Mary Valdez remembers April 12 as a day of joy. It was the day she sent her first patient claim to an insurance company and had it come back approved for payment on the spot.
"It may sound crazy, but we were really excited," says Valdez, practice manager for Women's Health Partnership in Indianapolis. "It went through and the EOB printed out. We were jumping up and down."
The computerized process for handling the claim represents the potential to trim billions of dollars from the national healthcare bill while redirecting the energies of millions of physicians, staffers, payers and patients. A handful of software developers and several Blue Cross Blue Shield plans are working on pilot programs or have software in development that could soon turn this potential into reality.
HCFA reports administrative costs consumed $57.7 billion, or 5.2%, of all public and private spending for healthcare services and supplies in 1998. Executives of the firms developing the technology say it could one day trim 20% to 50% from their administrative costs.
According to Alice Rivlin, a fellow and healthcare policy expert at the Brookings Institution in Washington, there is plenty of room for savings.
"About 40% of doctors' insurance claims are still done in paper so I think there is a very significant potential for savings from online claims processing," Rivlin says. "We'll see a claims revolution over the next couple of years."
Women's Health, an eight-clinic, 44-physician OB/GYN practice, is a test site for an online medical claims authorization and payment system developed by software company RealMed Corp. of Indianapolis in cooperation with Anthem, the parent of Anthem Blue Cross and Blue Shield Indiana. RealMed and Anthem have been working for nearly three years on a system to perform real-time claims adjudication.
RealMed is paid a fee per claim processed, according to Anthem. The insurer would not disclose the price per transaction, terms of its agreement with RealMed, its spending on the project or its projected savings. RealMed says it spent $50 million developing the system.
On April 12, Valdez was told the system was ready. The RealMed system linked the clinic's computer with a claims processing engine at Anthem, which read the $152 claim, applied the provider discount, calculated payer and patient shares of the payment and transmitted that calculation back to the Women's Health office. It took a couple of minutes, Valdez recalls.
Five days later, Anthem and RealMed processed the first patient claim in a routine work setting.
"We're the first ones we know of to ever adjudicate a claim and create an explanation of benefits at the point of care," says Larry Gigerich, a RealMed spokesperson.
Since April, RealMed technicians have cut the turnaround time to about 30 seconds, Valdez says. Her goal is 20 seconds.
"My first husband died of cancer," Valdez says. During his illness, she waded through a bog of healthcare bills, claim forms, rejected claims and EOBs. "Everyone says, 'Why can't this be easier?' I saw that this was crazy. Healthcare is about taking care of patients; it's not about administrative flow."
Also, with their EOBs in hand, patients are told what they'll need to pay before they leave the office, a change for them and office staff.
"We did have some inservice to teach our people how to ask for the money," Valdez says. About 60% of patients presented with their instant EOBs choose to settle up immediately.
Valdez says the system has cut the lag time for payment of a RealMed claim to five or six days from 46 days for a paper claim. One in five Women's Health patients are Anthem enrollees.
"It certainly does enhance the cash flow," says John Payne, M.D., president of Women's Health. "We're pleased with it. We want to keep working with it. We just need other payers to sign up."
The RealMed system at the clinic also checks patient enrollment with Anthem at patient registration, a time and money saver for the practice, Valdez says. The system cost the clinic nothing for software and only the cost of three new personal computers, money the group was likely to have spent soon anyway, Valdez says. All eight clinic officers were connected with a high-speed T1 data line before they signed on for the pilot, she says.
One technical problem with the system remains unsolved. Anthem can receive electronic claims from the doctors' offices, but it can't post payment amounts back to the physicians' computerized practice management systems. It's a shortfall that miffs Jane Pardieck, M.D., an early adopter of medical practice computer technology.
Since July 1999, Pardieck and her two physician colleagues at North Star Pediatrics in Indianapolis have been using wireless EncounterPro electronic medical record devices linked to a Lytec practice management system. Hooked to RealMed and Anthem, their system can electronically send and receive claims. North Star office staffers, however, must manually post the payments from Anthem to the group's Lytec accounts, so Anthem and RealMed still have some work to do, Pardieck says.
"As soon as they get their system integrated so you don't have to duplicate work, it will be great," she says.
Most hospitals have the technical staff to calibrate their own accounting systems to receive Anthem payment data, Gigerich says, but smaller physician practices aren't there yet.
"With the providers, you have literally thousands of doctors and hospitals out there, a lot of them with homemade systems," he says.
Gigerich says his company is working with vendors of practice management and electronic medical records systems to make that last link with the providers.
The system is running at 500 Indiana practices and has processed more than
10,000 Anthem claims, according to Gigerich. He says RealMed had November launches of pilots scheduled for Blue Cross and Blue Shield of North Carolina and CareFirst Blue Cross Blue Shield in Washington, D.C.
"For us, it's a question of getting more volume and getting the adjudication rate up," Gigerich said. About 61% of the claims submitted go through clean and yield instant EOBs, he says. The remaining 39% are shunted for manual processing. Even in the future, not every claim will be handled automatically, Gigerich says. "From the research we've seen, I don't think we'll get much higher than 85%."
Anthem and RealMed may be leading the claims adjudication race, but a host of the Blues is thundering up behind them.
Blue Cross and Blue Shield of Florida launched its own pilot system Sept. 5 with 5,000 Medicare HMO enrollees and 15 providers in Palm Beach County, says Patrick Haley, vice president of Virtual Office, the Florida Blues division that developed the program. Haley says he hopes to extend the system to providers across the state within nine months and to all healthcare plans online by 2002.
If targets are met, the Florida payer could cut its administrative costs by 20%, or about $150 million a year, he says. Haley says those savings will make the investment, which so far has run into the hundreds of millions of dollars, well worth it.
"The main reason we did this was provider satisfaction, to help them reduce their overhead; patient satisfaction, so they won't have to worry, 'Did I pay that?' and, lastly, the savings of going to an entirely paperless society, which we can pass on to our members."
Empire Blue Cross and Blue Shield, with more than 4 million enrollees in New York, plans to roll out its claims adjudication system this month. David Snow, chief operating officer, says of 6,000 employees, "more than half do nothing other than process claims and answer phones. If I can get point of service to work with all my physicians, I could save 50% of overhead."
He estimates the savings at $350 million a year.
Empire Blues joined with three other investors to buy $42 million worth of stock in onehealthbank.com, a Cranbury, N.J.-based software company preparing a portion of the system. Internet Healthcare Group, Prism Venture Partners and Johnson & Johnson Development Corp. are the other investors, says Bruce Elder, senior vice president of marketing for onehealthbank.com.
A feature of the Empire/onehealthbank.com system will be its use of credit cards embedded with patient information issued to enrollees. A patient visiting the doctor's office can swipe in and have his or her eligibility confirmed at registration.
With onehealthbank.com, the Empire Blues plan to link the system with commercial banks specializing in credit cards, Elder says. At the patient's discretion, the swipe card can be linked to a bank account, major credit card or medical savings account.
Meanwhile, the payer will have the ability to wire transfer funds to the physician's bank account within 12 to 24 hours of the office visit, according to Elder.
The TriZetto Group of Newport Beach, Calif., and eHealthDirect of Lexington, Mass., also are developing real-time claims adjudication systems.
In October, TriZetto completed the purchase of Westport, Conn.-based Erisco Managed Care Technologies, maker of a payer software system, and announced it had integrated its acquisition with practice management system from Dallas-based software company Millbrook Corp. So far, the combined system is not deployed.