Protected by a federal willingness to go easy on regulatory enforcement, the nation's providers have dodged the financial consequences of failing to comply with an Oct. 16 deadline for converting their electronic claims to a standard format required by the Health Insurance Portability and Accountability Act of 1996.
But the heavy workload and time crunch required to get billing systems in sync with those of payers have shoved into the background several other standards taking effect this week that were intended to work in tandem with the claims standard to take huge chunks of expense out of the healthcare business process.
The CMS late last month said it would temporarily continue to accept Medicare claims transmitted in nonstandard formats as well as the new standard, heeding appeals by providers for extra time to complete an unexpectedly complicated conversion. Commercial payers, granted the same authority as the CMS to take nonstandard transactions after the deadline, quickly followed suit (Sept. 29, p. 14).
Of all the transaction standards, the one for transmission of a healthcare claim was the only one essential to getting paid. Lobbyists for providers said millions of claims would have been rejected if the CMS had held fast to a regulatory requirement that all claims be in the new standard format on Oct. 16.
But the all-out focus on only one of the eight standards for claims-related processes left in tatters an original premise of the HIPAA law that the healthcare industry would save billions of dollars annually by automating the entire claims and payment continuum.
The "administrative simplification" formula-envisioned by an industry advisory panel to HHS in the early 1990s and written into HIPAA in 1996-assumed not only standardizing electronic claim formats but also deploying computer-driven queries and responses that reduce mistakes in claims, monitor their status during the payer adjudication process and post the results in provider accounts without being touched by human hands.
"That's where the money is," said Tom Hanks, a HIPAA practice leader with IBM Business Consulting Services. "But no one's going there because they're busy protecting their claims."
A small contingent of providers and payers across the country jumped the gun and adopted selected standards in the HIPAA roster years ago to improve operations. Those early adopters have reported hefty reductions in claims denials, reduced backlogs in accounts receivable, savings in payroll costs and an ability to handle significant business growth without adding staff.
From 1998 to 2000, for example, the physician practice division of Intermountain Health Care, Salt Lake City, achieved a 33% reduction in a staff of 27 clerks who posted reimbursements from payers to its 72 practices, reconciled paid amounts with the original charges and billed patients for their share. The reduced need for staff saved the physician organization $300,000 per year in payroll and benefits despite a 10% annual increase in billing volume, executives said.
The key to the improvement in efficiency was the conversion of 50% of its claims payment volume to an industry standard adopted by HIPAA that automated "remittance advice," an explanation of how claims were resolved. Instead of receiving the information by mail and having clerks post and process the results, the information was routed through a central billing office to individual practice ledgers, where each payment was posted to the right patient account automatically.
In the past three years, the division has expanded to more than 100 clinic locations and has increased its percentage of automation to 65% of total billing volume while reducing the clerk staff by one, said Jim Cannon, director of accounts receivable for the physician practice unit.
Even early adopters like Intermountain have had to put aside ambitions to increase their productive use of HIPAA standards and concentrate on the burden of claims transactions. "For us this has been nothing but a cost increase or diversion of resources from other areas," said Brad Haws, chief financial officer of the physician unit. Unlike the standards to automate internal business operations, which netted efficiencies where none existed, the standard for claims is replacing an existing electronic process that had reaped much of the savings to be attained by automation, he said.
The electronic claims standard was part of a campaign in the mid-1990s to move a largely paper-based transaction to an electronic data interchange. But in the four years between enactment of the HIPAA law and publication of final rules for the standard format, most hospitals and larger payers saw the opportunity for efficiency and decided not to wait, figuring out how to exchange claims electronically using nonstandard formats, Hanks said.
The HIPAA standard eliminates a middle step of translation between providers and payers, but it forced them to retool a system that generally works much more efficiently than the paper process it replaced.
Though the industry has had three years to get ready, government delays in completing technical specifications and industrywide preoccupation with other HIPAA areas such as privacy combined to put off the retooling until it was too late. "In all that, it was never really clicking, the complexity of the claims transaction," Hanks said. One industry estimate calculated the cost to the healthcare industry in expertise alone at 2.9 million analyst months, a measure of the amount of time it would take computer analysts to complete the job.
As long as that task preoccupies payers as well as providers, HIPAA-savvy organizations such as Cape Fear Valley Health System will have to mark time, said Keith Hullender, director of systems support and development.
The Fayetteville, N.C., health network reduced its days in accounts receivable to 82 in 2000, down 26.8% from 112 in 1995, through process redesign that included conducting electronic checks of eligibility information on patients with payers accounting for 80% of its billing volume. Since then its volume has increased 22% without the need to add staff, while days in accounts receivable fell to 56. But the organization hasn't been able to expand the automatic checking to the payers making up the final 20% of business because of delays in HIPAA deadlines and the pre-emptive task of readying claims, Hullender said.
At the same 80% of billing volume, a planned HIPAA expansion into automatic updates on the status of claims could reduce the cost of following up on submitted claims by 30% to 40%, he said. But the issue of claims readiness has shelved other HIPAA-related projects among commercial payers, leaving Medicare as the only willing and able partner.