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Reducing administrative costs

Submitted by on July 22, 2008 – 1:46 AM
MGMA's William F. Jessee, M.D.

MGMA's William F. Jessee, M.D.

By Christopher Guadagnino, Ph.D.


Administrative complexity and inefficiency are major cost-drivers in a largely fragmented health care delivery system, raising annual health care costs by almost $300 billion, by some research estimates. A typical physician practice contracts with a dozen or more health plans and must contend with each payor’s way of contracting, credentialing, preauthorizing, coding, billing and reimbursing, as well as verify patient benefit coverage and adhere to proprietary clinical guidelines and protocols.

Health insurer contracting and billing represent the major sources of administrative burden for physicians, and survey data from the Medical Group Management Association (MGMA) puts eye-opening dollar amounts on the cost of these duplicative activities.

The system of processing medical claims alone adds as much as $210 billion annually in cost to the health care system, and is inefficient and unpredictable, according to the American Medical Association (AMA). Physicians divert substantial resources – as much as 14 percent of their total revenue – to ensure accurate insurance payments for their services, according to the AMA’s first National Health Insurer Report Card on claims processing, released last month. A recent survey of its membership by the American Academy of Family Physicians (AAFP) reported that most family physicians spend more than 10 percent of their total work time doing administrative tasks.

The scope of what commercial health plans are willing to standardize and simplify is limited by proprietary ways of doing business in a competitive market. Fee schedules, formularies, covered services, preauthorization, diagnostic and procedural coding policies, among other things, will continue to vary to the extent that health plans and regulators view them as strategic legal elements of marketplace competition.

Nuances of insurance product design mean that a health plan may apply its fee schedule differently to seemingly identical services, such as paying 100 percent for a colonoscopy performed on a healthy 50-year-old (deemed a preventive service), but paying only 80 percent and requiring a patient copay for a colonoscopy performed on someone with abdominal pain (deemed an indicated medical intervention), says Don Liss, M.D., Aetna’s medical director for the mid-Atlantic region. “Employer groups are interested in buying customized types of plans. We wouldn’t want to see the industry preclude that flexibility,” he adds.

“It is not hard to see why health plans evolved differently, with homegrown codes and unique billing requirements,” says Richard Snyder, M.D., senior vice president of health services for Independence Blue Cross (IBC). Not many years ago the health care system was entirely a paper environment, and in the pre-HIPAA years nascent computer-based systems emerged as health plans converted to electronic handling of their claims administration processes, he notes. “We recognize the need to standardize the things that are not in the competitive realm,” he says.

Initiatives to reduce administrative burdens on physicians have focused on standardizing some physician-payor transactions, and simplifying the flow of data for others. Legislative attempts to mandate standardization among commercial insurers, such as a bill to standardize managed care contracting, coding and claims-handling policies pushed by the Pennsylvania Medical Society since 2000, have not succeeded. The duplicative administrative burden of tracking multiple contracting guidelines, clinical protocols and coverage policies serves no one, however, and voluntary simplification efforts have made some progress. Health plans, physician groups and the information technology sector are collaborating to standardize data exchange for administrative tasks such as credentialing and patient benefit determination, while many individual health plans offer physicians expedited information exchange through Internet-based provider portals.

Perhaps ironically, the solution to most of the administrative complexity appears to be the use of increasingly sophisticated health information technology: if not simplifying the system through standardization, then expediting ways to handle payor transactions through more transparent and efficient data exchange.

Even in a typical physician office without a fully automated practice management system, replacing traditional paper and telephone calls for insurance administration – i.e., claims submission, referral and preauthorization requests, and patient eligibility verification – with electronic transactions brings a per physician savings of more than $42,000 annually, according to a Milliman Inc. study released January 2006.

Several physician groups are promoting electronic health record (EHR) adoption as a key component of administrative burden reduction, and are touting the business case that these admittedly expensive systems not only lead to improved health care quality, but also produce a return on investment to physicians.

Significant Administrative Cost Burden

Some administrative burden is self-imposed by physicians, particularly small or medium-sized practices that are busy seeing as many patients as possible and don’t take the time to think about standardizing their workflow for efficiency, according to Sherry Migliore, director of consulting for PMSCO Healthcare Consulting in Harrisburg, Pa. Every patient visit generates approximately 15 pieces of paper which are filed and transferred, occasionally misplaced and eventually found, she notes. Something as fundamental as putting office policies and procedures into writing, she says, can bring uniformity and smoothness to administrative and clinical processes, e.g., setting appointments, registering patients in the office, ordering and tracking lab results, handling patient charts, and coding with accuracy and completeness. “The more structure you put into your medical practice and the more you standardize your processes, the more efficient you and your staff will be and the less administrative burden you’ll have to endure,” adds Migliore.

It is the payment system, though, that accounts for the lion’s share of the burden, accounting for the bulk of the 25 to 30 percent that the health care system spends on administration, by some national estimates, according to MGMA President William F. Jessee, M.D. “We have a payment system that’s based on piecework: providers trying to increase the medical service-related piecework they do, and health plans trying to find ways not to pay. Unless we align these incentives, the system will remain an administrative nightmare,” Jessee notes.

The main focus of administrative simplification initiatives, therefore, has been standardization of data flow between physicians and health insurers. “Everyone agrees that administrative burdens are wasteful and inappropriate. The big challenge is to get consensus on how to standardize administrative tasks among health plans, and overcome the inertia of nobody wanting to change the way they do things,” adds Jessee.

The AMA National Health Insurer Report Card examined the claims processing performance of Medicare and seven national commercial health insurers – Aetna, Anthem Blue Cross Blue Shield, Cigna, Coventry Health Care, Health Net, Humana and United Healthcare. Based on a random sample of over five million electronically billed services, the study found that:

· There is wide variation in how often health insurers pay nothing in response to a physician claim (from less than 3 percent to nearly 7 percent), and in how they explain the reason for the denial. There was no consistency in the application of codes used to explain the denials, making it expensive for physician practices to determine how to respond.

· Health insurers reported to physicians the correct contracted payment rate only 62 to 87 percent of the time. When health insurers report an amount that does not adhere to the contracted rate, it adds additional, unnecessary costs to the physician practice to evaluate the inconsistency.

· More than half of the health insurers do not provide physicians with the transparency necessary for an efficient claims processing system.

· There is wide variation among payors as to how often they apply computer generated edits to reduce payments (from a low of less than 0.5 percent to a high of over 9 percent). Payors also varied on how often they use proprietary rather than public edits to reduce payments (ranging from zero to as high as nearly 72 percent). The use of undisclosed proprietary edits inhibits the flow of transparent information to physicians, adding additional administrative costs to reconcile claims.

The MGMA surveyed its network of medical groups to ascertain how much they spend on health plan administrative tasks, and in June 2005 issued a position paper noting that – on a per-physician basis – practices reported that their staffs verify insurance information on as many as 25 patients per day, answer up to 50 calls per day from pharmacies, and spend up to three hours on each credentialing application. Based on compensation, staff and physician minutes spent and the number of tasks conducted each year, the estimated annual cost of various administrative tasks for a 10-physician medical group was almost $250,000. That included:

· $19,444 per year spent on phone calls with pharmacies resolving drug formulary issues.

· $38,761 spent per year verifying patient coverage, copayments and deductibles for thousands of varying health plans.

· $9,248 spent per year resubmitting denied claims – 73 percent of which are eventually paid. On average, 2.78 claims per full-time-equivalent physician are denied each week because of lack of information about the insurer’s requirements.

· $7,618 spent per year submitting credentialing applications for each physician. Practices submit 17 credentialing applications per physician each year on average.

· $33,800 spent per year negotiating insurance contracts with an average of 15 different health plans per year, and renewing six of those each year. Administrators spend 4 1/2 hours negotiating each insurance contract.

Complexities like these feed discontent and add to the danger of physician burnout, as well as staff burnout on both sides of the adversarial relationship between health plans and providers, according to Jessee.

Reform Wish List

The MGMA would like to see a “simplified payment system” in which the health care system may continue to have multiple payors, but they would offer a limited set of standardized insurance plans and use one standard credentialing event, one set of clinical guidelines, one formulary, one set of disease management protocols, one standard contract form, one standard billing process, one set of coding and documentation policies, and one base fee schedule.

Under MGMA’s vision, six areas of administrative health care complexity are most in need of simplification:

Insurance product design. State legislation would be required to mandate four or five standard health insurance products, ranging from a relatively low-cost, high-deductible catastrophic policy to a full-coverage health maintenance option. Insurer processes should be standardized for verification of insurance coverage, and all insurers should adopt a single, common electronic inquiry and response system for verifying patient insurance coverage.

Payer and provider contracting. A single, state-specific contract form should be used for contracting between health plan payors and each type of provider organization. Payor and provider groups should collectively determine the terms of these agreements. To further minimize confusion and costs associated with annual contract revisions, all payor contracts should become effective on the same date each year.

Billing and payment processes. Medical practices, hospitals and other providers should adopt standard patient billing forms in each state. A standard Web-based system should be developed and implemented through which providers can verify patient eligibility and insurance coverage, while insurers need to agree on standards for data content and format, and make current information on their insured customers available electronically. Standard rules for claims submission should be developed, and insurers should develop and adopt standards specifying the documentation required for any specific CPT codes and agree to common coding policies, including bundling and use of modifiers.

Credentials verification. A standardized credentialing application form and data set should be developed, and health plans, hospitals, nursing homes and ambulatory surgery centers should be required to use it for physician credentialing. A single organization would conduct verification of provider credentials in each state.

Health care fees. A standard physician fee schedule should be established with uniform base fees paid for a particular CPT code for all insurers. A statewide organization could negotiate a single base-fee schedule with all payors in the state and agree on a standard set of additions to the base fees to reward groups that meet patient needs. This reform would eliminate the current patchwork of base rates and incentives, varying by payor, which requires practices to reconcile widely varying payments received against the widely varying amounts contractually owed by insurers. Pay-for-performance incentives should be standardized so that all insurers would make higher payments to practices meeting a common set of performance incentive measures.

Clinical care management. Clinical guidelines and disease management protocols for common conditions should be standardized. Plans and local practitioners in a geographic region could collaboratively develop and maintain guidelines, and plans in each market could collaboratively finance the effort. Prior approval should be eliminated except where proven effective, and remaining requirements should be standardized among all payors. Drug formularies should be standardized.

Some Standardization Progress

The U.S. health care delivery system is a long way from fulfilling MGMA’s wish list for administrative simplification, and health plans are skeptical that several of the agenda items will ever be achieved in a competitive market system. Nevertheless, standardization has commenced for two types of administrative chaos: the physician credentialing process, and patient plan benefit determinations – the “low hanging fruit,” according to Jessee.

The MGMA, the AAFP and the American Health Information Management Association (AHIMA) recently co-founded an organization to champion those reforms: the Healthcare Administrative Simplification Coalition (HASC), which also has input by groups including the American College of Physicians, the American College of Surgeons, the AMA, Centers for Medicare & Medicaid Services (CMS), United Healthcare, Humana, Microsoft, and employer groups. That coalition is campaigning to broaden awareness of the price of administrative complexity and redundancy, especially among employers and consumers who ultimately bear the cost of health care services, says Jessee. The coalition plans to host a summit this fall to shine a national spotlight on those issues, notes AAFP Executive Vice President Douglas E. Henley, M.D.

To promote simplified credentialing and patient coverage determination processes, the coalition is endorsing the consensus work of the Council for Affordable Quality Healthcare (CAQH) – a nonprofit alliance of health plans, networks and trade associations. For its first initiative, CAQH has worked with health plans, providers, accrediting bodies (NCQA, Joint Commission, URAC) and others to develop a single, national form – the Universal Credentialing Datasource (UCD) – an online data-collection system that eliminates redundancy and inefficiency of paper-based credentialing processes by allowing physicians (and other health care professionals) to post their credentialing and demographic information once, rather than separately for a dozen or more organizations, to a secure, national database that is accessible by health plans, hospitals and other organizations, according to Sorin Davis, MPA, director of marketing and business development for CAQH.

The system pre-empts snafus of paper-based credentialing applications, over 30 percent of which are sent back to providers for correction after being deemed to be incomplete, illegible or illogical (i.e., from a data transposition error), says Davis. If required data is omitted, the UCD system catches it and prompts the physician in real time.

Rather than submit multiple recredentialing applications for each organization, a physician simply logs on to the UCD Website and updates the data and/or attests to its accuracy and timeliness. With access to a data set that is “in perpetual state of readiness” to be used for recredentialing, participating health plans have reduced the time they take to complete the credentialing process to 60 days, down from 180 days, says Davis. There is no charge to the physician to use the service, which is supported by user fees from health plans.

Some 600,000 health care providers, including about half of the physicians in the U.S., are currently using the UCD, as are most national health plans and many Blues plans – including most insurers in Pa. and New Jersey, says Davis. Physicians can print out a PDF file of the pre-populated UCD application, which many nonparticipating payors will accept, he adds. Based on MGMA’s analysis, CAQH estimates that UCD reduces provider administrative costs by more than $80 million per year, by two million man-hours in time required to complete and send the application forms, and has eliminated more than 2.1 million legacy paper applications.

The UCD is probably the most successful administrative simplification effort in health care thus far, says IBC’s Snyder. “Credentialing physicians is something all health plans are required to do, and there is no competitive reason for us not to want to standardize that,” notes Snyder, who has served as CAQH’s quality improvement chair. “We have seen dramatic improvement in the completeness of applications, and over 90 percent of new applicants are credentialed in 30 days,” he adds.

“We’re seeing the next frontier of users coming on board: the hospitals,” says Davis, and CAQH is working to tweak the UCD tool to accommodate their data needs, e.g., separating standardized credentialing data from institutions’ unique privileging data requirements.

Unfortunately, CMS has been reluctant to use the UCD, and is instead sticking with its own, labor-intensive credentialing system, the Provider Enrollment, Chain and Ownership System (PECOS), notes Jessee.

Getting hospital medical staffs and CMS to buy into the UCD are two of the most important goals for administrative simplification, says Henley.

CAQH’s second initiative focuses on electronic data transfer between physicians and health plans. Physicians who routinely verify patient insurance eligibility and benefits through electronic or other means experience higher rates of paid accounts and can save up to 50 percent of their labor costs simply by switching from manual to electronic means of verification, CAQH research has found. Its second initiative, the Committee on Operating Rules for Information Exchange (CORE), seeks to make that process more predictable and consistent across health plans. CORE has developed administrative information rules that health plans voluntarily adopt, so that physicians who electronically query any CORE-certified health plan for patient benefit information receive it in a uniform format within 20 seconds, rather than having to navigate separate health plans’ proprietary data portals and sift though a hodgepodge of data display formats, according to Gwendolyn Lohse, CAQH’s deputy director and CORE managing director.

Over 30 leading national health care organizations – covering about 65 million or one-third of commercially insured lives in the U.S. – are currently certified as CORE-compliant and exchange information in a standardized fashion with providers, allowing them to (1) determine whether a health plan covers the patient, (2) determine the type of benefit coverage, and (3) confirm coverage of certain treatments and the patient’s co-pay amount, coinsurance level and base deductible level. Physicians can access that information before or during a patient office visit using the electronic system of their choice for any patient or health plan – and can quickly inform patients – some of whom may not even know the name of their own health insurer.

Aetna is requiring all of its administrative data-exchange vendors to be certified as CORE-compliant, a move announced this February by Aetna’s Chairman and CEO Ronald A. Williams, who is also CAQH chairman. IBC and Horizon Blue Cross Blue Shield of New Jersey are also participants in the CORE initiative.

CAQH hopes to expand CORE’s standardization to other types of data and expects by the end of this year to announce uniform rules for patient identifiers, patient accumulators, claims status, and patient financial responsibility for an increased number of service codes. Future work will attempt to standardize the electronic delivery of additional administrative transactions, such as prior authorization, referrals and claim status, says Lohse. “Patient eligibility is the first step to get to all other provider-health plan interactions. If you come out of the gate correctly, it’s going to lead to downstream savings on other transactions,” she adds.

There may be limits to further industry-wide standardization, however. Health plans are reluctant to collaborate with their competition on issues that they perceive as relinquishing market value, even those that appear to be natural candidates for standardization – such as disease management protocols that are backed by nationally-accepted clinical guidelines. Aetna, for example, says it uses a uniquely sophisticated set of algorithms for its disease management system, issuing customized “care considerations” indexed to highly-individualized patient characteristics. “Other payors don’t do that. That’s a competitive advantage to us,” says Liss.

Health plans may also be leery that too much collaboration will spark antitrust concerns. “Legislators can help by giving clear safe harbors for standardization, while another real opportunity is to get the business community – employers – to lean on the health plans,” to standardize more processes, says Jessee.

Expediting Data Exchange

Many physicians are already streamlining some of their administrative health plan transactions through provider portals – secure Websites for data exchange. Unlike the CORE initiative, however, provider portal content and format vary by individual health plan.

NaviNet, a portal created by NaviMedix, Inc. and used by insurers including IBC, Highmark, Aetna, Cigna and UnitedHealth, boasts the ability to save a physician office 100 hours per month on administrative processes, an 85 percent reduction in time to process claim investigations, more than 50 percent reduction in patient eligibility verification time, more than 60 percent reduction in time spent verifying the status of an inpatient authorization, and 75 percent reduction in time spent contacting the plan to request an authorization for treatment.

Snyder says IBC handles nearly two million physician inquiries per month, and roughly 150,000 transactions per business day via NaviNet, including information about patient eligibility and benefits, claim and encounter (for capitated plans) submissions, referrals, drug and advanced imaging precertification, claims tracking, fee schedules, formularies and ER admissions.

One of the best upgrades of NaviNet’s utility for physicians is real-time prior authorization, in which physicians check off patient characteristics and the system gives approval for a service in seconds; if the criteria are not met, the physician then forwards the application to reviewers, says Carey Vinson, M.D., vice president of quality and medical performance management for Highmark.

To deal with the complexities of multiple health plan formularies, electronic prescribing is the way to go, immediately informing the physician of a specific patient’s drug benefit coverage for their plan, while also tracking the physician’s prescribing history for that patient, Vinson says. Highmark is offering a $7,000 subsidy to 4,400 physicians throughout Pa. to acquire an e-prescribing system, he notes.

The success of any electronic health information system faces a surprisingly fundamental obstacle: correctly identifying the patient. A significant driver of “first pass” claims rejection is incomplete or erroneous patient identification, according to MGMA’s Jessee, who suggests that an electronic patient ID card (e.g., with a magnetic stripe) would standardize the manner in which patients are entered into the claims processing system and would significantly reduce administrative burden and cost. CMS has told MGMA that congressional action is needed to implement a national patient ID card, while states are beginning to explore the concept, Jessee says, noting that Colorado’s governor recently signed a bill requiring the state’s health insurers to implement electronically enabled patient ID cards by July 2010.

Another fundamental obstacle is physician uptake of electronic transaction tools. About one-third of physician claims received by Horizon Blue Cross Blue Shield of New Jersey are still submitted on paper, says James F. Albano, who notes that the state has a high proportion of solo and small physician practices, many of which do not use computerized transactions. Horizon has even offered subsidies in the past to encourage electronic claims submission, he notes. Horizon is a few months away from offering physicians the ability to make requests for authorization of services electronically through its provider portal, adds Albano.

Push for Electronic Health Records

Many physician groups view EHR adoption as a key component of administrative burden reduction, in addition to clinical quality improvement, by creating complete and portable documentation and coding of patient encounters – including clinical and claims data, which ultimately would lead to fewer claim delays and denials. According to the AAFP, EHRs with decision support tools at the practice level could also eliminate much of the need to require prior authorization for medically indicated care or services, e.g. high-technology imaging and prescription drugs. Registries to provide chronic care/disease management and/or population management in the family physician’s practice ideally would also be imbedded in the functionality of an EHR.

To actualize the power of EHRs, AAFP believes that the industry must adhere to interoperable and compatible data exchanges, such as the Continuity of Care Record, a health record standard specification developed jointly by the AAFP, the American Academy of Pediatrics, ASTM International, the Massachusetts Medical Society, the Healthcare Information and Management Systems Society, and other health informatics vendors. The Continuity of Care Record specifies what core health information a patient’s health summary document should contain – such as patient demographics, insurance information, diagnosis and problem list, medications, allergies and care plan – and can be transmitted electronically among care givers. The record is created by a physician using an EHR system at the end of an encounter and can potentially be created, read and interpreted by any EHR software application.

The result would be the ultimate time-saver, says Henley: “A physician will need only one machine at his or her ‘check-out’ and will swipe a patient’s insurance ‘smart card’ that has agreed-upon information embedded in it.” According to AAFP, the entire electronic process should take less than 30 seconds: (1) a physician bills a complete claim at the time of service via a practice management software system to a claims clearinghouse, (2) clearinghouse transmits the claim to the payor, (3) the payor adjudicates the claim and responds with an electronic acknowledgement of the processed claim, (4) the clearinghouse transmits adjudication back to the practice’s computer, which displays results to the office staff. Infrastructure and support processes on both ends – the physician and the payor – are necessary, as physician practices must be able to code and file a patient’s claim electronically at the point of care.

AAFP is promoting EHR adoption through its Center for Health IT, which assists members with selecting and implementing a particular EHR system for their office. Most practices can expect a reasonably quick return on investment after EHR implemention through appropriately increased coding levels, decreased medical records staffing and transcription costs, and efficiency-related revenue gains from more patient visits, says Henley. He cites case study research published in Health Affairs in 2005, in which initial EHR costs averaged $44,000 per FTE provider in a solo or small-group primary care practice and ongoing costs averaged $8,500 per provider per year, while the average practice paid for its EHR costs in 2.5 years and profited after that.

Fewer than one in five of the nation’s doctors has started using such records, according to results of a national survey published online last month in The New England Journal of Medicine. The survey found that less than nine percent of small practices with one to three doctors use EHRs, while EHRs are used by 51 percent of larger practices, with 50 or more doctors. A survey of its membership about a year ago found that 37 percent of AAFP’s members had already implemented an EHR system, while 13 percent were in the process of implementing one, and 25 percent were planning to do so within the next 18 months, says Henley.

The Pennsylvania Medical Society (PMS) hopes to accelerate EHR adoption with a recently-awarded grant by the Pennsylvania Department of Community and Economic Development from the Broadband Outreach and Aggregation Fund (BOAF) to continue its ConnectTheDocs broadband initiative, according to Dennis Olmstead, PMS’s chief economist and vice president of economics and payor relations. The grant will fund educational programs and other resources to help physicians overcome barriers to technology adoption, and will fund regionally specific projects in northwest Pa. and the Bucks County area allowing physicians to obtain or upgrade their broadband connections for a better price than they could get on their own, through a group purchase arrangement. “Building a backbone of high-speed Internet access is one of the areas we can take the lead in reducing physicians’ administrative costs,” says Olmstead.

Payors should reward physicians who demonstrably follow evidence-based care guidelines, such as those included in many EHRs’ clinical decision-support features, by reducing administrative burdens, suggests Michael Barr, M.D., vice president of practice advocacy and improvement for the American College of Physicians. One way would be to eliminate or relax prior authorization requirements, a practice known as “gold carding,” which some health plans have piloted in tiered provider networks, he says.

Horizon has pilot-tested the gold carding concept with radiologists, with inconclusive results, and continues to study its viability, says Albano.

Aetna has removed the need for referrals to physicians in its Aexcel specialist network who meet both clinical performance and efficiency standards. Liss says he hopes there will be opportunities in the future to remove further administrative burdens from Aexcel-designated physicians.

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