Getting it right the first time: the push is on for health-care insurers to use information technology to make claims processing more accurate and less costly. (Technology: Claims Processing).

Health-care insurers are under mounting pressure to adopt wider use of modern information technology in the claims process, an area where some estimate that outmoded processing and practicing standards cost the industry billions of dollars a year beyond the actual payment of claims.

Some of the pressure is coming from Washington, where a bill introduced in June 2002 by Sen. Edward Kennedy, D-Mass., awaits action by the Senate Committee on Health, Education, Labor and Pensions. Kennedy's Efficiency in Health Care (eHealth) Act of 2002 would require all health plans to process claims with an accuracy of greater than 99% and provide various information via the Internet or a toll-free number, including automated referrals and preauthorization.

If enacted, this legislation will have a "significant impact" on the health-care industry, said John Cochran, chief operating officer of Meridian Health Care Management, and leader of its claims processing division. "From an administrative and claims-processing standpoint, the largest impact is that, once and for all, legislation like the eHealth Act along with the already passed HIPAA mandates, will strive to establish some standards in terms of electronic transactions."

Compared to financial services or almost any other industry fairly advanced in deploying information technology, the health-care industry lags behind, Cochran said. "Such government mandates really set the transaction standards and a specific level of accuracy," he said. "They essentially create rules for everybody to play by."

A downside is that there's still some wiggle room within the proposed law. "There's going to have to be a lot of effort on the part of the industry to truly get the exacting common standards for universal transmission of claim information," he said. "But it's a big step forward."

On the day he introduced the eHealth bill, Kennedy told the National Press Club that there is a pressing need to reduce America's soaring health costs. One way to respond is to achieve huge savings by bringing the health-care system into the Information Age, he said.

"Processing a single transaction in health care can cost as much as $25," Kennedy said. "Banks and brokerages have cut their costs to less than a penny per transaction by using modern information technology. Administrative costs account for almost a third of the total health spending. That's more than $400 billion a year."

Through recent breakthroughs, Internet-based methods of bill processing can cut costs dramatically, Kennedy said. "This legislation will create stringent standards for financial transactions, such as billing and claims processing, that can only be met by adoption of the same kind of high volume, speedy, cost-efficient technology that has dramatically lowered administrative costs in other industries," he said.

Under the legislation, the new standards would be coupled with grants to health-care providers to help them upgrade their information technologies. "It is time to stop running a 21st century health-care system with outdated administrative technology," Kennedy said.

Reactions to the New Bill

The proposed legislation stirred a quick reaction in some quarters of the health-care industry. Ben Cutler, Fortis Health's president and chief executive officer, called Kennedy's bill "ridiculous" and labeled the numbers that Kennedy cited on administrative costs as "outrageous."

Kennedy said that from 1960 to 1980, administrative costs rose at about the same rate as overall health-care costs. Since 1980, however, administrative costs have risen 150% as fast as overall costs, and there is no end in sight to this growth, he said.

Physician groups have long said the single most difficult group to obtain payment from is Medicare, said Kerry Smith, director of government affairs for Fortis Health. "If he wants the private sector to be more efficient, show us the way with Medicare."

The federal government spends about 40% of the estimated $1.5 trillion spent on health care in the United States, said Helen Darling, president of the Washington Business Group on Health, which represents the large employers' perspective on national health policy issues. With that level of spending comes control, and the federal government has had control since Medicare was signed into law in 1965, Darling said. Medicare covers all elderly people and the partially and totally disabled--groups that are very high users of the healthcare system.

If it's possible to achieve higher efficiency, the federal government would have done so by now, Darling said. "It didn't happen when life was a lot simpler. Passing a law doesn't make it happen," she said.

Cutler pointed out that through the Health Insurance Portability and Accountability Act of 1996, health insurers already are using technology for such things as patient privacy. "There's a lot already underfoot that's expected to take place in the next three to five years," he said.

Making Technology Available

Whatever the fate of the eHealth bill, some health-care organizations are already ahead of the curve in bringing claims online, achieving high turn-around time and greater accuracy. For example, Meridian Health Care Management, Woodland Hills, Calif., has made its claims processing technology available as an application service provider, allowing companies to have access to sophisticated claims-processing technology, but still retaining control of this component in house.

Meridian has worked with several health plans, including health maintenance organization giant Kaiser Permanente. The health insurer has a network model in Colorado Springs, Colo., that Meridian has assisted by Web-enabling the claims-processing system. Kaiser Permanente's Colorado region chose to outsource its information technology needs for its network model rather than make an investment in the technology to receive and process claims, and to perform data analytics.

Meridian came in to help three years ago and continues to provide referral/authorization management and claims adjudication services, which use the Web-enabled PRIMEridian DIRECT product, Cochran said. This Web-based portal allows providers in the network to conduct administrative transactions, such as referrals, and to review benefits and eligibility. Providers can do electronic claims submissions through that corridor as well.

Meridian's work with Kaiser meant supplying a combination of technology and claims processing expertise, Cochran said. Through this outsourcing relationship, Kaiser was able to access the technology without the large upfront capital investment, he said.

The result was a remarkable change in performance. Cochran said that Kaiser and its network providers continue to be impressed with Meridian's level of claims accuracy and rapid turnaround time. "The availability of claims data also allowed Kaiser to make significant interventions in the design of their network, which resulted in a significant financial impact as well."

In Meridian's own case, it has made "a large investment" in applying technology to the administrative aspects of health-care claims processing, Cochran said.

Meridian's claims-days receipt on hand averages fewer than seven days, and 40% of its claim volume is electronic, received either through PRIM Eridian DIRECT or through a claims clearinghouse.

Meridian also deploys different pieces of technology, including optical character recognition technology for data capture on claims that it would not receive electronically, as well as automated batch processing to handle as many of those claims for adjudication as possible on an automated basis. "Some of our best clients adjudicate about 60% to 65% of their claims on an automated basis," Cochran said.

Currently, Meridian is in the testing stage for its next generation of claims systems. In an era when claims processing is becoming increasingly complex with consumer-driven initiatives, such as tiered hospital and provider benefits, the new systems will further enable the automation of complex transactions, Cochran said.

Like similar organizations, Meridian is going through a transition, moving large numbers of moderately skilled claims handlers to system configuration, system maintenance and auditing roles. "It causes a transformation as you become more automated," he said. "But that is the way we see to improve performance. You cannot entirely eliminate the human error component, but you can automate increasingly complex transactions to reduce that error rate even further."

Reasonable Expectations

As health-care claims become more complex, how much accuracy is realistically possible in processing them? After all, industry estimates say health-care payors handle about 4 billion claims a year and are challenged to process and pay that high volume of claims in a timely and accurate fashion.

Many organizations quote a 98% or 99% accuracy rate, "but a reasonable survey of the provider community will tell you that can't be right," Cochran said.

His educated guess is that most of these organizations fall into the 95% to 96% accuracy range. That translates to a "very substantial amount of money" for errors, he added. "Whether it's overpayment or underpayment, it's incorrect payment and that's having an effect on reception, service and cost because claims are being reworked and providers have to contest them," Cochran said. "Typically, the industry has gotten a good 4% or 5% away from perfection on a good day."

Only further automation will make an improvement in accuracy, he noted. Most mistakes are manual errors committed during data entry. "So you have to manage it carefully because a highly automated process can also achieve results in the extreme opposite end-very quickly paying a lot of claims wrong very efficiently," Cochran said.

Meridian's process is not totally automated, but is about as automated as possible, he said. The company measures for financial accuracy--overpayments and underpayments--and its standard is a 99% accuracy level. A similar accuracy rate applies to administrative accuracy; meaning the correct capturing of all data, he said.

One of the cost-saving ideas floated lately is the implementation of real-time claims processing, along the lines of an ATM transaction. That's what his organization is heading for, Cochran said, but added that "nobody's really thoroughly there yet."

With the legacy application environment still out there, it will take a lot of remediation for the industry to move in that direction, he added.

"It's presenting a sort of Y2K era, presenting the health-care industry with a significant IT investment challenge," Cochran said.

Insurers Join Together

But in November 2000, a new company called MedUnite was created with just that vision in mind. The company represents seven health insurers, including Aetna Inc., Anthem Inc., Cigna Corp., Health Net, Oxford Health Plans Inc., PacifiCare Health Systems Inc. and WellPoint Health Networks Inc.

According to its Web site, San Diego-based MedUnite wants to eliminate "billions of dollars in provider and health-plan costs by developing and operating a standardized, all insurer, Internet-enabled connectivity system to handle claims processing, referrals and authorizations, eligibility, verification, formulary compliance and rapid electronic payments."

In short, the MedUnite transaction system aims at streamlining physicians' back-office functions in order to reduce costs per claim, while improving accuracy rates and processing times. The basic idea is to get doctors to use computers and the Internet instead of telephones and paper in submitting patients' claims.

But, as reported recently in The New York Times, MedUnite has run into financial problems because it has not yet signed up enough doctors for its service. Most of the sponsoring companies have written down all or most of their investment, but maintain that MedUnite, while challenged, is still on track, the newspaper said.

In introducing his legislation, Kennedy called health care one of the least efficient industries in the United States. Cochran agrees. "I've spent 25 years in this industry and at times it's a little embarrassing how slow the industry has been," he said. "In adopting technology, I think the fragmented nature of this industry has contributed to that. Also, the nature of capital accumulation in this industry is different from many others--it hasn't promoted long-term investment in information technology the way it would in the financial-services industry."

That's why he thinks the legislative changes are necessary to prod the industry into achieving what it really should be achieving on its own. "This is a migration towards that," he said. "There are a lot of complements that have to come together-the reimbursement on the back end by the providers obviously has to become electronic; the documentation has to become electronic."

But a big issue still looms: the need for capital investment to provide the kind of technology that's going to be necessary to meet these goals.

That's why Meridian sees the ASP delivery for technology as so important for many organizations to make this transition. "It's a painful transition, but ultimately we see it as very beneficial to the industry;' Cochran said. He predicts that the next five years will prove very difficult for many of these companies as they move to embrace the latest technology in claims processing. But acquiring access to proven systems without costly upfront capital outlays will aid this transition, he said.

RELATED ARTICLE: System Boosts P/C Claims Processing; InsureWorx

Introduced in June 2002, InsureWorx is the insurance specifics component library of World Group Consulting Inc.'s Worxfamily. It's a very sophisticated deployment of J2EE, said Ron Lang, director of insurance solutions at WorldGroup Consulting. J2EE is Sun Microsystems' Java 2 Platform, Enterprise Edition. With J2EE, Sun established the standards for large multitier server applications written in the Java programming language.

InsureWorx, which is designed for mid-sized to large commercial lines and group insurance carriers, has a multiline, multicompany, multistate claims processing capability.

"That means you can process multiline claims on a single platform," Lang said. For example, short-term disability claims, long-term disability claims and workers' compensation can all be processed on the same platform. "That's unique in the market, especially combined with the multicompany capability where a company has multiple entities in a particular state," Lang said. "In the past, people would have to be signing on and off systems, or the system would be partitioned on their mainframe. With InsureWorx, we're able to easily segregate those businesses."

All other things being equal, claims personnel using this system can process claims without needing to know which insurance company they are working with, Lang said. Before, they would receive a claim and have to look it up on the system to see which insurer wrote that particular policy. After this presorting, they might have to separate their work according to which claims examiners worked with that company, or what day they ran each company's claims, he said.

Besides increasing efficiency in claims processing, this system has benefits for remote offices and field examiners. "The user interface is a Web browser, enabling anyone who has a standard Web browser and proper security access to interact with the system," Lang said. "The system takes away a lot of the barriers that have existed when companies were trying to maintain software in multiple locations, and having people out in the field trying to either synch up or be able to use the exact system and version as the home office. So the anytime, anywhere computing capability--the promise that's been around since the introduction of the Internet--is actually now available."

The cost savings in claims processing relating to anytime-anywhere computing will depend on the particular environment in which this system is deployed, Lang said. "If you have a claims adjudication process, where people out in the field examine cars or investigate homeowner's damage, then you have significantly more cost advantage than if you're processing term-life claims where examiners are in an office, yet need to be presented with a death certificate and a benefits statement to be able to adjudicate the claim," he said.

Especially for Auto Claims: ProcessClaims

ProcessClaims is a provider of Web-based software that seeks to help carriers better manage the auto claims adjustment process. Initially, the core of the software system was the ability to take estimates from all major estimating systems and translate them into one standard format. Over the past year, ProcessClaims has built on that foundation with a platform that allows it to offer customized programs that integrate with a company's existing systems while automating workflow based on the company's unique business rules. Clients include Farmers and American International Group Inc.

The ProcessClaims staff is "a pretty diverse team that has worked at other technology providers in the property/casualty industry," said Chuck Rich, executive vice president of sales and marketing. Chief Executive Officer Paul Farber came over from 21st Century Insurance Co. Others have worked in insurance, too, as well as the collision repair industry, and at technology and consulting firms.

ProcessClaims got started because "we were hearing a lot of pain being expressed in the areas of managing the materials-damage process," Rich said. The problem went back to the early 1990s, when direct repair programs were implemented. These brought a lot of efficiency to the marketplace; rather than having to send out a field appraiser after a collision, insurance companies set up preferred relationships with collision repair shops, referring policyholders to the shops where work was done at a preferred set of rates and direct referrals received preferred service.

"It really sped up the process so the client didn't have to wait three or four days for the appraiser to come out, write the estimate, and then go through the negotiation phase with the shop," Rich said. "It also eliminated that cost associated with having to send out the field appraiser."

But a downside soon developed. Different insurers began to roll out these programs and, to make the communication work between the carriers and collision repair shops, the insurers basically had to require the shops to buy the same estimating software that the companies had to calculate damage to the vehicle and the estimate for fixing the car. The systems varied according to the company, Rich added.

The other big problem: Communicating with trading partners out in the field was difficult and very much a manual process, because all the information was tied up in these proprietary systems.

To address these problems, ProcessClaims created a frilly Web-based material-damage claims system that it says allows insurers to eliminate many redundant systems by letting the marketplace--their trading partners--choose whatever system works best for them based on price, function, service and bottom-line value, Rich said. Now, any carrier can communicate with any collision repair shop and independent appraiser. About 30% of collision claims are handled by independent appraisers, but communicating with them was completely manual in the past because they weren't able to buy all the estimating systems, he said.

"We were able to automate that independent appraiser portion of insurers' business and give them information so they could effectively manage who was doing a good job for them in controlling costs and doing things in an expedited manner, which obviously affects cycle time, rental time cost, storage cost and customer satisfaction," Rich said.

Rich said clients are seeing an average severity reduction of 27%, and an average cycle-time reduction of 28% per claim.

Going Paperless in Personal Lines: Plymouth Rock 

Plymouth Rock Assurance Corp. has implemented an imaging system that has had a significant impact on its claims operation, said Francis P. Arment, vice president, claims, for the medium-sized company that sells auto insurance in Connecticut and Massachusetts. The imaging system is expected to be fully integrated with Plymouth Rock's claims system by Spring 2003, he said.

"The biggest issue we face today is the claim system we have now--it's an old mainframe kind of environment," he said. "So we have a claims system that is probably 25 years old. Functionally, it's still an excellent system. The problem is it's impossible to navigate it, it takes a very long time to train people on it, and we can't really get data from it that allows us to manage our operation the way we would like to."

In November 2001, the company brought in an imaging system that has resulted in a virtually paperless environment. "Our mail comes in, it gets scanned in, it gets indexed when it needs to be indexed, it goes directly to the file handler, who then disposes or deals with that particular piece of mail, depending on what it is--generally in the same day," Arment said.

Employees no longer have to match mail or maintain paper files. They also have instant access to all files so that when a customer or agent telephones, the adjuster, supervisor, manager, or anyone else fielding the call can access that file immediately and usually answer the question on the spot. "That's been a huge improvement for us," Arment said. "It improves our ability to service our customers and our agents, and has actually made us more efficient internally We've been able to reduce our staff in some areas!'

In addition, all faxes now come into the company through the image system and are routed directly to the recipient. Staff also have the ability to send faxes from their desks. Plymouth Rock now sends files electronically to its defense counsel, meaning there's no need to copy the entire file and overnight it. "It's all done virtually with the push of a mouse button--it's that simple," Arment said.

Arment is awaiting the results of a detailed study to determine exactly what the cost benefits of the new system are to the company. But all indications so far are that a significant amount of money is being saved.

"Not only are there hard dollar savings, but there are a number of areas where you have what I call soft savings--things you really can't measure," he said. One example: Plymouth Rock monitors telephone calls, keeping track of the number of calls that are constantly in queue, how quickly they're answered and how long the average telephone call takes.

"What we've found since we've had imaging is the number of calls we have coming in to our claims customer service area has decreased significantly," Arment said. "But what we also discovered was the average length of our telephone calls has increased, which kind of puzzled us. So we went to our people and asked them why this was happening."

The answer was simple: when claims representatives now take a call, they are able to access the file immediately on their computer screens. Before, they had to hang up, go get the file, then return to their desks to call the customer and attempt to answer the question. "That alone is a huge time saver and, of course, it's saving us a ton of money when you add it all up," Arment said.

Imaging is only one aspect of technological change at Plymouth Rock. The company also is introducing a new claims system, which in addition to giving it more complete data, has better business rules built into the system, Arment said. This will make it easier for the company's system to interface with other systems, and give it management tools to improve efficiency and service, he said. The latter is very important to insurers in Massachusetts because their industry is heavily regulated and rates for personal auto are set by the state. Therefore, companies can't compete so much on price, so they try to distinguish themselves through better claims, customer and agency service.