Many hospitals, which still receive private health insurance payments largely by paper checks, say they could save money and time by shifting to electronic payments, according to a survey released by PNC Financial Services Group Inc.
A think tank said that hospitals, which already receive a substantial number of automated clearing house payments from government agencies, could save money by turning their payment processing over to bank lockboxes.
Bankers, however, caution that such a shift would be complex.
In the survey, released last week, half of the hospital executives said their organizations could save between $1 million and $10 million a year by improving their billing and payment systems. Forty percent of insurance executives said the same thing.
The Boston research firm Chadwick Martin Bailey Inc. conducted the telephone survey of 150 health care and insurance executives for PNC from December through February.
For the Pittsburgh banking company, the survey points to a market opportunity.
Not only is it a large lockbox operator, but it also built an electronic remittance system that the Department of Veterans Affairs began using in 2003 to pay the doctors and hospitals that serve veterans.
Paula K. Fryland, a senior vice president at PNC and the managing director of its national health care group, said the survey’s findings validated her company’s medical payments strategy.
“We’re always interested in bringing new customers into PNC,” Ms. Fryland said. “This is all part of what we do every day.”
But developing new business was not the point of the survey, she said. “This enabled us to understand the gaps and the barriers that exist in the system today.”
The survey shows that the entire banking industry has an opportunity to help rein in medical costs that affect the entire economy, she said.
Among insurers, 80% said the main barrier to automation is the cost of infrastructure, Ms. Fryland said. Their current systems typically print remittance documents and checks as part of the claim-adjudication process, while electronic fund transfers are done separately through the corporate treasury.
These practices are difficult to change, she said. “Each of these companies has invested millions of dollars at this point to enable them to pay claims. You could be asking them to scrap that and adopt something else, which could be very costly.”
According to the Medical Banking Project, a Franklin, Tenn., think tank, 95% of commercial insurance payments to hospitals are made by check, and the rest are made electronically.
John Casillas, the think tank’s founder, said the federal government is far ahead of private insurers in remitting funds electronically to hospitals, mainly because the federal Medicare program, which provides 40% of hospital revenue, has enough clout to mandate that providers accept electronic payments.
The paper-based system that insurers and hospitals use now is highly inefficient, he said. “If we implement a streamlined payment processing system, we can save over $35 billion annually in health-care payment processing costs alone.”
But trying to shift the diverse and fragmented insurance industry, with its hundreds of participants, to a standardized electronic format is “a chicken and egg problem,” Mr. Casillas said.
That complexity could open doors to banks, which should play a pivotal role in accelerating the transition to electronic payments, he said. For example, bank lockbox sites could use imaging technology to scan insurers’ “explanations of benefits” forms and extract the key data that the hospitals use to post payments to patient accounts, Mr. Casillas said.
“Lockbox provides a fulcrum,” he said. “They have the transactional architecture. They have the systems. They have the people and the business processes to substantially change the process how health care processes their payments.”
Bankers and processors, however, warn that the health care industry’s third-party payment systems are inherently complex and will be hard to change.
Catherine Warren, the health care industry strategist in Bank of America Corp.’s global treasury services unit, said that different insurers put information in different places on their explanation-of-benefits forms, so optical scanning must have computer intelligence to send the proper data to the hospital.
“It’s relatively new technology that allows the scanning of the EOB information,” Ms. Warren said.
James W. Cox, the group president of the Fiserv Health unit of Fiserv Inc. of Brookfield, Wis., also said the sheer number of providers and payers makes it difficult for people to decide on a single format that would work for all.
However, he agreed that banks should be more involved in health-care payment processing.
“We have at least the beginnings of demand on both sides,” he said. “We think there is a large role for financial institutions to play, a role where information is available to facilitate these payments.”
Katy Henrickson, a senior analyst in the health care and life sciences practice at Forrester Research Inc., said insurers and banks have different strengths.
“Health plans are really good at doing transactions flexibly,” because a hospital stay can involve many different issues, but the transactions are prone to errors, she said. “Banks are very accurate, but not very flexible.”
A persistent lack of standards, antiquated systems, and changes in the market all conspire to frustrate reform efforts, Ms. Henrickson said. “It is a tough nut to crack. It seems like health care always is.”
