Healthcare Practices Under Pressure to Boost Efficiency, Cut Administrative Burdens

It’s the oldest of truisms: 20% of your clients create 80% of your revenue. It’s true in medical practices, too, but with a twist: Many small offices, and small networks of medical providers, receive the majority of their payments from a handful of their payers. Providers typically accept these payments via electronic funds transfer (EFT); most such payments arrive in a day, keeping accounts receivable flowing efficiently.

But when it comes to receiving the rest of their payments, most healthcare practices still receive payments the old-fashioned way: by check. Those paper payments come from a wide array of sources (the large number of payers that pay you every now and then). And so, to many practice managers, it hasn’t felt worthwhile to convert those occasional payers from paper to electronic payments.

Increasingly, living with this status quo is a mistake.

It’s no surprise that administrative costs in U.S. healthcare are high — by some accounts, well over $300 billion a year. Moreover, these administrative costs do nothing to increase healthcare quality. But most people — even physician owners — don’t understand where these administrative losses are hiding. They don’t know how to shave unnecessary costs out of their revenue cycle.

One reason: Many practices struggle with flawed remittance advice coming from many payers. Often, it’s incomplete and inconsistent from one payer to another. As most administrators know, it’s frequently formatted incorrectly for the healthcare provider. Mistakes are common. When there are errors, administrators must call payers and solve them — a headache no one needs. Naturally, administrators are reluctant to enroll in electronic funds transfer programs from “the other 80%” of their payers. Simply put, the ROI for this group of payers hasn’t been there.

Another reason: The “we’ve always done it this way” mentality. Overwhelmed by demands, the last thing most administrators want to do is invest time in individually enrolling in “occasional” payers’ ACH systems. Why spend the time, effort, and headaches to enroll in these systems if a single payer issues only a half-dozen checks a year? Why give out banking information to many more small payers? Isn’t it simply easier to send paper invoices, accept paper checks, post them manually, and visit the bank to deposit them?

Sure. But …

• Only if your practice receives occasional payments from just two or three payers. Many healthcare practices receive small numbers of payments each from a sizable group of payers, meaning that the time spent on paper revenue processing is significant.
• Only if your practice stands alone, and (unlike most of your peers) you haven’t been affected by the increasing trend toward practice mergers and consolidations. The trend toward consolidation has happened, in part, as value-based healthcare has taken hold, altering payment processes. By definition, most practices that are now members of small chains or larger health organizations face an increasing need to standardize payments not just within their own offices, but across numbers of offices. That’s hard, if not impossible, to achieve with paper checks. Moreover, as practices consolidate, a “handful” of paper payments is no longer just a handful. The numbers of these “80%” payments increase exponentially.
• Only if you don’t want administrators spending their time on activities that increase patient care and, importantly, patient satisfaction. The “triple aim” of improving quality of care (including patient satisfaction); improving population health; and reducing per capita cost is increasingly taking hold. Successful practice leaders know that talented administrators should be spending time gathering patient data, serving patients, and helping to improve the quality of patient engagement. Not posting checks.

What’s the Solution?

We’ve already established that when it comes to counting both headaches and dollars, the existing system, which asks administrators to enroll in individual payers’ EFT systems, doesn’t offer a sensible payback. What, then, does?

Third-party systems that normalize electronic remittance advice forms — that is, they standardize the form from payer to payer and eliminate errors — make it simple for administrators to accept payments. They save administrators the time they’re spending fixing mistakes, not to mention the headaches. As these third-party payment systems increase the number of payers that they accept, they can normalize more and more organizations’ remittance paperwork. Given the benefits of saving time and speeding accounts receivable (often from several days to one), such a process makes it not only easy for administrators to convert payers from paper to electronic funds payments, but virtually incumbent to do so. Finally, turning to a process that standardizes EFTs increases efficiency by systematizing data: No longer are you processing some payments electronically and others by paper check.

In the uncertain world that is healthcare today, any extra certainty and efficiency should be welcome. Patients, who bear the brunt of the high administrative costs in the American healthcare system, will thank you for it.

William E. Barbato is Vice President of B-to-B Payment Solutions at Change Healthcare.