Health care system is set to impact the American payment landscape

One of the most popular topics at the annual meeting of the US payments industry professionals in April centered on the opportunities for collaboration and innovation across the US healthcare system. The Electronic Payments Association (NACHA), which hosted the Payments 2011 conference in Austin, Texas, added its first-ever track of speakers focused exclusively on educating financial service professionals about such business opportunities.

“From NACHA’s perspective, health care has the potential to impact every financial institution across the US from a number of perspectives,” Priscilla Holland, NACHA’s senior director of healthcare payments, said during the opening presentation.

High cost of health care

Healthcare in the US is a big business, accounting for 17.6%, or about $2.5 trillion, of the nation’s gross domestic product in 2009, and is expected to grow to 20.3% of the GDP, or $4.3 trillion, by 2018, according to the US Department of Health and Human Services. It is the most spent on healthcare by any developed nation and has led to one of the most inefficient systems. About 25 to 40 cents of every dollar paid by healthcare plans is spent on administrative costs, according to the US Healthcare Efficiency Index. In fact, only about 10% of all claim payments made by healthcare plans to providers are made electronically. The cost to pay via paper check is $1.68 compared with 17 cents to perform an electronic funds transfer, according to NACHA.

“We are still in a fundamentally paper check-driven world for the reimbursement of health care,” James J. Moynihan, senior vice-president of the healthcare division at U.S. Bank, told participants in one of the conference’s sessions.

Dr. Robert I. Bonar, president and CEO of Dell Children’s Medical Center of Central Texas in Austin, provided the conference’s keynote address on how those in the financial space could optimize efficiencies in health care. He addressed the intersection of health care and technology and the benefits that administrative simplification, including payment changes, will have on healthcare providers, insurers and patients.

“If we want to help Americans be healthy, it requires significant collaboration,” Dr. Bonar told the ballroom of payment professionals. “There has been too much dwelling in our own silos. Modern medicine has become a cottage industry wherein doctors are practicing alone. We must come together.”

Impact of regulation

As part of the Health Insurance Portability and Accountability Act of 1996, also known as HIPAA, the federal government charged the Department of Health and Human Services with adopting national standards for electronic health care transactions and national identifiers for providers, health plans and employers. To date, the implementation of these HIPAA standards has led to an increase in the use of electronic data interchange. Now the industry is moving beyond just electronic records to electronic payments.

The Patient Protection and Affordable Care Act, more commonly known as the health reform of 2010, includes provisions that state health insurance must simplify administrative tasks, including payments and billing activity, involving doctors and other providers. One of the requirements is that health insurers, including Medicare and Medicaid, adopt rules for making reimbursement payments electronically to providers, such as doctors and clinics. The U.S. Department of Health and Human Services must adopt final rules by July 2012 for insurers to then have operational by January 2014 or else face a fine of $1 per covered person per day until they are certified.

NACHA is working with a health care consortium called the Council for Affordable Quality Healthcare Committee to draft the rules to make the ACH network the default payment vehicle for payments that health insurers make to doctors and other care providers. In addition to devising rules for using electronic fund transfers to conduct insurer payments to health care providers, the law also called for rules for handling “electronic remittance advice,” or ERA, which pertains to the explanation of the payment. Transitioning to a system where providers receive electronic payments would save $11 billion annually, according to the US Healthcare Efficiency Index.

Healthcare reform also will likely move the US system toward a “bundled payment” approach wherein a patient receives one bill for the procedure and not one bill each from the pathologist, surgeon and hospital due to the adoption of accountable care organizations outlined in the new health law. This latest model offers doctors and hospitals financial incentives to provide good quality care to Medicare beneficiaries by avoiding unnecessary tests and procedures. It would offer bonuses when providers keep costs down and meet specific quality benchmarks, focusing on prevention and carefully managing patients with chronic diseases. The ACO network of doctors and hospitals would share the responsibility to manage all of the health care needs of a minimum of 5,000 Medicare beneficiaries for at least three years. This initiative is scheduled to launch in January 2012, but already hospitals, physician practices and insurers across the country are announcing plans for Medicare beneficiaries as well as patients with private insurance.

Healthcare moving forward

Up until now, the adoption of electronic transactions has been slow due to inflexible systems, multiple electronic formats and the payer’s other priorities, according to Ann Brisk, vice-president of health care transaction services for OptumHealth Financial. Beyond that, checks still work so there is not an immediate need on the part of health care players to make the switch to electronic payments. The rewards could be big, though, including a faster posting cycle and an overall reduction in administrative costs.

“We are at the point of real inflection that is being driven by the recession coupled with these ongoing increasing costs of healthcare,” said John Reynolds, president of government, healthcare and education for FIS. “You can strip away all the political debate. The bottom line is that healthcare costs continue to raise at an unbelievable rate and that there are a lot of inefficiencies in the system.”

These are inefficiencies that financial institutions could provide assistance and service to health plans and healthcare providers to help improve. One of the things that financial institutions do well is to move money and the inefficiencies in the healthcare system provide an opportunity to sell these services to their existing client base of healthcare-related customers, including the players from largest hospital systems to physician offices to individual homecare nurses.