Getting Rid of “Friction” in Health Care

Main Friction occurs when an object moving through space encounters resistance, slows down and has its forward energy diverted. In the world of health care, friction is a term that has become synonymous with paperwork.Today, the U.S. spends $2.3 trillion on health care, and the U.S. Health Care Efficiency Index estimates that we could reduce this cost by $30 billion if we could eliminate the friction of phone-based and paper-based systems.1 This is a significant savings, and the American Recovery and Reinvestment Act is an attempt to realize that savings with a very targeted focus on Electronic Medical Records (EMRs). If all of the physicians in the country used EMRs, the argument goes, we would dramatically improve the efficiency of our health care system. The only problem is that only 17 percent of physicians are using EMRs today, so we’re talking about converting 83 percent of physicians to a computerized system for maintaining patient records, and while we absolutely must move in that direction, it is going to be a long and time-consuming process.2

“Low-hanging Fruit” Meanwhile, there’s a much quicker fix that is not getting much attention in the current debate, and that is the savings that could be realized by full conversion to electronic health care claims.  Unlike EMRs, electronic claims aren’t slowed down by privacy issues and other barriers that arise with business-to-human transactions. They offer billions of dollars of savings. According to the Center for Health Transformation, 90 percent of claim payments are still made in the form of a paper check. By eliminating these paper-based checks, the U.S. could reduce the overall cost of health care by $11 billion.3 Every paper check that is eliminated and replaced with a wire transfer saves the payer $.78, according to a study by Yoo and Harner.4 And given the fact that a few large payers – United, Aetna, Cigna and BlueCross BlueShield – are responsible for a majority of claims checks written in this country, making the switch to electronic health care claims may be easier than you think. 

How we make the switch It would require a standardized process that all participants would agree to follow, that would include several basic elements:

  • It would start with shared and enforced electronic standards for eligibility, authorization and claims processing for all payers and providers.
  • These eligibility standards would need to be clearly communicated to providers.
  • The next step would be establishing agreements between payers and providers on “approved” processes for complex, high-costs cases.
  • And finally, there would need to be a system of third-party monitoring for adherence to the standards.

Frictionless health care is about removing cost from the system. If we start by eliminating paper-based claims, we could achieve a significant savings success story that could actually make it easier to achieve ultimate success in the ultimate goal of health care reform. And saving $11 billion in the process wouldn’t be a bad way to get started.

1 $30 billion number, 1 National Automated Clearing House Association, ACH 2007 Volumes, May 19, 20082 17 percent figure comes from DesRoches CM, Campbell EG, Rao SR, et al. Electronic health records in ambulatory care — a national survey of physicians. N Engl J Med 2008;359:50-603 Center for Health Transformation4 Hannah Yoo and Karen Harner, “An Updated Survey of Health Care Claims Receipt and Processing Times,” AHIP Center for Policy and Research, May 2006.

Fletcher Lance is the national health care leader of The North Highland Company.

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10 replies »

  1. Nate, you caught me. I’m not imaginative enough to make these numbers up on my own. I got my statistic about the cost of claims processing from the American Medical Association’s 2008 Health Insurance Report Card:
    http://www.ama-assn.org/ama/pub/physician-resources/solutions-managing-your-practice/coding-billing-insurance/heal-claims-process/national-health-insurer-report-card/2008-nhirc.shtml. But I fess up. I made this one up myself: “We definitely need to develop and enforce data standards related to claims processing.” I didn’t really talk about any laws because I do not advocate for more legislation or regulations such as HIPAA. As you so wisely pointed out, data standards like “834 and 837 and…standard codes with names like CPT and ICD10” are already taking care of the administrative problem. What I can’t figure out is the role of these numerous clearinghouses (some of them public companies) in the value chain. What is their raison d’etre?

  2. Jennifer is right we need like a federal law that says all insurance companies have to accept a standard submission, maybe call the law something like HIPAA. And we can have like standard data sets to transmit information and number them like 834 and 837 and so on. And make everyone use standard codes with names like CPT and ICD10. Everything would be so much better if all that was true.

  3. ($210 billion) is directly related to processing medical claims.
    Jennifer you really have no clue what you are talking about. All of our systems combined don’t spend 2 billion processing medical claims. Do you make these numbers up yourself or someone feeds these to you?

  4. Fletcher’s post is right on. Mandating EMR adoption is only part of the answer to putting a dent in the United States’ skyrocketing health care expenses and improving efficiency and care. Of the $2.3 trillion spent on health care, about $600 billion goes toward administrative costs, and more than one-third of that ($210 billion) is directly related to processing medical claims. It’s a great idea to move fully away from paper claims, but to create true efficiencies, we definitely need to develop and enforce data standards related to claims processing. Right now, each payer has its own unique approach to things like pre-authorizations, diagnostic and procedural coding and clinical guidelines, and submission rules. Because most medical practices have relationships with multiple insurance companies, a great deal of time is spent sorting through and complying with payers’ many proprietary protocols. Think of how much we would all benefit if those resources could be diverted toward activities that support patient care!

  5. Margalit,
    Any time I start to get any hope for you something like this gets typed with your name under it.
    Medicare doesn’t allow doctors to bill with paper. wonderfully efficient commercial payers are required by law to accept paper claims. This would seem to be another case of failed lefty reform making things worse. I would love to deny any claim not billed electronically, it would save me a fortune. Can I count on you to lobby the democrats to repeal the prompt pay laws that require me to take paper?

  6. Medicare does not take paper claims anymore.
    Maybe the wonderfully efficient commercial payers should learn something from the inefficient government run plan.

  7. Doc can send all their claims electronically for $100 a month or even free from what most docs tell me. Mailing the claims cost paper plus minimum $0.40 each. Seems the doctors would save thousands by doing this. Start receiving payments electronically they would save thousands more. Must be nice to make so much per month you can piss away thousands and not care, I know I don’t make that kind of money.

  8. I’m all for filing claims electronically. But let’s not justify doing it so we can save the big for-profit healthplans even more money. I surely don’t see United, Cigna and Wellpoint doing much to help docs. In fact, I see them using their monopoly power to screw docs…setting fee schedules which are often well below Medicare, denying claims, using bundling software to recode claims, pushing high dedutible plans that serve to vastly increase uncollectable accounts for docs. One of the reasons for the low uptake of EHRs is that almost all the return on this investment by docs goes to the healthplans.

  9. HIPAA already mandates payors accept EDI claims. Next step is to mandate providers bill that way. Technology is there and cheap this could be done in a year. Some really old docs that still bill us handwritten custom foms might moan but to bad, retire if you don’t like it.
    The next step sounds hard but really isn’t, sending the money back. Model this after the Fed and ACHs.
    1. Every provider gets a provider number and supplies Health Fed their bank account
    2. Every payor gets a payor number and supplies Health Fed their bank account.
    3. All payments are sent electronically through the new health fed.
    Expanded NOCHA data set that allows for identifying info to pass through banks needs set up.
    In addition to saving paper and postage check fraud is a huge problem is some parts of the country.
    Biggest push back would come from USPS. If all medical claims and payments went electronic tomorrow USPS would be out of business by the end of the year. The loss of revenue would kill them.

  10. Sounds easy in theory but a couple of points:
    1. Providers/payers are already overwhelmed by the ICD-10 and HIPAA 5010 transactions that are coming out and their attention is generally focused on this on the billing side for at least the next 18-24 months min.
    2. There have been some real efforts made to some parts of Point 1 including CORE, AHFECT, and others but it is always hard to move ahead with large number of organizations from different constituencies on largely a volunteer basis.
    3. Good luck on getting providers and payers to agree to Point 3. Not gonna happen.
    4. I would favor gov’t enforcement but you would get some real vehement opposition to that point. Additionally, what kind of monitoring would you use. Threat of an audit? Participation and working with select vendors like athenahealth?
    5. Finally, there is some really crazy variation in the systems on both the provider and payer side to deal moving to a purely electronic billing system. It is a laudable goal that you get wide support on but it really overlooks some of the crazy hodgepodge technology solutions that are employed on the claims-side for insurers and on the hospital billing side.