As the presidential campaign heats up, the candidates are talking about covering more of the 47 million uninsured Americans, but far less attention is being paid to how to pay for it and how to restrain the too-high costs already ingrained in the system.
Current projections estimate that healthcare will consume 20% of the U.S. gross domestic product by 2015, compared to 16% in 2004, threatening the competitiveness of U.S. companies and the long-term prospects of the economy.
Ironically, the single biggest cause of this growing expense is not the delivery of healthcare itself, but the highly manual, paper-intensive processing of these medical transactions and payments between health insurers and medical-service providers. Studies show that well over a quarter of all health expenditures go to pay for this paperwork, or more than $600 billion per year.
In fact, the delay of payment is so long (on average 60 to 90 days), that this debt is often sold in the financial markets as an asset-backed security. This lag time is the reason medical-service providers are increasingly requiring customers to pay upfront for medical care and why employer copayment requirements are growing.
If we dont devise an industry-led strategy aimed at the back office of healthcare, this cost crisis threatens to grind the systemand our economyto a halt. And the spending on paperwork leaves tens of millions of people unable to afford health insurance.
Ironically, the financial services industry was threatened with a similar paperwork crisis more than 30 years ago. The New York Stock Exchange, which in the early 1970s traded only 15 million shares each day, had to shut down one day a week to catch up with the processing of paper records associated with trading securities. Today, on a peak day, there can be 11 billion shares traded across all equity markets.
To the credit of major financial institutions, they foresaw that the capital markets in the U.S. would not continue to grow if they did not find a solution to the high administrative costs and long delays associated with paper. In addition, these financial companies preferred developing a private sector solution rather than having regulators or the federal government impose one.
Keeping the payment process slow and inefficient may have provided health insurers with the benefit of float on premiums, but this is forcing employers and medical providers to absorb excessive costs associated with this inefficiency. Theres a growing swell of support for government relief not only among patients, doctors and hospitals, but also among thousands of small-business owners and a growing number of Fortune 500 CEOs. The health insurance industry is miscalculating the level of pent-up frustration that is likely to sweep across the legislative environment in Washington next year.
The financial services industry realized that lower costs, greater efficiency and growth could only be achieved by creating a centralized clearing corporation to automate and streamline the payment of financial obligations.
The National Securities Clearing Corp. and Depository Trust Co. were created in the 1970s to fulfill the vision of an industry-owned and industry-governed utility to fully automate the back-office environment for the post-trade processing of securities transactions and settlement of money owed. The Depository Trust & Clearing Corp., the corporate parent of NSCC and DTC last year settled in excess of $1.8 quadrillion in securities transactions.
Since the Depository Trust & Clearing Corp. operates solely for the benefit of its users on an at cost basisfees are charged only to cover the cost of running its operations and any profit gained through centralized processing is returned to customers ($984 million in 2007).
Creating something called the Health Care Clearing Corp., or HCCC, modeled on the successful experience of the financial services industry could be a significant step forward in cutting healthcare costs.
Today, the healthcare industry looks like a big plate of spaghetti. Many insurance carriers and medical-service providers have their own internal back-office technology systems, but few connect with anyone else. Much of the communication between parties is cumbersome and manual.
An HCCC would operate like the hub of a wheel with spokes electronically linking all medical-service providers and all health insurance companies to a central point where data can be processed and exchanged. The HCCC would eliminate the need for medical-service providers and insurance companies to manage separate procedures and processes to submit claims. And, by bringing about standardization in data exchange and record-keeping, you would speed the payment of claims.
The first step toward creating an HCCC would require the two groupshealth insurance carriers and medical providersto establish an industry advisory committee with broad representation. The advisory committee would have two critical goals on the road to automation.
First, to establish a common set of standards for the industry governing how services will be described and recognized by these two groups. Second, the advisory committee would create a standardized record format to identify the most critical elements of information required for communicating the transaction and meeting payment requirements.
While each participant (hospital, physician office or insurance carrier) may keep its own proprietary computer system, the HCCC would create a separate, industry-governed system that everyone could plug into, and a common computer-record format of information that could be adapted by all users. The level of information needed internally by each of the parties for record-keeping is far more than whats needed between the parties to settle their obligations, one to the other.
The fact that health insurance carriers provide different levels of benefit payments to various hospitals and physicians groups is a contractual issue. In an automated back-office environment, computer algorithms can allow these different pricing terms to programmed and applied without human intervention.
While major industry participants will need to commit funding to staff and develop a centralized technology infrastructure, this funding is recoverable in the fees that are eventually charged to all users of the HCCC.
The value of an HCCC is that once you automate the matching and confirming of medical services and payment obligations between the parties, the cost savings and risk benefits can be significant. All users would benefit from the economies of scale associated with the critical mass of volume, which would help to drive down transaction costs.
If the total volume of transactions processed by the HCCC generated a profit at year-end, this profit could be returned to the end-users in the form of a rebate. (Of course, insurers that invest in creating an HCCC should be entitled to recover their investment over time, before a formal rebate program was started.)
Smaller hospitals or independent physician groups could be brought into this network, by allowing them to clear their information through the technology of larger participants or through third-party vendors.
Once captured in an automated environment, the HCCC could also leverage a type of automated accounting process used in financial services called netting, to aggregate and reduce the total number of healthcare payment obligations to one net settlement payment each day, with electronic documentation of the underlying transactions provided to users. In the healthcare industry, this would significantly streamline the process for healthcare insurance carriers, who currently distribute millions of individual checks to cover their obligations and for hospitals, who have to process these checks.
Creating a Health Care Clearing Corp. could be a rallying point for health insurance companies, their medical-service providers and major Fortune 500 companies, to finally achieve a level of standardized, centralized and automated processing that is so critical to our future.
In financial services, the ultimate beneficiary of automation has been the end investor, who in todays U.S. securities market enjoys an unparalleled level of reliability, greater choice and lower cost. In healthcare, the ultimate beneficiary will be patients, who can hopefully be assured that their standard of care and treatment will not be curtailed or compromised by the high cost of processing the paper.
Regardless of political party or persuasion, the answer to the rising tide of healthcare costs lies not within the stars, but in forcing greater efficiency out of the current system.