Money matters: Billing and payment for a New Health Economy

PricewaterhouseCoopers (PwC), Health Research Institute, May 2015

At a glance

The nation’s healthcare billing and payment system is an artifact of an earlier age. Much can be done to improve the system in the short term, but in the long term, structural change is needed to compete in the New Health Economy

Key findings include:

  • Patients and affluent consumers are most dissatisfied with the healthcare billing and payment system.
  • Cost-conscious millennials are more likely than the general population to judge healthcare organizations based on their billing practices.
  • Consumers and new entrants are beginning to circumvent the claims-based healthcare payment system, especially in primary care services and chronic disease management.
  • Four in five adults with commercial insurance paid less than $1,000 in out-of-pocket expenses in a year, according to an HRI analysis.

What this means for your business

  • Accelerate the move to digital.
  • Embrace simplicity.
  • Sidestep claims. The growth of high-deductible plans means more consumers will pay for care out-of-pocket. New entrants are reconsidering whether these cash payments require claims. Consumers are interested, even though receiving credit toward deductibles is more important than ever.
  • Multiply payment options. Offering choices for payment, making payment easy and helping consumers plan for costs can reduce bad debt and days in accounts receivable.

Strategy: Sidestep claims

An HRI analysis of commercial claims for over 34 million Americans in 2012 found that 80% paid less than $1,000 in out-of-pocket expenses. That year, the average annual deductible for an individual was about $1,000. Nearly half of consumers with commercial insurance incurred less than $1,000 in medical bills in a year. These consumers are ripe for poaching by new entrants from the emerging claims-free healthcare economy.

Marcee Chmait, CEO of SpendWell, a new entrant direct-pay marketplace for healthcare services, said she foresees a future when “cash is king” in healthcare. Higher deductibles, real-time adjudication of claims and transparency will phase-out negotiated rates and discounts.

These changes create a true retail shopping experience between buyer and supplier (consumer and provider). When third party pricing arrangements are eliminated, pricing falls as suppliers costs fall as suppliers set their prices directly to their end buyers.

Even as companies targeting consumers with low annual medical expenses forge a direct-pay economy, the majority of medical costs are borne by a small percentage of people with serious and chronic illnesses. These costs require different fixes.

Conclusion: A roadmap

Many improvements can be made in the near-term, from offering consumers cost and payment information before they arrive for service to aggregating their medical bills on a simple online site. In the longer term, the system will need to be re-engineered to accommodate the millions of consumers paying cash for care. Here’s a roadmap for near-term pain relievers and longer-term fixes:

CURRENT STATE CLAIMS MODEL

  • Eligibility verification
  • Care delivery/charge capture
  • Claim submission
  • Claim adjudication
  • Payment/advice delivery

NEW HEALTH ECONOMY

Before arrival:

(Near term):

  • Online shopping for care
  • Cost estimates/discussion during scheduling
  • Payment information capture upon scheduling
  • Discussion of costs and choices
  • Loyalty programs enrollment
  • Transparency
  • Enrollment in online bill management and payment tool

(Long term):

  • Loyalty programs
  • Subscriptions for primary care and chronic disease management
  • Flat-fee services
  • Layaway

Claims-free model

  • Flat-fee model
  • Subscriptions
  • Other models
  • Direct-pay
  • Discounts
  • Loyalty program rewards

Upon arrival:

  • Coverage verification through combined ID and payment card
  • Estimates allow out-of-pocket collection
  • Discussion of costs and choices

(Long term):

  • Menu of prices
  • Out-of-pocket payment due at service

Claim acquisition and submission

  • Practice management software integrated with payments/claims network
  • Capture and processing of claims data

Eligibility verification

  • Eligibility for specific benefits verified prior to claims adjudication

Claim pricing

  • Determination of provider contract rules and fee schedules
  • Capitation determination

Claim adjudication

(Near term):

  • Estimates
  • Accumulators updated automatically

(Long term):

  • Real-time adjudication of claims

Consumer liability calculation

  • Deductible and patient responsibility healthcare calculated at provider

Sophisticated patient payment options

  • Consumer payment through multiple accounts
  • Flexible payment plan options
  • Financial counseling

(Long term):

  • Amortization for some treatments
  • Loans
  • e-wallet

Clearance

  • Verification of funds availability
  • Payment authorization

Payment information transmission

  • Fund requests and payment transmission

Settlement

  • Payment of consumer liability (next day)
  • Payment of plan deductible (1–5 days)
  • Real time payment

Reporting/statements

  • Integrated statements for all health related transactions
  • Immediate updating of online accounts, web portal or app

http://pwchealth.com/cgi-local/hregister.cgi/reg/pwc-hri-healthcare-bill…

To better understand what this PwC report is all about, think about the recent pervasive shift to high-deductible health plans and what that means for the way the majority of us pay our health care bills, or at least the way that many in the policy community believe that we should be paying our bills.

Remember that about 20 percent of us have high health care expenses and use about 80 percent of our health care dollars. That means that the other 80 percent of us who are relatively healthy use only 20 percent of health care funds.

This report confirms what we already knew: 80 percent of individuals with commercial insurance paid less than $1000 out-of-pocket for medical expenses. That means that the insurance companies essentially are paying benefits for primarily the 20 percent with more serious medical problems. The rest of us are essentially on a cash basis, though with constraints such as provider networks and contracted provider rates.

If you read the full report, you will see that the medical-industrial complex is introducing innumerable innovations to try to capture this cash-and-carry business. Providers are attempting to circumvent contracted rates so they can collect their full charges. Third party money managers are coming out of the woodwork to sell us their various services – whether they be traditional insurers with new innovations in their products, or other third parties with innovative methods of managing cash accounts. Whatever innovations they introduce, they are clearly designed to capture as much of these cash payments as possible.

Now maybe you can make some sense out of this PwC report. Much of their report describes how unsatisfactory the current billing and payment system is, and especially the dissatisfaction of health care “consumers,” especially those who are wealthy or who are sick. So what do they suggest? We should abandon the current claims model and switch to a simplified, digital model that sidesteps the current claims process. They call their model the “New Health Economy.”

But look at the specifics of their recommendations. First they list the five simple steps of the current claims system, but label this “an artifact of an earlier age.” Then they show us their “New Health Economy” model. Are they kidding? Look at it! This is their “simplified” method of processing the cash segment of health care financing. What is ironic is that they convert the process of paying cash into expensive, complex digital processes, in the name of simplification!

As long as we continue on the path of consumer-directed health care, with its high deductibles and other cost sharing, we can anticipate many more such innovations that serve the industry well, but at a cost of shifting more of the burden onto patients. Look again at the “New Health Economy” and try to explain to yourself exactly how their scheme makes patients better health care shoppers.

Now think about how this would be handled through a single payer national health program, with first dollar coverage (a highly successful model used by several other nations). We would not need to shop for health care bargains since not only would our own public stewards have already obtained the best prices, but also we would not have to be involved in payment decisions at all since our stewards would make the payments directly through our single, equitably-funded, universal risk pool.

Really. Look again at the “New Health Economy.” Do we really want to proceed with this marketplace model of reform that works well for the industry? Or do we want a public program that works well for all of us?