Eliminating Manual Processes Could Save Healthcare Industry $8 Billion a Year

Oct 4, 2016
13 Min Read
Eliminating Manual Processes Could Save Healthcare Industry $8 Billion a Year

The U.S. healthcare system in the U.S. is unnecessarily spending billions per year by continuing to use manual administrative processes for basic transactions, according to the 2015 CAQH Index.

Despite steady increases in the industry adoption of HIPAA electronic administrative transactions, CAQH, a nonprofit dedicated to streamlining the business end of healthcare, recently highlighted an opportunity to save an additional $8 billion each year.

According to CAQH Explorations, more than $31 billion each year is spent by healthcare providers conducting basic business transactions with health plans. A good portion of this expense can be attributed to resource-intensive manual processes such as phone calls to verify patient coverage, or mailing claims and paper checks.

“An industry-wide transition to replace manual processes with electronic, real-time transactions is reducing the cost of doing business in healthcare and meaningfully impacting efficiency, productivity, and data quality,” said CAQH’s new report. “Measuring the progress of this transition helps identify which electronic transactions are being adopted successfully and which are being adopted at a slower pace.”

The CAQH Index does just that. The 2015 annual report presented trends in adoption rates and cost savings associated with the shift to electronic transactions, based on surveys of healthcare providers and health plans. Participating health plans represent over 118 million covered lives – nearly 45 percent of the commercially insured U.S. population – and more than four billion claims-related transactions. The Index is currently the only industry source that tracks the industry-wide transition to “full adoption” of electronic transactions.


Going digital: It’s a mixed bag

Adoption of fully electronic transactions continues to vary significantly. Nearly 94 percent of claim submissions, 71 percent of eligibility and benefit verifications, 61 percent of claim payments, 57 percent of claim status inquiries, and 49 percent of coordination of benefits were designated as fully electronic, while only 10 percent of prior authorizations and six percent of referral certifications were.

The average increase in adoption across transactions was 4.5 percentage points, compared to 3.0 percentage points in 2013. The greatest increases in adoption last year were seen in the areas of claim status inquiry (nearly 7 percent) and eligibility and benefit verification (5 percent).

Despite increasing adoption of fully electronic transactions, the volume of telephone inquiries remained stable for both eligibility and benefit verifications and claim status inquiries. This is unfortunate, as eligibility and benefit verifications and claim status inquiries were far less costly when conducted electronically. Last year, responding health plans still reported over 120 million transactions in which representatives of the health plans and healthcare providers connected via phone to complete the transaction.

The Index noted that the use of partially electronic methods, such as health plan-sponsored web portals and interactive voice response (IVR) systems, continued to increase for some transactions but is declining for others. Use of partially electronic transactions was most common for prior authorizations (58 percent) and referral certifications (82 percent). For other transactions such as eligibility and benefit verifications and claim status inquiries, the volume of partially electronic transactions continued to decline while the volume of fully electronic transactions increased.

As part of its comprehensive review, CAQH also looked at the dental industry. Last year, adoption of fully electronic transactions using HIPAA standards was significantly lower for dental as compared to broader healthcare, ranging from nearly 17 percentage points lower for eligibility and benefit verifications to 55 percentage points lower for claim payment. Adoption rates were: claim submission (nearly 70 percent), eligibility and benefit verification (56 percent), claim status inquiry (27 percent), and claim payment (6 percent). A notably larger share of claim status inquiries were conducted using web portals and IVR systems, compared to broader healthcare (46 percent versus 34 percent).


Manual processes result in elevated labor costs

The direct labor cost per transaction continued to vary across transactions and methods. For healthcare providers, manual transactions were far more costly than electronic transactions. On average, each manual transaction costs providers and health plans $2 more than each electronic transaction. For health plans, direct costs averaged $2.30 per manual transaction and $0.04 per electronic transaction, and for healthcare providers, direct costs averaged $3.54 per manual transaction and $1.34 per electronic transaction. The industry (providers and health plans combined) cost averaged $5.87 per manual transaction and $1.34 per electronic transaction.

Taking these numbers into account, transitioning from fully manual to fully electronic processes could save commercial health plans and healthcare providers approximately $8.5 billion annually. This figure assumes that 16 billion administrative transactions flowed between commercial health plans and healthcare providers last year. Of the 16 billion, health plans processed an estimated 900 million manually, and healthcare providers conducted another 2.5 billion manually. If the industry adopted electronic processes for these manual transactions, the annual savings would be an estimated $1.7 billion for health plans and $6.8 billion for healthcare providers.

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Facilitating rapid adoption

CAQH rightly pointed out that while the healthcare industry has made significant progress, the transformation is far from complete, and all stakeholders must align around the imperative to reduce cost and inefficiency. “When healthcare administrative data is electronic, it simplifies business processes and real-time use of information,” the report said. “This in turn supports innovative applications of data analytics that can yield reduced costs, elevated quality and consistency of healthcare delivery, and an exceptional experience for healthcare consumers.” CAQH outlined several actions to deliver on this promise. All require a good deal of coordination between business and government.

  • Share and expand best practices to increase adoption of electronic transactions and reduce utilization of manual transactions among industry stakeholders by accelerating industry and government-led outreach and education for health plans, healthcare providers, and their agents. Central to this concept is monitoring progress and evaluating the impact of initiatives designed to drive adoption.
  • Evaluate sufficiency of current government regulations and federal strategic plans to support broad adoption of fully electronic transactions for health plans, healthcare providers, and their agents. Existing federal regulations require that all HIPAA-covered entities utilize adopted HIPAA requirements for electronic transactions. Only health plans and clearinghouses are currently federally mandated to offer electronic transactions. However, while healthcare providers are also required to use the HIPAA standards and comply with operating rules, they are not required to interact electronically with health plans. Beyond this uneven adoption approach, enforcement is also limited. Currently, enforcement for HIPAA covered entities is complaint-driven – requiring HHS to receive a complaint that an entity is non-compliant in order to initiate an investigation.
    • While not yet instituted, the ACA legislation requires health plans to formally demonstrate compliance via certification. This will be the first proactive enforcement related to adoption of electronic transactions.
    • Furthermore, efforts to transition to electronic transactions are driven and financed by individual health plans and healthcare providers, and initiatives to increase adoption often compete with other priorities for resources. There is currently a lack of strategic coordination among these initiatives, particularly as it relates to integrating the administrative and clinical uses of information technology in the healthcare system.
  • Increase targeted government and industry-led efforts to reduce adoption barriers for health plans and healthcare providers, including consideration of financial incentives and contractual requirements. Both health plans and healthcare providers have noted cost of initial implementation as a barrier to transitioning to fully electronic transactions. Government and industry stakeholders should consider innovative investments, including how financial incentives could be applied, or how stakeholders could more actively conduct cost-benefit analyses, to demonstrate the value of adoption. Vendors should ensure their products offer integrated, regulation-compliant electronic transactions on a timely basis.
  • Continue systematic review of business processes for potential improvements of technical and policy requirements that can improve efficiency and reduce cost. Industry stakeholders should build ongoing, proactive maintenance into regulations rather than wait for new mandates, and should establish a regular schedule for reviewing and updating current standards, codes, operating rules, and policies.
  • Improve uniform and systematic tracking and reporting of adoption – and related cost savings – by healthcare providers, health plans, and their agents. The two components of this recommendation are:
    • Adoption and basic costs: Efforts should be made to implement and maintain routine and systematic data collection within health plans and provider organizations that can both monitor adoption of electronic transactions and accurately estimate cost savings. Collecting high-quality data to track this transition can be a complex process that requires resources and an evolution of the approach based on lessons learned.
    • Correlating adoption of electronic to reduction in manual processes: A key area for additional dialogue and analysis involves determining the impact on cost savings when the transition from manual to electronic is not a clear correlation – that is, when the increasing volume of electronic transactions does not result in an equal reduction in manual transactions. For example, one reason for an increase in eligibility and benefit electronic transactions may be that healthcare providers are relying on the real-time function more frequently, since benefit structures for patients have gotten more complex. If real-time electronic transactions were not available, the manual volume might have grown instead. On the other hand, the replacement of a paper check by an electronic payment does not have such variables to consider. Exploration of more granular data is needed to specifically correlate the increase in adoption with the reduction in manual transactions.

Are you making critical decisions based on inaccurate data? Are inefficient processes eating away at your time and your company’s bottom line? Even worse, is this inaccurate data impacting customer experience and putting your business at risk? Get the Process Improvement Playbook: Overcoming the Hurdles of Manual Processes in the Workplace

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