For years, claims processing has been a complex administrative challenge for the health insurance industry. Once performed almost entirely manually, adjudicating health claims requires reviewing and approving claims from multiple sources and providers, including physicians, hospitals, pharmacies, medical suppliers, other professionals or facilities, and health plan members. Under regulatory pressure to remit claims within a matter of weeks, insurers run risks of overpayment, or having claims cases ensnared in administrative tangles such as the reporting of wrong procedure codes, or eligibility questions. "Processing health insurance claims has historically been an intensive, rules-based endeavor," says David Rubenzahl, president and company counsel for The Maxon Co., a third-party administrator located in Irvington, N.Y. "As recently as 20 years ago, decisions regarding claims were entirely in the hands of claims examiners, who made decisions based upon their own knowledge and industry standard manuals. As computers became more sophisticated, more and more of the rules that apply to health insurance claims were incorporated into the processing applications, freeing the examiner to concentrate primarily on data input and the ultimate decision of pay or deny."

Automation and new technology has helped alleviate the problems, but many insurers still have a long way to go in bringing their legacy systems and procedures up to date. To meet these challenges, some insurers are engaging in a range of strategies to deal with this task, from deploying real-time e-claims Web sites to outsourcing.

UnitedHealthcare, for instance, recognized that its adjudication process often lasted weeks, and launched a real-time claims processing site in January 2007 to enable physician office staff to adjudicate many doctors' office visit claims within seconds. Office staff submitting claims through the site can receive a fully adjudicated claim in seconds, reducing administrative burden and allowing patients to pay for services before even leaving the doctor's office.

The 70-million-member system, based in Minneapolis, now processes about 100,000 claims this way-a small but growing fraction of its total claims volume of 10 million a year, says Daryl Richard, VP of communications for UnitedHealthcare. While the new system is currently limited to physician's office visits (versus hospital-based procedures, for example) Richard sees this as a model for future claims processing across the company. The new system "literally enabled us to take a workflow that once could take up to 60 days and reduce that to a mater of seconds-often less than 10 seconds," he says.

For other payers, establishing partnerships with third-party claims processing specialty firms not only has helped to accelerate movement into more streamlined electronic claims processing, but also enabled the insurers to focus on core business concerns. At Gateway Health Plan, all claims are automatically routed to a third-party outsourcer (DST Health Solutions, which is headquartered in Birmingham, Ala.) that applies auto-adjudication against a rules engine. The result has been substantial improvements in turnaround of claims, which now number more than 3 million per year, according to Margaret Worek, VP of operations with Pittsburgh-based Gateway Health Plan. The insurer, which covers Medicare and Medicaid benefits, currently has 270,000 members in the Pennsylvania and Ohio region.

Prior to working with DST, Gateway had a labor-intensive Medicaid member enrollment process requiring 26 enrollment staff. DST worked with Gateway to redesign this process, and today, only eight clerks are needed. In addition, a modification to the system by DST helped reduce the membership load error rate to less than 1%. The percentage of claims that can pass through with no manual intervention has more than tripled. "When we signed with DST in 1997, we had no ability to auto-adjudicate our claims," Worek relates. "Now, we are at upwards of around 50% to 60% auto-adjudication." In addition, she notes, Gateway was able to reduce its administrative cost ratio below 8% compared to an industry average of 12% to 15%.


Health claims processing is part of a complex series of transactions that form the foundation of health insurance plans. Even in electronic format, there are still many checks and balances that are part of the process that leads to reimbursement. "Processing claims is but one piece of the puzzle," says David Rodriguez, director of product marketing for Concuity, Vernon Hills, Ill. "In order for a provider to receive accurate reimbursement, claims must be submitted in the correct format, with correct coding, containing all the appropriate diagnosis codes, clinical codes and numerous other components, not to mention any invoices or attachments that may be required by the payer. Many factors and departments are involved in assembling this critical piece of information."

However, Rodriguez continues, "the reality is that many providers are organized in a way that doesn't allow for this collaborative effort to happen efficiently and correctly, hence the enormous rate of denials and underpayments that plague our healthcare providers."

Health insurance claims processing is subject to complications that set it apart from other lines of insurance and raise administrative costs, agrees Rick Pro, VP with SAS Health and Life Sciences, Cary, N.C., and formerly VP of research and analysis at health insurer Highmark Inc., Pittsburgh. "Healthcare claims originate from multiple sources, including physicians, hospitals, pharmacies, medical suppliers, other professionals or facilities, or health plan members," he says. "A single episode of care of involves claims from multiple providers. Services rendered to a patient often include more than one diagnosis or procedure code. Payment calculations often vary depending upon whether the claim is for professional or facility services, or delivered in an inpatient or outpatient setting."

The key is to better automate, but there's plenty of work to still be done. For instance, Celent, Boston, estimates that approximately 65% of the 1.1 billion remittances (from 3.4 billion claims) made in 2006 were still founded on paper-based processes, but observed that this proportion is gradually declining. In addition, 45% of claims were submitted by providers in nonstandard format. The consultancy estimated that financial institutions and third-party processors could take out as much as $50 billion of healthcare operating costs annually if they could effectively automate healthcare providers' revenue cycles and expedite exceptions handling.

The increasing sophistication of claims processing systems has enabled many payers to auto-adjudicate larger and larger percentages of claims without any decision-making on the part of a person, Rubenzahl points out. "The data in the claims is routed to the claims application, which applies rules to determine whether auto-adjudication or assignment to an examiner is appropriate. Of course, no system is perfect, but while there are data errors in electronic claims submission, as well as processing errors, those errors are certainly minimized in comparison to the old, largely manual process."

Upon submission, "claims adjudication systems check for conformance to clinical coding guidelines and reject those claims with coding errors," says Pro of SAS. "Health plans on the cutting edge of technology are exploring pre-payment scoring of claims for the likelihood of fraud or abuse, such as upcoding or unbundling, so as to avoid the high cost of post-payment recovery of fraud losses."

There are a number of technical and organizational hurdles that need to be ironed out, however, including the widespread siloing of information and processes across legacy or incompatible systems.

"In most health plans, provider processes and data sit in legacy or isolated systems throughout the organization," says Mike Flanagan, VP of products and marketing at Portico Systems, Blue Bell, Pa. "Without having a central system of truth feeding claims systems, health plans can't match clinical actions and payment back to specific providers, which makes it incredibly difficult to automatically adjudicate a claim."

In general, the healthcare industry is way behind in automation and technology, says Dawn Burriss, VP with TriZetto Group Inc., Newport Beach, Calif. "Health insurers did more than most in the industry on HIPAA, and are eager to embrace automation and reduce costs because there is clear ROI in doing so. Lagging payers are typically on legacy systems that hold them back from real-time automation, and the ability to 24/7 streamline exact information at any time the member, provider or others need it."


Insurers that are effectively taming the claims-processing beast recognize that processing claims doesn't occur in a vacuum, and that it is inexorably linked to processes occurring across their organizations. Optimal technology solutions need to have a holistic bent, according to Flanagan. "An enterprise solution that ties all provider processes together and connects them with core systems substantially improves claims processing, and supports other important initiatives such as national provider identifier, consumerism, medical homes, transparency and quality," Flanagan says. Such approaches need to incorporate "a 360-degree view of every provider; end-to-end visibility and consistent workflows, rules and security to guide users through daily responsibilities."

Along these lines, Rodriguez also urges "looking outside the patient accounting system box to more advanced technologies that can accurately produce an expected reimbursement amount for every claim that is submitted to a payer per the contractual terms." Web-based systems are capable, in near real-time, of calculating reimbursements based on rate schedules, claim submission requirements, legal requirements, stop-loss language, hospital geographic factors and other contractual components, he notes. Not only does this speed up the process, but it helps ensure far greater accuracy. "What's more," he adds, "the entire healthcare organization now can have visibility into the contractual obligations for coding, billing and claim submission, along with powerful analytical and workflow tools that help recover underpaid and denied accounts."

Some experts also note how great strides have been made in recent years in opening up the claims process to greater transparency, which paves the way to better collaboration between providers, external partners and members. Rubenzahl points out that the rise in electronic claims submission and processing also has greatly improved the quality and quantity of data, "especially since all electronic transactions under HIPAA must be uniform in structure." This enables "payers to more efficiently analyze cost areas, provider practice patterns and even whether plan participants with particular diagnoses are being treated according to accepted protocols. A good example is whether a diabetic is refilling his or her prescription for insulin regularly."

Gateway's Worek agrees that HIPAA helped play a role in automating a greater proportion of claims. "We are upwards of around 75% in EDI claims submission," she says. "Some of that comes from probably the only good thing that happened with HIPAA-standardizing the requirements for electronic claims. That really spurred on the physician and hospital communities to upgrade their systems in order to be HIPAA-compliant, and we definitely see improvement in auto-adjudication as well as EDI rates with the advent of HIPAA."

Worek adds that "by making it standard across all claims, it really took a lot of the inconsistencies out of claims submission."

Standardizing requirements also takes the complications and inconveniences out of claims transactions..

For example, the real-time adjudication processes set up by UnitedHealthcare "takes the guesswork out of claims," Richard says. "It's getting a real-time response in seconds, versus sending a claim in and then waiting. If it's via mail, it could be weeks to get a response back as to whether a procedure is covered and, if so, how much can you expect so you can update your ledger as a physician. If a claim was not approved, you can find out why almost instantly and re-submit it, and shorten that process. It can help reduce administrative costs and helps take paper out of the system."

Joe McKendrick is an author and consultant specializing in information technology, based in Doylestown, Pa.

(c) 2008 Insurance Networking News and SourceMedia, Inc. All Rights Reserved.

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