For many health insurers, enhancement of the claims process is overdue. According to the American Medical Association's (AMA) fourth annual National Health Insurer Report Card released in 2011, the overall rate of inaccurate claims payments increased from the previous year among leading commercial health insurers.

Claims-processing errors by health insurance firms cost billions of dollars and frustrate patients and physicians, the AMA says. The report findings show that commercial health insurers had an average claims-processing error rate of 19.3 percent, an increase of 2 percent compared with the prior year.

The increase in overall inaccuracy represented an extra $3.6 million in erroneous claims payments, and added an estimated $1.5 billion in unnecessary administrative costs to the health system. The AMA estimates that eliminating health insurer claims payment errors would save $17 billion.

While claims automation might not totally eliminate claims errors, it does reduce them and helps insurers cut costs, experts say. And more health insurance firms are deploying technology to automate processes.

"Based on conversations I've had with people, whether it's from the vendor or health plan communities, this is a growing concern in health insurance and carriers are actively looking to change their legacy platforms and implement these solutions for a better, more streamline approach," says Kunal Pandya, senior analyst, Health Insurance and Payments, at research and advisory firm Aite Group.

"The top players are already doing a great job; they've been looking at claims automation to bring costs down and to make the processing of claims more effective," Pandya says. "The tier-two and three players are still getting to know these systems better or are in the process" of implementing them.

For many insurers, claims are still being processed largely on a manual basis, Pandya says, and those firms should be eager not only to reduce errors but reduce the cost of processing.

"Claims transactions are very complex from origination to payment," Pandya says. "The processing involves multiple financial and non-financial transactions that go into processing one claim."

Manual processes might cost about $9 per claim; whereas it's less than $1 for electronic processing, Pandya says. Those costs include staff resources, postage and other factors, he says.

Claims Excellence

Blue Shield of California in San Francisco has developed a program called the Partnership in Operational Excellence and Transparency (POET) to help more than 180 hospitals in its network enhance the claims process.

At the heart of POET is a Web-based dashboard provided by MedeAnalytics Inc. that displays a rolling 36 months of finalized claims data, including details on cycle time, submission types, denial reasons and appeals.

The dashboard, which is designed to report key performance indicators customized for each provider, provides the transparency necessary for Blue Shield and its providers to have open dialogue, identify the root cause of issues, and collaborate on workflow improvements, says Rob Geyer, SVP for customer operations at Blue Shield of California.

Blue Shield piloted the POET program with the MedeAnalytics tool in January 2008 and launched it later that year.

Before using the MedeAnalytics technology, "we were ill-equipped to quickly respond to ad-hoc requests from hospitals for claims data," Geyer says. "Without easy access to operational data, claims and network management representatives were spending many hours manually compiling data upon request, draining administrative resources."

This inefficiency and lack of operational insight left the organization unable to effectively address claim settlement demands, and hurt its ability to negotiate competitive rates during contract talks, Geyer says.

Between 2008 and 2011, Blue Shield contracted hospitals have seen their claim denials decrease from 23 to 17 percent, their electronic data interchange (EDI) submission rate increase from 85 to 90 percent, and the claim cycle time decrease from 31.9 days to 28.1 days, Geyer says.

In 2010, the Hospital Association of Southern California (HASC) saw the value of POET and invited Blue Shield to co-facilitate a workgroup to develop industry best practices in revenue cycle management, Geyer says. By the end of that year, hospitals that participated in the workgroup and made changes in billing practices sped up the time from patient discharge to payer claim receipt by up to five days.

Blue Shield of California in November 2009 began using a product called NetworX Pricer from TriZetto Group Inc. to support the pricing and automation of complex contracts and claims processing for hospitals, ambulatory surgery centers and dialysis centers for PPO and HMO claims.

"NetworX Pricer improves our auto-adjudication rate and auto-pricing rate," Geyer says. In addition to conducting extensive testing to ensure that NetworX Pricer performed efficiently, Blue Shield worked with providers to make sure the terms and methodology used in contracts could be supported by Pricer.

"One of the major growth opportunities is educating providers on Blue Shield policy and business rules, including EDI billing requirements," Geyer says. "With high-cost claims, providers who follow our clinical guidelines and obtain prior authorizations on services can submit most claims via EDI with no documentation, which is the best way to ensure quick turnaround."

Before NetworX Pricer, Blue Shield used an internally created tool for pricing outpatient hospital claims. "While the tool serviced its original purpose of improving quality by auto pricing some of the less complex hospital contracts and services, it did not fully automate pricing, and claims still required manual intervention to be processed," Geyer says.

Since implementing NetworX Pricer, Blue Shield has seen a 30 percent increase in its automated claims processing, "which means hospitals' claims are getting processed faster," Geyer says.

Cleaner Data

Arkansas Blue Cross Blue Shield and Pinnacle Business Solutions Inc. also use various platforms to help with claims automation.

The primary system is its provider Web portal, known as Advanced Health Information Network (AHIN). This is an in-house developed application built on the AIX platform with a range of capabilities to give health care providers information at the point of service, says David Bailey, EDI operations manager.

"Eligibility, claims corrections, claims status and financial data are just some of the solutions within AHIN," Bailey says. "By providing physicians with better health information data, the claims they submit are cleaner claims, thus improving the claims process tremendously."

The Arkansas company began working with providers on the platform in 1995, Bailey says. "The reasons for deploying this type of system were clear: reduce operational cost and provide physicians the means and solutions to better manage health information within their organizations," he says. "There really wasn't anything in place comparable to the AHIN solution at that time."

Physicians had to contact customer service to discuss rejected claims, eligibility inquiries, or claims statuses, Bailey says. "Some of the shortcomings we learned about through the implementation of AHIN dealt with data loads, eligibility files, and member records," he says.

The AHIN platform has allowed Arkansas Blue Cross and Blue Shield to make significant improvements with data loads, eligibility lookups and member records, Bailey adds. "Over the years we've been able to clean up this data, which has resulted in a better process for all parties involved."

The company has seen significant cost reductions in various departments because of the portal, as well as an increase in accurate claims that allow for faster payments to providers. About 97 percent of the company's providers throughout Arkansas are using AHIN, Bailey says.

Another insurer that's benefiting from claims automation, Harvard Pilgrim Health Care, implemented the Oracle Health Insurance (OHI) claims application in 2011. By implementing the technology, the firm automates claims processes that had required manual intervention.

"We expect that by implementing OHI claims we will realize improvements in claims processing automation, accuracy and reporting," says Natalie Cunningham, director of technology operations and programs at Harvard Pilgrim Health Care.

The application is expected to process about one million claims transactions each month and increase auto-adjudication rates for Harvard Pilgrim members throughout New England. This will lead to faster, more automated claims processing and reduced operating expenses.

Examples of enhanced functionality the firm has already seen with OHI include automated late charge detection, automated COB calculation, automated interim billing detection, ability to define case/condition relationships across claims, and flexibility to determine order of calculation for member liabilities.

"It is still a bit early to quantify the operational impacts of implementing OHI claims; only a small percentage of our membership has been migrated to the new system to date," Cunningham says. "But as membership continues to be migrated over the next 12 months, we anticipate favorable results in auto adjudication rates and reporting capabilities."

Some insurers, such as BlueCross BlueShield of South Carolina, have developed their own claims automation platform.

"Over the past five years we have seen the first significant shifts toward real-time processing in the health care business, and this trend will only accelerate as retail purchasing models become more prevalent with implementation of health care reform," says Steele Pendleton, SVP of systems sourcing at the company.

"Consumers will expect to be able to enroll with a health plan, pay their bills and have their claims processed, all in real time," Pendleton says. "They will expect their deductibles to reflect activity in real time, so if they see a doctor and then head to the pharmacy, the pharmacy would know if they had met their deductible during the doctor's office visit. Our technology stack supports all of these functions in real time today."


Real-time capabilities provide benefits including faster and more efficient processing of claims. But the adoption of automated processes comes with challenges, Pendleton says. "Internally, there is a significant mindset change when one moves from overnight, batch-oriented processing to real-time processing," he says.

Along with the ability to process things in real time you need the ability to manage them in real time, Pendleton says. "There is a significant learning curve involved that is perhaps more complex than the technology itself," he says.

Another challenge is the ever-increasing complexity of the benefit plans the organization administers for customers, including value-based benefit designs, health incentive accounts, health care savings accounts, and integrated deductibles.

"Concurrent with our transition to real-time processing has been this significant increase in the complexity of the products we need to process," Pendleton says.

Yet another challenge is that most of the health care world remains batch oriented. "We want to interface in real time, and often cannot," Pendleton says. "So we have to pick our vendors and partners carefully."

While some larger insurers such as BlueCross BlueShield of South Carolina might build their own claims processing applications, in most cases companies partner with technology providers, Pandya says. Solution providers manage the claims automation platform as well as provide maintenance, he says, and for health insurers to attempt this on their own might not be best business approach.

This is especially true when firms consider challenges such as integration with legacy platforms.

Pandya cautions that the payoff on claims automation might not be immediate. "In certain cases the initial investment might be higher than the benefits you see at the end of the day; the return on investment is not immediate," he says. "But long term this is clearly more cost effective."

Bob Violino is a business editor and writer based in New York.

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