Applying healthcare IT to save billions of dollars per year

U.S. healthcare reform was signed into law in March 2010. While politicians continue to argue over how to fund the reforms, various IT solutions are popping up to reduce fraud and create efficiencies that could save billions of dollars a year throughout the system.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act -- better known as "healthcare reform." Everything about this law has been controversial, not the least of which is how much it will ultimately cost, and who will pay those costs.

While actual costs are yet to be determined, there is one thing that is certain; healthcare spending in the United States cannot be sustained at its present rate. It represented 17.6% of the country's gross domestic product in 2009, and between 2007 and 2017, government economists expect U.S. healthcare spending to nearly double, from about $2.2 trillion to $4.3 trillion. What's more, healthcare spending now accounts for approximately 30% of total state budgets.

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With such staggering numbers being thrown about, you can be sure that a significant chunk of change can be attributed to fraud, waste and inefficiencies. Healthcare industry experts estimate that fraud, waste and other forms of payment abuse account for excess expenditures between $200 billion and $600 billion annually. Another 15% to 20% of total expenditures on U.S. healthcare are attributed to the administrative processes of a highly inefficient payment system that lacks automation. As many as 60% of the payment transactions are still processed manually.

Our federal and state governments would have little problem paying for the new healthcare law if the industry could find ways to recover a significant portion of the funds tied up in these two troublesome areas. Fortunately, a number of companies are looking at innovative ways to apply IT to fight abuse and reduce administrative costs.

In April, two leaders in their respective fields announced a partnership designed to attack the fraud problem. Emdeon is a leader in healthcare revenue and payment cycle management. The company provides the systems necessary to process the bills for more than 1,200 payers and providers. FICO is a leader in analytics and decision management. Most people know FICO as the company that provides their personal credit score.

FICO helped the credit card industry reduce fraud expenses to about seven cents per $100. Now FICO and Emdeon are jointly targeting the healthcare payments arena, where fraud and waste currently accounts for about $10 per $100 spent. Emdeon will now include the FICO Insurance Fraud Manager software in its healthcare revenue and payment cycle transaction processing network. This will help health insurers move to a prepayment, preadjudication review for fraud detection and prevention.

For instance, here's a real-life example of how many small "hidden" abuses can be spotted in a much broader picture and stopped. A doctor's office routinely uses a certain lab to process patients' blood work. The lab includes a nominal $2 charge for interpreting the results of the tests on its invoice to be paid by an insurance company. Ordinarily the insurance company would simply pay the fee as presented. However, what the insurance company doesn't know is that the task of interpreting the test results is actually done by the doctor who ordered the lab work. The lab is adding an unnecessary fee to its bill. Using data from across Emdeon's payment spectrum, FICO's analytics would flag this aberration before the invoice is paid.

Emdeon and FICO did a pilot study that applied their new solution to claims using de-identified data in just two states. They were able to identify millions of dollars worth of claims indicating fraud or abuse. The broader rollout of the joint solutions across Emdeon's customer base should yield hundreds of millions of dollars in cost savings a year.

Other healthcare IT solution providers are looking at ways to automate the terribly inefficient manual processes of adjudicating and paying claims. For example, in a study for the State of Vermont, IBM and First Data Corporation, a leader in the payments processing space, worked together to explore options for a real-time system for verifying eligibility and adjudicating claims (i.e., determining payment to the healthcare provider according to the terms of the insurance policy). Such a system could eliminate a huge portion of the costly manual processing of insurance claims and make the cost of healthcare more apparent.

One reason healthcare is so expensive is that no one really knows what it costs. When an insured patient sees his doctor today, the patient is treated and leaves the office without knowing precisely what that service will ultimately cost. Using a real-time verification and adjudication system, the patient would know before he leaves the office exactly what will be paid by the insurance company, and what is his responsibility to pay. What's more, the payments to the provider could be collected, or at least arranged, at the time of service and not weeks or months later. This could reduce the administrative burden of processing and settling payments that currently costs an estimated $300 billion a year. (For information on how such a system could work, see here.)

Reducing waste in our healthcare system can be accomplished by applying IT systems and best practices that are available today. While the politicians continue to fight over who pays for expanded healthcare in the United States, technologists can be uncovering the hidden sources of funds that are locked in our current inefficient and ineffective processes.

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