The US healthcare payments system is complex, with payments flowing through a web of players, creating inefficiencies that undermine providers' revenue and drive up operating costs. While the typical healthcare transaction starts with the patient, the provider, payer, and often one or more third-party revenue cycle management (RCM) vendors all have a role before a medical bill is paid. The network of players involved in completing a healthcare transaction bogs down providers' administrative operations: Hospital staff often have to manually verify insurance coverage, send and receive payments, and inquire about the status of a claim. As a result, it can take longer than a month for providers to receive payment for providing care.
Moreover, the number of healthcare transactions that providers processed manually increased 55% in 2017, per a 2018 CAQH report. Manual transactions cost providers more and take longer to process than electronic transactions, which places a greater burden on administrative staff. And healthcare lags far behind industries like banking and retail when it comes to billing: More than 75% of healthcare providers still bill patients using paper-based methods, according to an MGMA and Navicure survey. As a result, the healthcare provider payment collection landscape is ripe for disruption and a major tech overhaul: US health systems could accrue nearly $10 billion in annual savings by automating claims processing.
California-based Lucile Packard Children's Hospital (LPHC), a 1,000-physician children's hospital in the Stanford Children's Health (SCH) network, recently revamped its claims collection process by implementing RCM software from healthcare payment solutions provider Waystar. Waystar shared exclusive data and insights from SCH Director of Professional Revenue Cycle Andrew Ray with Business Insider Intelligence that illustrate why LPHC's claims system overhaul was successful and if other providers could replicate its approach.
Challenge
LCPH's claims collection process had inflated costs and led to delayed reimbursement. LCPH relied on multiple third-party vendors to process its claims, which led to higher than necessary costs. And inadequate claims management software forced LPCH staff to submit approximately 1,000 paper claims daily, causing lags in reimbursement, according to Ray: LPCH only collected about 70% of its payments within 45 days of the date of care. Further, manually submitting claims ate up staff time and may have led to errors, forcing LPCH to rework and resubmit claims later on.
Strategy
LPCH leaned on Waystar's RCM software to bring claims management in-house and automate much of its claims process. LPCH integrated Waystar's software with its existing electronic health record system from Epic. As a result, LPCH was able to largely automate its claims management process, including payment posting, or the process of reconciling and posting out-of-pocket and payer payments in a patient's billing account. Waystar's cloud-based tech also allows LPCH to customize its reimbursement collection process, as staff can add edits, rules, and fields for specialized claims that would've previously required LPCH to submit paper claims. Ray said California's complex insurance market and LPHC's unique claims processing needs — LPHC is one of the only US health systems focused exclusively on pediatrics and maternal care — meant that LPHC needed a highly customizable solution.
Result
LCPH has reduced its annual cost of collecting healthcare payments by $7 million since implementing Waystar. LPCH's savings stemmed largely from cutting its volume of paper claims by 70%, which freed up hospital staff and increased operational efficiencies without needing to hire any additional full-time employees. Further, LPCH now receives nearly 90% of its reimbursement within 45 days — a 20% jump from when the health system outsourced its claims management process. Waystar's software also catches errors or missing information before LPCH submits claims, reducing the likelihood LPCH has to resubmit claims that payers declined: Nine percent of US hospitals' medical claims were initially denied by payers in 2016, and reworking each denial costs providers roughly $118 per claim in appeals-related administrative costs, per the most recent data from Change Healthcare.
Impact
LPCH's results highlight the benefits of automating claims processing — but sticking with third-party vendors is likely a better approach for some organizations. While LPCH was able to adopt Waystar's system without hiring additional full-time employees, other practices may struggle to transition as seamlessly. RCM needs are likely highly variable across provider organizations, with patient volume, existing IT staff, and administrative budgets determining whether outsourcing claims processing is financially prudent. For example, a smaller practice may struggle to replicate LPCH's success without bringing on additional IT expertise, in which case outsourcing reimbursement collection may be a cheaper solution. Moreover, LPCH submitted a high volume of paper claims in part due to the specialized care it delivers, a pain point other health systems may not need to address. Finally, while Waystar didn't reveal the up-front cost of adopting its software, it's likely a costly implementation that could price out smaller provider organizations.
Still, the savings potential of automating claims processing and the digitization of healthcare should urge providers to take a hard look at their payment processes. Health systems' potential savings opportunity from automated claims processing has increased the past two years, due largely to an uptick in online portal uses, as providers still have to manually process claims that come through online portals. As a result, providers should explore ways to integrate online portals with automated claims processing to alleviate the costs associated with manually processing claims. Providers could also add additional payment options — like allowing patients to prepay online or use digital wallets at the point of care — to expedite collection times without implementing a major software change.
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