Saddleback College, California
Health economists analyzing a single payer system don’t account for enough of the savings derived from the elimination of our chaotic claims processing methods. These comparative images, one from the US and one from Canada, give us something to think about.
We already know that Canada’s healthcare costs across the board are cheaper by half. And we know that Canadians don’t pay personal premiums, co-pays, or anything out of pocket for their basic medical care, and that includes hospitalizations. So how can Canada cover everyone and do it for less? How do they keep both medical care and administrative costs lower than the US?
One of the most powerful visual aids I can imagine illustrates the difference between Canada and the US in the area of claims processing. Claims adjudication is the process by which a third-party payer receives the claims of an insured member’s medical bills. Bills are accepted or rejected based on the member’s insurance policy. That’s called adjudication. In the US there are scores of Payers, each offering perhaps hundreds of differently structured health insurance policies. This means that for each Payer there are tens of thousands of permutations based on the benefit structures they offer. The variability amongst multiple stakeholders makes the US claim payment infrastructure the most complex claims adjudication process in existence. Fig 1. (below) depicts the Rube Goldberg- esque processing we’ve developed to adjudicate healthcare claims. But this image isn’t a lampoon of the system―it’s the actual system we use. In fact, the illustration doesn’t go far enough; there are layers upon layers of processes and rules that sit below what is shown on top.
Zoom in or open in separate tab to magnify.
The medical system in almost all areas used to be largely paper-based. Medical-related businesses were the last sector to fully transition to electronic health data automation and workflow. The industry was late to the party because physicians were the last give up their long-standing tradition of paper-based chart notes. With the massive expansion into computerized data storage and transfer in the 1990s came electronic health records. To get rid of paper, data had to be stored and transferred electronically for the system to work. Computerization meant that insurance companies could expand and offer more differentiated products to a broader market. * But computerization also attracted more government scrutiny and more regulations to safeguard private health information. Adjudication became more complex as legislated privacy rules 1 came into effect. Any and all organizations (healthcare providers, health plans, and healthcare clearinghouses) that electronically transmitted health information in the course of doing their business were affected. In 1996, the Health Insurance Portability and Accountability Act (HIPAA) 2 was passed into federal law,
locking down data privacy and security provisions for the protection of medical information. Claims processing slowed down despite the application of even more automation.
“If the rule you followed brought you to this, of what use was the rule?” ― Cormac McCarthy
The original thinking of the insurers was that electronic claims processing would be easy to do. To help expedite the claims process, insurance companies expanded their administrative divisions and technological capacities by building in-house solutions and/or by contracting with third-parties like Cerner, Epic, or McKesson among others. The Holy Grail for all insurers has been ‘real-time adjudication’ (RTA), just like credit cards, but nobody has yet to demonstrate an RTA adjudication model for healthcare claims that works effectively. And there’s a good reason why it can’t be done. As the fragmented administrative processes became more complex each year, they also became institutionalized. By institutionalized, I mean that each one of those small waypoints connected by an arrow to some other function in the process represents an entire area of industry where dozens of companies, each with thousands of employees compete for dominance only within that silo of specialized function.
For example, let’s isolate just one of those little boxes. Electronic data interchange, or EDI, is a government-regulated necessity for the secure transfer of health data between multiple organizations. IBM, SAP, Microsoft, and a hundred other smaller companies offer EDI solutions. It’s impossible to do without EDI in US healthcare, but similarly, it’s impossible to do without all of the other complex, rules-based functions as well. They all must connect to make the system work. In the current multipayer system, the way it is now is the way it’s going to stay―as long as Payers cancontinue to offload the increasing costs of the system’s inefficiencies onto the Providers and consumers.
In fact, the entire responsibility for the broken billing process has been sloughed off onto others. Chief among consumer complaints are: incorrect bills, surprise charges, costs not covered by their plans, and erroneously denied claims. Bill corrections often take so long to fix that outstanding balances—for money not owed, mind you—have already been handed off to collection agencies and members’ credit ratings have been damaged as a result. Sometimes patients don’t even know they are in debt collection until they search their credit score. And unpaid bills lead to other problems that can impact health. Patients requiring care often don’t get seen by their doctors for reasons related to unpaid bills.
The US stands alone in this Dystopic model of administrative inefficiency, which is reflected in almost any healthcare-related statistic you care to name. About a third of each dollar spent on healthcare in the US goes to supporting the waste, fraud and abuse in the system—over a trillion dollars each year. **
“Masters in our own house we must be, but our house is the whole of Canada.”—Pierre E. Trudeau
For comparison, I’ve created the same claim adjudication flow for a healthcare system like Canada’s (Fig 2), where every citizen is covered. Keep in mind that claims for exactly the same medical tests and procedures occur in Canada as the US. But there is no use for all of those acronyms that have
become legislated institutional fixtures in the United States. Canadians don’t know what EDI, HRAs, HSAs, HMOs, PPOs, or ACOs are. In Canada, there’s only need for one secure interface between 2 computers for the adjudication process to work. To put it into terms that Americans understand, Canadians are all members of the same plan with the same coverage.
To make a claim for a service provided to a patient, a doctor or his office staff simply enter the provincial tariff codes into a database hosted by the Payer. For Providers, there is only one set of prices for each province based on a fee-for-service payment structure. These prices are maintained for years with an annual inflation factor added. For patients, there is nothing to do; no paperwork, no bills.
The number of uninsured Canadians is zero. Because the provincial plan pays, no Canadian has ever been denied care or accumulated personal debt for a medical reason. The administrative cost in such a system is minimal and the comparisons between Canada and the US are stark. In a well- known comparative study 3, administrative overhead accounted for 11.7% of private plan healthcare expenditures in the US, compared to 1.9% for provincially administered plans in Canada. Hospital administration costs in Canada are around 11% of total operational costs while in the US they are closer to 28%.
One Canadian clinic administrator can take care of all of the billing for a group of at least 10 doctors along with performing additional office tasks. That’s a far cry from the US where it takes 7 administrators to handle the work burden for every 10 physicians. The administrative function is made easier in Canada because there’s no such thing as pre-authorization on the front end and the adjudication process for claims is infinitely simpler. Depending on area of practice, 95-100% of claims are paid by the provincial Payer every 15 days. That’s the length of the revenue cycle inCanada—two weeks. The flow chart for the Canadian healthcare system looks like Fig. 2. It’s clean, simple, and precise, with no need for any of the billion dollar technology features and onerous government regulations that must be applied to the same adjudication process in the US. And fraud? The system is so simple that fraud in the Canadian healthcare system is unheard of.
Fig. 2 Healthcare Claim Payment Infrastructure in Single Payer System
Source: Author’s illustration
Healthcare claims are like snowflakes…
The medical billing process is a major driver of healthcare spending in the US. Technology has streamlined many other consumer/industrial sectors; everything from banking, to online purchasing, to media distribution, to ride sharing. But that’s not true for the healthcare claims process. The complexity of the process with its multiplicity of plans and contracts, inadequate medical codes, different networks, different formularies, share of government and private funding, multiple accounts to draw from for the same claim, different cost-sharing arrangements, inconsistent deductibles and reimbursement levels, even within the same plan, etc. make it impractical to apply algorithms. Algorithms are computations that deal with finite numbers of precisely defined successive states, eventually producing a final outcome. Algorithms have made consumer-facing companies like Amazon, Facebook, Snapchat, and Uber successful. But health insurance claims are more like snowflakes—no two are exactly the same, making algorithms that depend on ‘sameness’ difficult to adapt. No matter how many feedback loops you build into the process, there continue to be so many computational failures along the algorithmic flow that real humans must intervene every so often to resolve problems and move the claim forward. But human touches are expensive and time consuming—and make the fantasy of real-time adjudication a false choice.
“Different is better than better.” —Sally Hogshead
Unable to make automation work the way it works for everyone else, companies are hiring more low-level administrators to key in data at the choke-points. In this scenario there is no need for more physicians who would only generate more paperwork—best to curtail the care to lessen the admin burden, and raise prices to pay for the new hires. In the topsy-turvy scenario that’s playing out, we’ve placed higher value on the function of administration than the delivery of healthcare itself. The result? Higher healthcare premiums, higher co-pays, more high-deductible plans, and far less coverage than ever before. Indefensibly, the other result that’s perversely higher is insurance company profitability. It doesn’t matter that the insurers have failed spectacularly in their mission to provide affordable plans to Americans. It only means that ‘whoever has the gold makes the rules.’
Fig. 3 Growth in Physicians and Administrators US Healthcare System 1970-2017
Source: Bureau of Labor Statistics
Cleaving the Gordian Knot
The Canadians have created a plan benefit design that is comprehensive and their laws have given provincial governments the regulatory teeth to make it work. They understand that the more players who are allowed to represent more variable and alterable plans, the more administrative problems it creates for Providers and patients alike. The more Payers and plans—what we like to call ‘choice,’ in America—the greater the reduction in cost-effectiveness. Although opponents of ‘socialized medicine’ typecast it as ‘Americans under the thumb of Big Government,’ it’s impossible to conceive of a system that’s more bureaucratic, wasteful and corrupt than what we have now.
According to a Harvard study, we put up with $60bil in overpayments (Americans being charged and paying more than they should have been billed) and $270bil in medical billing fraud each year. 4 The American system absorbs more in unrecoverable costs due to fraud each year than the entire Canadian healthcare system costs to run! Higher costs mean less affordability and less coverage—a real thing that’s happening. The creeping loss of health insurance coverage year-over-year portends a disastrous outcome for the health and welfare of tens of millions of Americans if we don’t act.
If a picture is worth a thousand words, then the two comparative process diagrams I’ve illustrated surely provide an eloquent answer to our healthcare problems. Perhaps it’s time to take a good look at how other countries deliver healthcare for half of what we pay now. Perhaps it’s time to cut our losses and move quickly to a single payer system that will work for all Americans.
*This is the ‘differentiation of healthcare’ in the United States that doesn’t exist in any other country. Making Americans believe that some healthcare is better than other healthcare is a trick used by the medical industry. Medical care is not the same as purchasing a Cadillac vs Chevy. In reality, there is only ‘healthcare’ based on best practices.
** The prices for all medical goods and services including drugs and physician’s fees continue to grow at over twice the rate of inflation. Hospital prices have increased almost four times in the past 4 decades. The recent hospital merger trend has significantly accelerated the costs of hospitalization. Overall, US healthcare spending has increased from 6% of the GDP in 1967 to around 18% ($3.5 trillion) in 2019. Canada’s healthcare spending was also at 6% in 1967 and remains stable at around 11% of GDP today.