The Property & Casualty (P&C) industry is in the process of transforming its method for paying claims as it begins to embrace the groundswell of electronic payments options that can be used to settle claims with their insured.
Payment methods such as ACH, Same-day ACH and Tokenized Payments now available with Zelle® are clearly on the rise. And with the launch of the Real-Time Payments network later this year, there will be even more options to choose from when settling claims. Consider the devastating impact of the 2017 hurricane season on the insurance industry. The only positive outcome might be an accelerated adoption of these new payment channels as the preferred method of paying insureds. If so, the outcome will certainly be an improved customer experience and a substantial reduction of cost versus issuing physical checks.
However, much less progress has been made in modernizing the process for paying claims to businesses or individuals that have delivered services to an insured. Insurance companies have struggled to solve for this issue since many of these payments are complex and there are some limitations in the new payment channels on business-to-business (B2B) transactions.
Chief among these complexities is the need to provide service providers with extensive details associated with payments, which may include deductions and perhaps even the denial of reimbursements.
For these reasons, claims payments issued to medical services providers are a leading candidate for modernization and increased processing efficiency. These payments, which are generally associated with workers’ compensation and first party auto-medical claims, bring with them an added layer of remittance complexity.
What makes this specific sub-segment of claim processing so troublesome and complex? While a disbursement to an insured is a somewhat straightforward event, a medical claim payment often becomes a quagmire of independently billable line items with distinct and specific medical codes wrapped in an EDI structure that is not “mainstream” for the average P&C company. Add the regulatory hurdles and stringent guidelines associated with medical payments and you have an entire genre of claims that do not lend themselves to settlement via contemporary payment channels. As a result, the default solution for medical claims payments in most cases is still a paper check accompanied by multiple pages of printed explanation of benefits (EOB)/explanation of remittance (EOR) documentation.
When we begin to examine the payment stream associated with medical claims we find a problematic issue of monumental proportions. We estimate that the P&C industry (specifically the workers’ compensation and automobile segments) issues more than 100,000,000 payments each year to the medical services industry including reimbursements to hospitals, doctors, physical therapists, labs, etc. It is estimated that the average payment is approximately $350.00-$400.00 putting the total annual expenditure somewhere in the range of $35-$40 billion. Even more astonishing is that the majority of these payments still appear to be paid by paper checks that are often accompanied by pages of required EOB/EOR information.
Let’s consider the end-to-end expense of the paper claims payment process. Aside from the normal claim adjudication and internal processing that brings a claim to the point of payment, there is considerable additional expense involved in payment execution. At a minimum, these costs include print, mail, and postage expenses for the check and related pages of remittance details. Add to that the banking fees, such as check clearing, reconciliation, positive pay/payee services, check imaging, stop payments and reissuance of lost checks. Additional functions that will inevitably add to the tally include escheatment, 1099 issuance and the customer service and research component associated with these physical payments when something goes wrong. This does not even take into consideration the cost of labor and benefits associated with the workforce performing these tasks.
While there is no standard industry model or consensus for assessing the expense of issuing checks, the all-in estimates range anywhere from $1.50 on the low end to a high end cost of $15.00 per payment. Where a company falls within this range depends on the efficiency of its operation as well as how thorough that company is when assessing all of the contributing cost factors. Regardless of where an organization falls in the spectrum of this assessment, there is wide ranging consensus that medical payments are problematic and the expense is burdensome.
If we select a cost per-payment estimate in the bottom one-third of the range noted earlier, a $5.00 per-payment expense translates to an annual cost to the P&C industry of more than $500,000,000. This is a staggering expenditure for just the issuance of these payments! The continued reliance on paper settlement of these claims and associated remittance documentation is a drain on the productivity and cost structure of every insurer. It is clearly a process begging for a solution and worthy of scrutiny by every insurance payer.
It is worth noting that these inefficient processing conditions and the resulting overhead driven by paper remittances are also a burden on the medical community and contribute to the overall cost of the healthcare system. Providers are forced to deal with the manual process for depositing, researching, reconciling and entering paper remittances into their practice management systems.
In an attempt to improve and automate the process, some insurers have cobbled together fragmented solutions from various electronic payment solutions. These solutions generally comprise an EFT payment with an email or fax of the EOB information to the provider. Some payers resort to mailing paper documentation to the medical provider even after initiating the reimbursement electronically. This scenario, while a step in the right direction and launched with the best of intentions, is fraught with additional challenges to both insurers and service providers. This process requires insurers to reach out to providers to collect, store and maintain banking and email/fax information. Meanwhile, this solution is also inefficient for providers in terms of updating their systems and reconciling payments from multiple electronic or paper EOBs. At the end of the day, the process improvement for both parties is limited and there continues to be substantial room for enhancement.
Some insurers have also attempted to implement a purchasing card solution as a supplemental channel for the payment of medical claims. Given the success that many companies have experienced with the vendor/accounts payables application, this makes sense at some levels. The benefits of this model are undeniable with the elimination of checks and the interchange revenue that results from a card-based transaction. However, this is where the advantages end. Based on anecdotal experience, the solicitation and enrollment of medical providers for this reimbursement method can be an intensive undertaking and the adoption has been somewhat limited. The outreach initiative can be daunting for the insurer and it does not solve the issue of communicating the necessary EOB/ EOR information, which must still be either mailed via paper or emailed/faxed to the provider separate from the card payment. Either way, the result is another dysfunctional attempt that may increase inquiries from providers attempting to identify and reconcile payments.
Throughout 2017, "payments modernization" has focused primarily on business-to-consumer (B2C) interactions. Obviously, that is of great importance and a priority for every institution attempting to improve client satisfaction and enhance the end customer experience. However, the medical claim process represents a large segment of costly B2B disbursements that languish in an outdated payment model, prone to failure and disruptive to the customer service model that client-focused organizations have worked so hard to enhance.
Ask yourself, has a client ever complained or been refused service because their medical provider has not been paid on time or has not been able to apply a payment in a timely manner?
It is ironic that many, if not most, workers’ compensation and large auto insurers have adopted a process for receiving medical invoices from service providers electronically. Most of these insurers already interface with exchanges or directly with providers to receive billing via an EDI 837 uploaded directly to the claims systems. This is where the efficiencies often end. Once these bills have been processed through the claims platform and have been adjudicated, the end result is most often a print-mail output or, at best, a disassociated EFT payment with a paper, emailed or faxed EOB.
As mentioned previously, some P&C insurers have already partially digitized medical claims processing and are accepting claims submissions electronically from providers, exchanges, etc. This adoption is being driven largely by the need for efficiency, as well as growing state mandates for e-billing. For companies that are ahead of the curve, the chore will be to complete the "round trip" by paying the claim and delivering the EOB in an integrated electronic manner. In-house solutions that are pieced together give the appearance of progress, but may be destined to fail because they lack complete integration and scalability. Consequently, insurers struggling with this payment type may find it worthwhile to investigate outsourcing to a processor with expertise in this field and established connections with provider networks.
As with any outsourcing endeavor, not all providers are created equal and there are some very specific capabilities that should be considered when undertaking such an evaluation. To gain maximum benefits, a medical payments partner must be able to deliver immediate processing efficiencies, offer a flexible interface with your platforms and be adept at understanding the medical claims processing from the P&C insurer perspective. Additionally, a best-in-class solution should offer the following key features and functionality:
The industry can gain much (and honestly, has nothing to lose) by focusing on this large segment of complex and costly claims payments. The efficiencies to be gained by deploying seamless, end-to-end medical payments solutions are self-evident in terms of reducing transactional expenditures. An extraordinary opportunity exists to eliminate an extensive layer of cost which can have an immediate and meaningful impact on your company’s bottom line and combined ratio. Additionally, closing the loop by completing the electronic billing cycle with an electronic payment to medical providers will yield substantial internal efficiencies throughout the claims and customer service operations. Finally, in addition to the direct financial impact, resolving the medical claims challenge is likely to positively influence the customer experience, and ultimately, brand loyalty.
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BNY Mellon Treasury Services Managing Director, Head of Sales and Relationship Management Insurance & Electronic Receivable Payment Services
Ed Shane is a Managing Director and Group Head for BNY Mellon’s Treasury Services Financial Institutions group.View Profile