Technology delay costing health industry $22 billion annually

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While nearly every industry has switched to electronic record keeping and payments, the health care industry is lagging behind — and it is costing the country $22 billion in health care expenses every year.

Celent, a research and advisory firm, says that electronic processing is present in most steps of the health care revenue cycle in varying degrees. But the payer payment and payment reconciliation are still clinging to paper.

In “Paper-to-Electronic Processing in Health Care,” Celent looks into the transition from paper to electronic payment systems.

Given current adoption rates, $3.8 billion will be eliminated in processing costs this year, and that is expected to double by 2014.

But that rate is simply too slow. Current technology could erase more than $11 billion in paper check processing costs — if doctors would accept the technology.

“The health care payment ecosystem will continue to be burdened with huge amounts of paper for a long time,” the report said. “Because technology is apparently not attracting health care clients in droves, financial relationships are best suited to wedge open the market. … Banks will have the upper hand in choosing whatever technology vendor their provider clients need.”

Administrative costs account for 20 percent to 30 percent of health care costs, and payment processes — sorting, reconciling, reworking, substantiating and posting payments — costs billions.

“The paper-to-provider payments space in the U.S. is probably one of the most convoluted and fragmented in the world,” said study co-author Red Gillen. “It consists of incredible amounts of paper, includes electronic data as well, lacks enforced data standards, requires reductions, wants to enhance data and suffers from out-of-sync timing cycles.”

In its report, Celent recommends extending existing technology, known as “lockboxes” to every payment made to a doctor.

Extended lockbox functionality is increasingly available. The technology sorts and creates electronic explanation of benefits and payments. Electronic data can be listed and used in standard remittance forms.

Lockboxes can reconcile the benefits explanations with the corresponding payment and deliver it ready for posting to a provider’s accounts receivable system.

Making the switch is good news for banks and technology vendors — but only for a limited time.

“Despite the opportunity, all is not rosy for players in the health care paper-to-electronic conversion space,” said Bob Meara, senior analysts with Celent. “Solutions are not highly differentiated and banks are chasing a declining market.”

Reform will be a bright spot for banks and technology companies, Gillen said. But as reform emphasizes a switch to electronic records, banks will need to compete for business, he said.

The first issue with competition for banks is that the technology is very similar. The greatest area of opportunity is in business reporting that allows providers to maximize their revenue.

But even this kind of intelligence is becoming commonplace.

Big name players — Bank of America, Mellon, Fifth Third, J.P. Morgan Chase & Co., U.S. Bank — are all chasing this market, the report said. Over time, more payments will switch to electronic, which will end the need for processes that convert paper to electronic records.

Some companies, Gillen said, are working themselves out of a job.

“The U.S. Congress is considering penalties ($1 for every covered person every day) for insurers that do not issue standardized remittances by 2014,” the report said. “Ironically, many players in the paper conversion space are in fact working with insurance companies to work toward that exact goal.”

Amy Gillentine covers health care for the Colorado Springs Business Journal.