"The overall rate of inaccurate claims payments increased since last year among leading commercial health insurers, according to American Medical Association's (AMA) fourth annual National Health Insurer Report Card. Claims-processing errors by health insurance companies waste billions of dollars and frustrate patients and physicians. "
So begins a recent report from the AMA dated June 20, 2011. The report goes on to say that, on average, commercial healthcare insurers mis-pay 19% of all the claims they process. As shocking as this is, even more upsetting is that only UnitedHealth showed improvements in its claim payment accuracy in the past year. The mis-payment rates ranged from United's 10% to Anthem's 39%.
Also troubling is that these results overall are 2% worse than the previous year, meaning the insurers are not getting better at paying claims accurately.
The AMA valued the impact of this service level to be over $17 billion per year. That means if the payers could eliminate all of their payment mistakes, the cost of healthcare could decrease $17 billion. Complete elimination of payment errors may not be reasonable, but a 25% improvement would mean a savings of over $4 billion in the next year alone.
Imagine other industries with this level of accuracy...
What if a cell phone dropped 19% of its calls on average and one carrier dropped nearly 40%? This is unimaginable. In the financial world, what if an ATM dispensed $110 instead of $100 or gave out $60 other times? That's beyond comprehension. Or the airline industry. What if planes landed at the wrong airport 19% of the time? No one would fly and there would be no industry.So how does the healthcare industry continue with this type of performance?
Several reasons are propagated, including: the complexity of the "system"; the multiplicity of the provider billing and payer claim software; the lack of transparency; the detached consumer (patient); the extensive coding required for diagnosis, procedure, payment, government mandate variation, etc., etc.
All of those contribute to the problem, but an overriding reason for the existing state of payment accuracy is the actual cost incurred to process a claim. Claim adjudication accounts for less than 5% of a healthcare insurer's total operating cost.
Medical cost typically runs 80-90% of an insurer's cost to operate. Other administrative costs such as overhead, call center operations, insurance, software maintenance, hardware leases and profit make up the difference along with the cost to process a claim.
With the cost to process a claim such a minute line item on the Profit and Loss statement, management is usually focused on the larger expense drivers and does not recognize the opportunity in the claim operation.
To reduce the industry's woeful 19% mis-payment rate, management has to dive deep in the weeds of its claim operations. In the weeds lie the opportunities to improve payment accuracy, lower operating expense, reduce overpaid claims and improve provider relations.
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