Improving Health Care with 1% Steps
According to the 1% Steps Project, the three most effective ways for lowering health care costs include reducing surprise billing, capping provider prices, and providing real-time adjudication for health insurance claims. Most of the information from this post is derived from the 1% Steps Project. The motivation of this project is best summarized by the authors on the project's about page:
The goal of the 1% Steps for Health Care Reform Project is to shift the way we think about health care spending in the US and offer a roadmap to policy makers of tangible steps we as a country can take to lower the cost of health care in the US. We want to leverage leading scholars’ work to identify discrete problems in the US health system and offer evidence-based steps for reform. We will continually update the project with new proposals that are based on the latest academic research.
The Problem with Out-of-Network Billing
A surprise medical bill is an unexpected bill from a health care provider or facility. This can happen when a person with health insurance unknowingly receives medical care from a provider or facility outside their health plan’s network. Surprise billing happens in both emergency and non-emergency care. In an emergency, an individual usually goes (or is taken) to the nearest emergency department. Even if they go to an in-network hospital for emergency care, they might receive care from out-of-network providers at that facility. For non-emergency care, an individual might choose an in-network facility or an in-network provider, but they might not know that a provider involved in their care is an out-of-network provider. For example, an in-network surgeon removing wisdom teeth might use an out-of-network anesthesiologist to sedate a patient beforehand (without informing the patient). In both emergency and non-emergency circumstances, the person might not be able to choose the provider or ensure that all of their care is from a participating provider.
There are medical specialties where patients have little or no choice over the physician who treats them: pathology, emergency medicine, anesthesiology, and radiology (or PEAR physicians). As a result, PEAR physicians can refuse to join insurers’ networks, but cannot be avoided by patients. When PEAR physicians can bill out of network from inside in-network hospitals, patients can be exposed to large, unexpected, and unavoidable medical bills. In addition, the ability to engage in this profitable strategy gives these PEAR physicians the bargaining power to negotiate higher in-network payments compared to other physicians. In the end, these higher in-network payments are passed on to consumers in the form of higher insurance premiums.
In the policy brief by Cooper and Scott Martin, policy makers are suggested to improve on these problems by banning physicians from balance billing patients. To be clear, balance billing occurs when providers bill a patient for the difference between the amount they charge and the amount that the patient's insurance pays. Policy makers also are suggested to determine either the amount or the process through which out-of-network providers get paid.
In other words, there are two possible approaches. First, Cooper suggests a baseball-style arbitration approach: if an agreement between a doctor and an insurer isn't made, each would submit a bid to an arbitrator who would select between the two options for payment. Second, policy makers could require that hospitals sell a package of care with hospital and physician services at a set price, which would eliminate the possibility of a patient going to an in-network facility but being treated by an out-of-network provider.
Cooper argues regulating the nature of the contract between providers and insurers is an important potential approach in addressing out-of-network billing. He believes that price regulation is necessary since these markets are natural monopolies. Most of the information above was taken from the policy brief by Cooper and Scott Martin. For more details about out-of-network billing, refer to their other policy brief.
The Problem with Current Provider Prices
Markets for healthcare providers have become increasingly consolidated (or monopolistic). This has been happening over the last years. Since the market has become more consolidated, providers can raise prices without many cheaper alternatives. As a result, many providers will raise premiums.
Although competition drives prices to efficient levels in a well-functioning market with a healthy amount of competition, the healthcare provider market deviates from a competitive market. In particular, it deviates from a competitive in the following ways:
- Reliance on health insurance shields patients from the costs of consumed services
- Patients are less able to differentiate between high and low quality providers
- Most hospital and specialist physician markets are highly concentrated
To expand on the first difficulty, the coverage of health insurance limits an individual's exposure to their costs of services required for a treatment. Additionally, exact costs aren't always available to the patient during their visit, since certain claims take time to be processed by the patient's insurance provider. In these scenarios, the patient must rely on pricing estimates provided by the hospital, which is based on information given by the insurance companies. These estimated charges can exclude any physician fees billed by any out-of-network surgeon, anesthesiologist, emergency specialist, pathologist, radiologist, or other physicians who may be involved in your visit. Your actual charges could be more or less than these estimates depending on specific tests ordered by your doctor, previous test results, medical history, and other factors. In summary, the current state of health insurance can lead to incorrect estimates or confusion in understanding the actual cost of healthcare services until after a patient's visit.
Second, the quality of providers is difficult to measure. As a result, consumers may have some difficulty in differentiating between high quality and low quality providers, which could lead to patients inadvertently paying for lower quality care at a higher price. Lastly, the majority of hospital and specialist physician markets are highly concentrated, which gives them substantial market power. As a result, providers can demand for higher prices due to market power alone, as opposed to a higher quality of services comparatively.
Cooper argues that pro-competition policies and regulatory intervention will improve the current state of provider prices by reducing overall consolidation. Here, pro-competition policies include vigorous antitrust enforcement and an introduction of insurance plans, which likely will incentivize patients to seek out efficient providers. Also, regulatory intervention could include enforcement of price caps, which could mean higher quality providers can charge higher prices, whereas lower quality provides can only charge lower prices. For more details about Cooper's recommendations and the estimated savings on implementing price caps, refer to Cooper's policy brief.
The Problem with Current Adjudication for Health Insurance Claims
In healthcare, adjudication is the process of reviewing and paying for a claim that has been submitted by a healthcare provider after a patient's visit and carried out by a patient's insurance company. When a patient visits his or her medical provider, the patient first will need to present his or her insurance card to a staff member at the front desk. Next, the staff member will record information from the insurance card. After the patient receives services from his or her medical provider, the medical provider will submit a claim to the patient's insurance company using the recorded insurance information. Then, the claim is processed by the insurance company and the adjudication begins.
In general, the adjudication process consists of five steps: an initial processing review, an automatic review, a manual review, a payment determination period, and a payment period. The initial processing review includes simple checks for errors or omissions, such as any incorrect spelling in the claim. Automatic review includes more detailed checks applying to the payment policies, such as checking for eligibility on the date of service or if the service should be considered medically necessary. A manual review includes checks by a medical claims examiner, which include additional checks deeming the service as necessary or unnecessary. The payment determination period involves the examiner determining if the claim should be paid, denied, or reduced, and it also involves any succeeding steps depending on the status assigned by the examiner. Lastly, the any payment will be submitted to the provider. Most adjudication (i.e. manual review) can take days several days or weeks for processing.
Administration and adjudication for claims make up about of revenues for providers and payers. These costs are driven mostly by complexity created by building on to the current adjudication process over the years. These costs are also created due to the continued reliance on manual input and review.
Each insurance payer maintains slight differences in their adjudication process. By standardizing and automating the adjudication process, the claims can be processed in real-time, the relevant administrative costs can be saved almost completely, and time can be for the insurance payer, medical provider, and patient. Additionally, price transparency can be achieved between the medical provider and insurance payer as a side effect of standardizing the adjudication process. Despite these advantages, adoption of these real-time adjudication systems remains low, mostly due to coordination failures between providers and vendors offering to implement these services.
In their policy brief, Orszag, Lazard, and Rekhi propose to solve this coordination failure through a series of interventions for insurance payers, medical providers, and relevant vendors. These interventions include the following:
- Standardization of claims forms and adjudication processes across all providers and payers
- New standards for reducing coding complexity
- Incentives for medical providers to adopt real-time adjudication systems by providers and payers
Since the adjudication process isn't standardized across each insurance payer yet, vendors attempting to implement real-time claims processing systems experience coordination failure. For incentivizing adoption of real-time adjudication, relevant mandates could draw on authority from a range of federal programs and statutes.
For more details about the current state of adjudication and any potential improvements, refer to Orszag, Lazard, and Rekhi's policy brief about real-time adjudication for health insurance claims.