AsksPrice: Health Care Administration Consumes Nearly One-Third of Health Care Costs, Say Hospitals and Insurance Companies

Originally published in AsksPrice by Michelle Meredith.

Administration associated with health care claims and billing accounts for nearly one out of every three dollars that patients spend, according to a nationwide survey of executives from hospitals and insurance companies.

In contrast, more than three-quarters (76 percent) of the U.S. consumers surveyed said they think that health care administration should account for just 10 percent or less of total health care costs, with a large majority indicating they would be 'highly upset' if those administrative costs were as high as 30 percent. Approximately eight in 10 consumers (79 percent) said they would like to see an itemization of the portion of their health care bills that goes to administration versus clinical care.

The health care industry survey of 200 hospital and insurance company executives and 1,000 U.S. consumers was commissioned by The PNC Financial Services Group, Inc., (NYSE: PNC) and conducted by the independent research firm Chadwick Martin Bailey.

"While it is possible that consumers do not fully appreciate the cost and complexity of health care administration, hospital and health plan executives identified significant inefficiencies in the business office, describing a medical claims, billing and payment process that is error prone, redundant and costly," said Paula Fryland, executive vice president and manager of PNC's national health care group (See Press Kit).

Additional survey results include:

Hospital executives reported that one in five claims submitted, on average, is delayed or denied and 96 percent of all claims must be submitted more than once.

Hospitals that do not use electronic billing or claims submission processes reported, on average, resubmitting a claim 11 times or more, or nearly four times more than those hospitals using electronic processes.

Insurance executives surveyed said they go back to hospitals two times, on average, to get all the information needed to pay a claim.

Nearly a quarter of consumers reported having had a legitimate claim denied by their health plan; one in five ultimately paid the claim out of their own pocket.

Improving Efficiencies Impacts Costs and Patient Care

Nearly three-quarters of executives from hospitals and two-thirds of executives from insurance companies indicated that making the claims, billing and payment process more efficient throughout the health care system would help slow the rising cost of health care in the U.S. Similarly, nearly three-quarters of consumers (72 percent) agreed. Additional findings include:

When asked how much could be saved annually if they had a more efficient claims, billing and payment process, one-third of hospital and health plan executives both said their organizations could save at least $1 million a year.

The benefit of automated processes most often cited by insurance executives was that claims processing time significantly reduced, and 63 percent said that customer satisfaction had improved.

When asked where the cost savings would be applied, the area most often cited by hospital executives was 'reinvested in improving patient care.'

Health Care Consumerism and Transparency

"Health care consumerism is an emerging trend that transfers more decisions regarding health care choices, as well as responsibility for payments, back to the patient," said Fryland. "The survey supports that this growing trend will result in consumers seeking more information about their health care costs. And, both hospital and insurance executives agreed that the demand for transparency will focus on administrative overhead costs that will ultimately root out inefficiencies."

In addition, the survey findings include:

Nearly three-quarters of hospital executives surveyed (72 percent) expect high deductible health plans, which require consumers to pay more upfront costs for care out of their own pockets, to add another layer of complexity to the claims, billing and payment process.

More than half (58 percent) of consumers said that knowing what hospitals or doctors charge for treatment and what insurers are paying for their services would influence where they seek care.

A majority of consumers (83 percent), hospitals (77 percent) and insurance executives (60 percent) responded that insurance companies should disclose what they reimburse for medical services.

Survey Methodology

The PNC e-Health Study was conducted by the independent research firm, Chadwick Martin Bailey, based in Boston, Massachusetts. The study was based on telephone interviews conducted with 150 executives from U.S. hospitals or health systems, 50 executives from insurance organizations and an online survey of 1,000 U.S. consumers. The survey was completed in February 2007. A PNC e-Health Study media kit containing survey highlights and background information is available through PNC's website.

For over a decade, PNC has been helping health care providers and insurers re-engineer workflows and reduce the costs associated with handling massive volumes of monthly transactions. PNC currently processes about 3.5 million health care transactions per month for more than 500 hospitals through established connectivity between hospitals, physician groups, pharmacies and their respective payers nationwide.

The PNC Financial Services Group, Inc. is one of the nation's largest diversified financial services organizations providing consumer and business banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management; asset management and global fund services.

PNC Bank Announces Results of Hospital Insurance Study

Hospital and insurance executives agree that an automated medical claims and payment process could reduce the costs of health care in the United States and benefit patients, according to the e-Health Study released today by The PNC Financial Services Group, Inc. (NYSE: PNC), one of the nation’s leading providers of electronic financial solutions to the health care industry. The study was based on telephone interviews conducted with 150 executives from U.S. hospitals, health systems and insurance organizations from January to February 2006.

According to the survey results, 90 percent of hospital executives and 86 percent of insurance executives said that making the claims remittance process more efficient industry-wide would help slow the rising cost of health care. Nine out of 10 hospital executives indicate that savings resulting from automation would be used to improve patient care. Executives interviewed also said that federal standards for payment and information also could help in reducing health care costs.

“Health care executives who have adopted automated processes reported significantly higher levels of patient satisfaction resulting from improved coordination of benefits between the hospitals and the insurance carriers,” said Paula Fryland, manager of PNC’s national health care group. “While the majority of respondents said their current process is highly efficient, the study found there are many opportunities for hospitals and insurance companies to improve these processes.”

Industry cost savings/improved patient care

Other highlights of the PNC e-Health Study include:

• Half of hospital executives and four out of 10 insurance executives said their organizations could save at least $1 million and as much as $10 million a year if their billing and payment processes were more efficient.

• Seventy-five percent of hospital executives would pass savings on directly to patients and two thirds thought they would use savings to provide care to the uninsured.

Billing and payment problems cited

Study results also include:

• 91 percent of hospital executives surveyed say they must resubmit claims one or more times before they are paid. One out of five said they must resubmit claims over six times, and 5 percent of all hospital claims are never paid.

• Insurance executives estimate they need to go back to the health care providers an average of six times for information necessary to pay a claim.

• Patient ineligibility is most often stated by both hospital (84 percent) and insurance executives (80 percent) as the reason for delay and denial of claims. “While there have been numerous anecdotes about the barriers that currently hinder the exchange of information and payments between hospitals and insurance companies, this study is the first industrywide analysis that sought to identify the gaps and to begin to identify solutions, ” said Fryland.

Potential patient benefits

The PNC e-Health Study showed that hospitals would reap the greatest financial benefit from adopting Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT) standards. Among those hospital executives who reported already having EDI/EFT systems in place:

• 84 percent agreed or strongly agreed that their cash flow improved.

• 80 percent experienced significant costs savings.

• Roughly six out of 10 reported reductions in their organization’s bad debts.

Among insurance executives who said they already had EDI/EFT systems in place:

• Nine out of 10 cited a decrease in errors on balances owed.

• Nine in 10 noted fewer billing “hassles” related to coding and lost claims.

Industry-wide Barriers

When asked why they have not automated the claims remittance process, hospital executives point to requirement inconsistencies from multiple insurance companies, other demands for resources and electronic claims forms that provide insufficient data compared to paper-based forms. When asked the same question, insurance executives identify infrastructure cost, lack of financial incentives and difficulty quantifying a return on the investment as their greatest barriers to adoption.

Potential Solutions

When asked about how to bridge the gap between hospitals and insurance companies regarding payment processes, only half of insurance company executives surveyed were aware that some financial institutions provide integrated payment remittance services for health care claims.

“The financial services industry can play an important role in bringing the health care industry into the 21st century, and we only now are beginning to see a convergence of health care remittance processing and financial services into a sector known as Medical Banking,” said Fryland. “As health care becomes more consumer-focused and transparent, it will accelerate the urgent need for process improvements through EDI and EFT.”

The PNC e-Health Study was conducted by the independent research firm, Chadwick Martin Bailey, based in Boston, Massachusetts. A PNC e-Health Study media kit containing background information, survey highlights, topline findings, graphics and audio expert commentary is available through PNC’s website at pnc.com/pncnews.

The PNC Financial Services Group, Inc. is one of the nation's largest diversified financial services organizations providing consumer and business banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management; asset management and global fund services.