The U.S. health care payments industry is undergoing changes as it grapples with inefficiencies in how patients, payers and providers exchange information and money. At the same time, it must respond to economic pressures, government reforms and other dynamics while it focuses on quality, value and cost reduction.

More than $2.7 trillion in health care payments change hands in the U.S. annually - one-sixth of GDP - according to a February Web seminar, "Healthcare Payment Trends Webinar," by Kunal Pandya of Health Insurance & Payments at Aite Payment Group. About 49% of these payments are initiated by government entities; 40% come from employer-funded private insurers; and the remaining 11% come directly from consumers. The flow of information and money is highly labor-intensive and inefficient. Efforts to simplify it are hampered by short-term cost considerations, a lack of automation and data standards and other factors.


Market complexity

Ordinarily, a $2.7 trillion market would evolve toward efficiency. But the inefficient status quo remains resistant to streamlining for several reasons, including: disconnect between consumers, payers and providers; multiple moving parts - including shifts in technology, population and health care legislation; lack of automation and data standards; reliance on manual processes; cost of system improvements; and collections issues.

Some providers write off up to 50% of their accounts receivable because timing and payer reconciliation delays hinder collections at the point of care, according to a May 2009 seminar, "Healthcare Banking Market Trends: A Look Inward and Forward," by Celent's Red Gillen.


Trends we're seeing now

The health care payments market includes three distinct payment flows, outlined in Pandya's Web seminar, which must be better integrated to engage patients, enable providers to collect on services and eliminate wasteful administration by insurers:

1) Payer-to-provider payments, representing an estimated 5.1 billion claims annually. Most claim payments today are still conducted via paper check, costing an average of $9 per claim. The separation of claims data and payment systems has been the biggest hindrance to adoption of electronic payment processes. These functions are converging, enabling a new level of automation. EFT can reduce printing and postage costs, payment cycle times and bad debts for providers. While the industry has been slow to adapt, Section 1104 of the Patient Protection and Affordable Care Act requires payers to have systems in place to support EFT and electronic submission of remittance data by 2014.

2) Patient-to-provider payments, representing an estimated $326 billion. About two-thirds of copays, deductibles, prescriptions and other pre- and post-service health care expenses are made via cash and check. Debit and credit cards and bill pay/ACH payments account for the remainder. Patient self-pay ratios are forecast to grow exponentially in coming years. Real-time adjudication of claims has potential, but only when claim submission can be handled in real time at the point of care. Acceptance of electronic transactions requires compliance with HIPAA and PCI guidelines, which requires the ability to process card transactions, a capability that was out of reach for 30% of smaller providers as recently as 2008. An even larger percentage of providers lack the means to present medical bills electronically.

3) Consumer-directed health care payments, representing an estimated $311 billion. Consumers access their funds using standard retail financial technologies such as debit cards. This allows for expedited payments, easy access to funds and reduced payment cycle times. CDHP accounts allow real-time substantiation of expenses, simplify the participant experience and reduce reimbursement delays. But under a change in administration, they could be subject to elimination or rules revisions.


Solutions on the horizon

The goal is to streamline the movement of data and funds between patients, payers and providers. This is being accomplished by leveraging existing EFT and ACH technologies, which will eliminate more cumbersome and costly paper checks. The bigger challenge is how to automate the flow of data that accompanies each payment. The Council on Affordable Quality Healthcare is bringing together key players across the industry to develop a unified set of provider-neutral coding and operating rules through its Committee on Operating Rules for Information Exchange initiative. These rules will eliminate the need for providers to grapple with separate data standards for each payer and will dramatically increase the efficiency of claims processing.


Reynolds is president of health care, government and biller solutions at FIS.

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