Understanding the Problem of Claim Processing Waste

A big-picture look at the problems, answers, and strategies that could help.

Greg Burgess, founder and head of product at Burgess, recently talked with HFMA’s Payment & Reimbursement Forum about the scale, causes, and solutions for waste in claims processing across healthcare. He shared his big-picture view and strategies that he thinks will shape a future with far fewer wasted dollars.

How big a problem is waste in claims processing in terms of both uncollected dollars and the cost of employee time spent on collections?

Greg Burgess: The size of the waste problem on the payer side is enormous. Research from the American Medical Association (AMA) tells us that payers spend $210 billion on claims processing each year, and companies mishandle one in five claims on the first try (Stern, A., “US doctors say 1 in 5 insurance claims mishandled,” Reuters. June 15, 2010). AMA researchers concluded that the industry would save $15.5 billion a year if companies processed claims correctly the first time. The Harvard Business Review determined that if health insurance administration were simplified to resemble other service industries, it would save $130 billion (Sahni, N., Chigurupati, A., Kocher, et al., “How the U.S. Can Reduce Waste in Health Care Spending by $1 Trillion,”Harvard Business Review, Oct. 13, 2015).

These costs are passed along to customers, who see 17.8 percent of their premiums going toward operating costs (“Where Does Your Premium Dollar Go?” America’s Health Insurance Plans (AHIP) Center for Policy and Research. March 2, 2017).  What is the total impact on hospitals and healthcare systems, for whom 20 percent of claims require more than one attempt? Payers either return a claim seeking clarification or reach a payment decision that hospitals need to appeal in one in five of the thousands of cases a hospital handles each year. When you combine that wasted time with the time billing staff and doctors spend on queries and edits before submitting a claim, as well as the unpaid claims, hospitals and health systems’ total waste in claims processing is very costly as well.

What causes waste on that scale?

Burgess: The problem is systemic. Healthcare providers tell us they spend an inordinate amount of time and money on billing and collections because the process involves so many disparate steps. Physicians code for their diagnoses and services, but in complex or non-routine cases, they may not know whether a payer will cover any or all of the claim. That can lead to over-billing just to make sure they get some payment.

In the revenue cycle department, staff file claims for patients with all payers and product lines, each with different rules for payment. Relying on their knowledge of the best practices for coding for each of those products, billing staff check physicians’ claims for errors and, if necessary, send a claim back for corrections before submitting it. Payers receive the claim and pay the hospital for all or part of the claim or deny it, at which point the billing department continues to work toward getting payment, even if it takes multiple tries. If hospitals or physicians cannot be paid fairly and expediently, they are often willing to settle for less money to close out a claim.  

What steps can hospitals and health systems take to reduce waste?

Burgess: Despite the level of waste, we have not seen a government incentive around payment integration in the way we did with electronic medical records. Hospitals and healthcare systems have many challenges. For example, many have legacy IT systems for billing and internal physician communications.

But even more importantly, hospitals cannot solve a problem of which they are only one part. All of the entities involved—physicians, hospitals, and payers—need to be tied to part of the same efficient system to regain wasted dollars. Hospitals and health systems build and train strong coding teams versed in technologies to help them submit claims correctly and maximize payments. The process is administratively burdensome.

The current business model can be improved, but it is not sufficient to patch together hundreds of different systems. Technology has enabled us to submit claims electronically and get feedback, but it has not managed waste. We need to build a better ecosphere. If we combine fragmented elements such as pricing, contracts, quality data, and claims requirements in a single place, hospitals and physicians can be compliant and accurately, efficiently paid. Even a small improvement in connectivity and transparency could save a few dollars per claim, which adds up very quickly.

Can reducing waste help providers prepare for performance-based payment?

Burgess: The Affordable Care Act has driven a push toward payment based on performance, which includes a mandate to spend a large proportion of healthcare dollars directly on medical care. The margins are smaller. Everyone needs to bring down overall costs and become more efficient. The current inefficiency of claims processing is unsustainable.

To succeed, pay-per-performance needs to be operationalized, from physicians to collections. Reorganizing data systems is an enormous project for a large hospital, but I think leaders will be willing to take a transformative leap because of the scale and impact of the current system’s waste. It certainly can be done—healthcare is not the only industry that’s complex. In the future, I can see a claims system streamlined enough to allow patients to use their health plans to pay for services at the point of care—a model that could save billions of dollars.

Erin Murphy is a freelance writer based in the Philadelphia area.

Interviewed for this article:

Greg Burgess, founder and head of product, Burgess.