qotd: PwC: Billing and payment for a “New Health Economy”

PricewaterhouseCoopers (PwC)
Health Research Institute
May 2015
Money matters: Billing and payment for a New Health Economy

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)
(Future state):
* 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-billing-and-payments.pdf

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Comment by Don McCanne

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?