible’! In this model catastrophic healthcare become defined as whatever amount exceed my prepaid account in a given period.

  6. If we’re going to have collections at point of care, then there will be administration if only to count collections against a deductible or from an account. If we’re going to have NO collections at point of service, then someone will have had to organize the full pre-payment of all services (e.g KP, the NHS). If you can think of another solution to this either/or you’re smarter than me.

    Matthew, we can leave aside the irrelevant issue of “who’s smarter” – which, parenthetically, seems to hang you up with a number of your correspondents – and return instead to the nature of that which is paid for.
    My suggestion, which to me seems complementary to KSJ’s, is that there are rather more items on the table to be paid for via “insurance” than is warranted, and that removing them from the “insurance” model will bring some simplicity of itself.
    the solution to payment arrangements at point of service is not a binary problem – it’s not “nothing, or KP”. Reach in your wallet and peruse the various “payment mechanisms” you may already have in there. Now imagine them put to use in paying for a variety of mostly routine health expenses – sans “insurance intervention”. The exercise is really not that difficult.

  7. This is a real “which comes first, chicken or egg” problem and I don’t know who will succeed in making a tasty omelette out of it. However, there may be something else going on with high-deductible health plans (HDHPs).
    As Matthew Holt points out above (and I had a similar experience with hernia day surgery) even if you have a HDHP your insurer has no interest whatsoever in facilitating your payment at the time of service. (Perhaps this is because they make so much money from the float they just don’t understand why you’d want to pay up front. “Certainty” over the financial liability, which individuals value, is also not something insurers care about.)
    In the HDHP “community” there’s a narrative that goes like this: “Sure, insurers have not the slightest idea how to manage these plans, but who cares? 90% of the time you’re not going hit your deductible this year so just negotiate cash prices, keep the receipts in your shoebox, and don’t even tell your insurer. If you get diagnosed with prostate cancer later in the year, FedEx the shoebox to the insurer, get a lawyer, and hash it out then.” Obviously a risky approach – but what if a number of HDHP clients are doing just this? It has implications. Foremost, insurers have no idea what their HDHP beneficiaries’ spending really is, and are likely to start underpricing these plans, just as they originally overpriced them!

  8. I think we all agree the core problem with the present system is efforts to curb healthcare consumption have alienated or marginalized someone to the point the effort failed. Yet, there is little doubt in my mind that consumption by an individual who bears no burden of cost will always outstrip societal willingness to pay. So, limits can either be imposed on the individual (through the insurer, or the single payer, or some other ‘oversight agency’), or the individual can chose his/her own “cap”. These are the only choices… (or does anyone see another choice?)
    When it comes to routine care, I believe the individual can best choose what’s best for him or her. I base this on the phenomenal variation in conditions that motivate persons to seek – or not seek – care. Conditions one person shrugs off and goes to work with sends another straight into the ER. I may consider this care wasteful and unnecessary, but who am I to say how that individual feels? I resent paying for it through my tax money, however. In this setting, insurance has no real value-added role, and eliminating insurers from the middle simplifies everyone’s life and saves money (anyone care to speculate how much?)
    Where insurers have a role is in covering the catostrophic, unexpected condition for which there is unlikely to be substantial variation, and costs for which are too burdensome for the individual to bear. I suppose this could be built from the present insurance structure, or from universal coverage, or even single payer ala Medicare.
    The bottom line is, we must build a system than incentivizes patients to cap their own spending, and incentivizes providers to optimize the delivery of whatever care the patient deems worth their money.

  9. gjudd. If we’re going to have collections at point of care, then there will be administration if only to count collections against a deductible or from an account. If we’re going to have NO collections at point of service, then someone will have had to organize the full pre-payment of all services (e.g KP, the NHS). If you can think of another solution to this either/or you’re smarter than me.

  10. Since upwards of 90% of all healthcare is delivered (when measured by the encounter, not cost) in this setting, and much of it amounts to rather nominal expense, the insurer really ought not be involved at all, thereby eliminating a substantial amount the paperwork and overhead.

    KSJ nailed it, on 3/26/07 at 4:01:42 PM. How Matthew gets – enthusiastically! – from KSJ’s point to the virtues of a (presumably first-dollar, or approximating that) prepaid system escapes me:

    Down which KSJ leads the road to real prepaid care a la Kaiser, Canada or UK NHS with no mohney changing hands at the point of care.

    “Real” prepaid care (whatever that is) may be A healthcare financing road; it’s not necessarily THE road. I find it conceivable that the 2 might even co-exist.
    A little help, Matthew?

  11. Seems docs and patients would benefit from billing only one insurer (single pay) with one set of rules that are the same for everybody.
    For docs, I think it depends importantly on the reimbursement rates which would be importantly influenced by government fiscal constraints generally and the inherent political limits on the level of coercive taxation that the society will tolerate. It could well be that docs would find themselves better off putting up with some added administrative hassle of dealing with a reasonable number of private insurers if reimbursement rates are better and limits on their independence and medical decision making ability are comparable. From the doctors’ perspective, it shouldn’t matter if we stay with the current employer based system and build on it to cover the near-poor, the unemployed and early (not yet Medicare eligible) retirees or we have a taxpayer funded premium support voucher model to provide basic Kaiser-like coverage with the ability to buy up if one wants and can afford to.

  12. By KSJ:
    “I want to reiterate my contention that the current payment system must be scrapped, and a new sytem built.”
    Seems docs and patients would benefit from billing only one insurer (single pay) with one set of rules that are the same for everybody.

  13. Down which KSJ leads the road to real prepaid care a la Kaiser, Canada or UK NHS with no mohney changing hands at the point of care. Is Scott ready for that?

  14. Incidentally, to answer your question about why would the consumer ever want to assume responsibility for a task that’s been done for them in the past, I say – “let’s eliminate the task!” After all, I process claims on behalf of my patients as a courtesy, a customer service credit to stay on par with my competitors who do so. At one time, it was not too much to ask. It now is WAY TOO MUCH. Many clinics have more people processing claims and performing collections than they have actually delivering the care! Like Scott points out, “Why the H$%# do I want to keep doing it?” Unlike Scott, I’m not saying make the patient do it. I’m saying, prove to me there’s value in ANYONE doing it.

  15. I want to reiterate my contention that the current payment system must be scrapped, and a new sytem built. Mathew, your points are correct and valid about the necessity for insurers to somehow collect info – given what they presently want (need?) to track. I contend that the present system of “prepaid healthcare” serves no one well, and if the insurer were stick to insuring against catastrophic loss alone (as I’ve seen argued many a time on your site), there would be no need to track the lesser expenditures occurring daily in provider offices. Since upwards of 90% of all healthcare is delivered (when measured by the encounter, not cost) in this setting, and much of it amounts to rather nominal expense, the insurer really ought not be involved at all, thereby eliminating a substantial amount the paperwork and overhead.

  16. Scott. Of course you’re right about how to do it properly. But why would any consumer every take your tack when it’s so much less painless to do it the way their insurer wants them to?

  17. Another area where CDHP is driving up administrative costs is greater call center usage: new products + more consumer decisions = more calls to the call center = more admin costs.
    Consumers have high service expectations…that health plans have consistently failed to meet even with “simpler” HMO and PPO products.
    And this isn’t an expense that I predict will go away after an ititial transition period. While most people – after probably needing some assistance in getting their HSA set up, etc. – will not encounter their first complicated health situation until some years down the road. In other words, CDHP/HSA is pretty easy to manage for routine office visits / annual check-ups, etc…but much more complicated when you put the consumer in the middle of a complicated, for example, emergency surgery…

  18. Matthew- “There is no way that I’d advise anyone to carry the risk of hoping that the insurer will pay them back, or even recognize the claim as appropriate. I had pre-authorized the surgery, I had asked the insurer what UCR was for the codes the surgeon was going to use, etc, etc, etc. I had done as much as humanly possible to figure it out, and the first remittance from the insurer was 60% off what I thought I was going to get. It took over a year and a personal intervention from the insurance company CEO (who I knew and essentially blackmailed because of who I am) to get my money back.”
    Welcome to the world of the provider! You’re insurance company was basically saying, next time use a PPO provider.
    “There is no way that I’d advise anyone to carry the risk of hoping that the insurer will pay them back”
    Well, why should the provider assume the risk? It’s you’re health plan. Shouldn’t you be responsible for the contract you signed? Yet providers assume the risk day in and day out. I deal with issues like the one you had every single day, and some the claims issues are under PPO contract.
    “I had asked the insurer what UCR was for the codes the surgeon was going to use, etc, etc, etc.”
    You forgot to ask what percentile of the UCR they pay! I don’t know if you know how UCR works, but insurers pay a percent of a percentile according to you’re geo zip.
    Here is a good way to gauge UCR for you’re geo zip. If you’re state has WC (Workers Comp) fee schedule available via the net, you can look up CPT codes that way, and those rates are U&C. For example, here in IL they pay 80% of the 90th percentile for physician fees. From there you can figure out the rest.

  19. I am actually currently doing a study dealing with the issue of “real-time” claims issues from the payer perspective.
    My early impressions from the talks I have been having is that no payer is doing “real-time” claims presently. Closest payer is probably either BCBS of South Carolina or Humana. United Healthcare and Wellpoint are also throwing a decent amount of resources on this topic.
    The other point is that CDHPs are going to add an additional level of complexity to the administrative system. Guaranteed. Financial institution (e.g., Wells Fargo, Bank of America) are being added to the mix since they actually administer the HSA accounts. Basically need to build a whole new set of connections between the health plans/financial institutions.
    I am speaking with the health plans and vendors but would love to hear from anyone who has some insights/thoughts in this area. You can reach me at matthew.guldin@frost.com.

  20. Scott. Good luck. I have done precisely this myself when I went to one of those cash only surgeons. I thought that I knew what I was doing. Beeg Meestake.
    There is no way that I’d advise anyone to carry the risk of hoping that the insurer will pay them back, or even recognize the claim as appropriate. I had pre-authorized the surgery, I had asked the insurer what UCR was for the codes the surgeon was going to use, etc, etc, etc. I had done as much as humanly possible to figure it out, and the first remittance from the insurer was 60% off what I thought I was going to get. It took over a year and a personal intervention from the insurance company CEO (who I knew and essentially blackmailed because of who I am) to get my money back.
    The next time I went with a physician within the PPO network and let his staff (and those of the other 5 entities that provided products and services) fight it out with the insurer. I still had to deal with interminable bureaucratic crap, but I sat on my money and paid NO ONE anything until the insurer and the individual providers agreed on what the PPO rate was and where I was in relation to my deductible (which of course the insurer got wrong).
    There is no way that given my experience I would do anything other than advise patients to wait until the insurer and provider have fought it out before handing over $ number 1. And I have to say that I believe (perhaps naively) that I’m a pretty well informed health care consumer.

  21. Matthew- “If people are to have insurance, which they need for big expenses if not small ones below the deductible, they will want to to a) get the health plan discount negotiated for them by the PPO, and b) know when they hit their deductible.”
    (A)Cash patients already receive a discount equal if not greater then a network discount. However, as it stands now the discount depends on the provider. With that being said, all the providers I have had dealings with give self pay patients discounts.
    (B)Once medical services are rendered, the patient is given a properly coded claim to submit to their insurance company for payment. Once the insurance receives the claim it is processed according to the plan and a EOB is issued. So the patient can easily track what went to deductible just as if the provider submitted the claim.
    “So for that the health insurer needs to a) approve the spending on health services so that they can be sure that is legitimate spending that does count towards the deductible (or not) and b) know how much was spent so that they know when someone has gone over the deductible and they have to start kicking in their share.”
    Again the patient will be provided with a claim (either on a CMS1500 or a UB92) for reimbursement from their insurance company.
    “If you can explain to me how the insurer can do that without knowing about all transactions below the deductible you are very, very clever. But until such cleverness is pervasive, the insurer is going to have to know which means that all that administrative back and forth will have to keep going. the only difference is that the provider will have to go after the consumer rather than the plan for larger sum of money spent below the deductible–and in Scott’s view and mine would be wise to ask for cash up front. However, if you don’t know what the amount will be because the PPO doesn’t publish it’s rates, and/or the negotiated amount is different from the provider’s desired rate, then patients will be unwilling to pay before they know the real amount. Which means that they’ll be unwilling to pay up front, which turns providers into collections agents”
    Creating a system where patients are required to pay for services upfront (under normal circumstances) will create competition, incentives to decrease cost and price transparency for both providers and carriers.

  22. Ah, here we go again on healthcare administrative costs.
    I was reviewing some data from the Bureau of Labor Statistics over the weekend and learned the following: In 2004, the BLS pegs total healthcare employment at 13.1 million which does not seem to include employment among manufacturers of prescription and OTC drugs, medical devices, durable medical equipment and supplies. It apparently doesn’t include insurers either.
    The percentage breakdown of healthcare industry employment according to the BLS is as follows:
    Hospitals (public and private), 41.3%; nursing and residential care facilities, 21.3%; offices of physicians, 15.5%; offices of dentists, 5.7%; home healthcare services, 5.8%; offices of other health practitioners, 4.0%; outpatient care centers, 3.4%; other ambulatory healthcare services, 1.5%; and medical and diagnostic laboratories, 1.4%
    Looked at another way, BLS pegs office and administrative support workers at 2.38 million or 18.2% of the total healthcare workforce, and, of those, only 179,000 are billing and posting clerks. Since these administrative workers earn salaries and benefits well below the average for medical workers in general, if they account for 18.2% of the workforce, they may well account for only about 10% of the wage and benefit base. On the healthcare financing side, the latest data from the California Healthcare Foundation estimate administrative costs at only 7% of the healthcare dollar. Looking at all of the employment, including the small piece accounted for by billing related activities, it suggests that very little of it could be eliminated by supposed “efficiencies” from a single payer system. Separately, the Lewin Group analysis of the Wyden proposal estimated administrative savings of $29 billion annually which is nice but hardly earthshaking in the context of a $2 trillion plus healthcare system.
    The hospital executives quoted in the PNC survey who estimated potential savings of at least $1 million per year at their institution from simplified billing and administration would work out to less than $6 billion per year if it averaged $1 million for every hospital. That equates to less than 1% of aggregate hospital revenues. Big deal!
    As for higher deductibles turning hospitals and other providers into collection agencies, since hospital bills are likely to well exceed any likely deductible even based on contract rates, there is nothing to prevent a hospital from asking for a check or credit card to cover the deductible upon admission. I had a $500 deductible for a hospital admission in 2004 and was asked for a check or credit card when I checked in for the procedure. The incremental administrative cost to the hospital was probably close to zero.
    UnitedHealth Group, and possibly others, expect to roll out real time claims adjudication for doctors’ charges (but not hospital bills yet) around the middle of this year. It will determine eligibility and the member’s share of the charges at contract rates at the time of service. It will allow the provider to collect the patient’s share of the payment right away and the insurer will keep track of the deductible. I’m having a hard time understanding what the problem is, though I continue to reiterate my support for complete price and quality transparency for doctor, hospital and other charges.

  23. Kids, you are missing one tiny thing.
    If people are to have insurance, which they need for big expenses if not small ones below the deductible, they will want to to a) get the health plan discount negotiated for them by the PPO, and b) know when they hit their deductible.
    So for that the health insurer needs to a) approve the spending on health services so that they can be sure that is legitimate spending that does count towards the deductible (or not) and b) know how much was spent so that they know when someone has gone over the deductible and they have to start kicking in their share.
    If you can explain to me how the insurer can do that without knowing about all transactions below the deductible you are very, very clever. But until such cleverness is pervasive, the insurer is going to have to know which means that all that administrative back and forth will have to keep going. the only difference is that the provider will have to go after the consumer rather than the plan for larger sum of money spent below the deductible–and in Scott’s view and mine would be wise to ask for cash up front. However, if you don’t know what the amount will be because the PPO doesn’t publish it’s rates, and/or the negotiated amount is different from the provider’s desired rate, then patients will be unwilling to pay before they know the real amount. Which means that they’ll be unwilling to pay up front, which turns providers into collections agents.

  24. KSJ – “As I read that report, the take home message I’m left with is that the current payment system ought be scrapped. Insurers insist on tremendous volumes of information from providers to determine claim legitimacy, thereby driving up costs. None if this information goes into improving patient health, I might add. If consumers themselves were responsible for affirming legitimacy of services delivered, and for paying for such services directly, the insurers demands for non-value-added work become moot… and avoidable.”
    Finally the light has shined!!!
    “Nearly three-quarters of hospital executives surveyed (72 percent) expect high deductible health plans, which require consumers to pay more upfront costs for care out of their own pockets, to add another layer of complexity to the claims, billing and payment process.”
    The complexity will come from continuing to hold on to old financial practices.
    “providers will be turned into consumer collection agencies.”
    Easily avoidable by requiring payment in full for services upfront.

  25. As I read that report, the take home message I’m left with is that the current payment system ought be scrapped. Insurers insist on tremendous volumes of information from providers to determine claim legitimacy, thereby driving up costs. None if this information goes into improving patient health, I might add. If consumers themselves were responsible for affirming legitimacy of services delivered, and for paying for such services directly, the insurers demands for non-value-added work become moot… and avoidable.

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