BEYOND PREMIUM BILLING

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1 BEYOND PREMIUM BILLING Authors: Paula Gallo and Jordan Battani End-to-End Revenue Management for Health Plans Introduction Ongoing cost pressure, product and service innovation, changing customer expectations, and emerging coverage and market reforms continue to create new requirements and competitive pressures for health plans. The ability to operate efficiently and effectively has never been more important as health plans face an almost perfect storm of difficult market conditions. Premium billing and revenue management are key processes where most health plans can achieve higher levels of automation, improved information and business integration, higher service levels, and lower operating costs. Historically, billing and revenue management activities in health plans have been supported with redundant systems and processes that require significant levels of manual intervention from internal and external customers. This limits the ability of the health plans to effectively manage cash, resulting in costly operating inefficiency and unmet customer requirements. Taking a cue from the financial services industry, where electronic billing and payment processing are well established and demonstrating significant return on investment, 1 health plans that implement electronic billing and payment processing can ensure that their billing and revenue management processes can meet current and emerging requirements. Efficient billing processes are a good first step, but health plans must look beyond the boundaries of the traditional billing function to achieve sustained improvements. Billing should be one component of an integrated end-to-end revenue management process that includes overall cash management and accounts receivable activities. As plans evaluate their current capabilities in these areas, they will discover that their legacy business processes are costly and fragmented, and that application support and automation levels are inadequate. Fixing these limitations will require: Redesigning business processes and workflow to support the end-to-end revenue management process Enhancement and replacement of the applications that support these integrated functions Beyond Premium Billing 1

2 More Complicated than it Seems Conceptually, premium billing is a simple stand-alone process. An account is established for each purchaser of health coverage. The individuals for each account are tabulated, and a premium is calculated for each individual on the account based on the sum of the prices for each of the health benefits they are entitled to receive. In the group coverage model the account holder is the employer, and the bill will contain details for all the employees and dependents covered by the plan. Individual purchaser bills may be less complex, containing information about the purchaser and any dependents, who are typically family s. Identify the s Identify benefits/ Calculate the price/benefit/ Calculate the bill Produce and deliver the bill Even in this simple illustration, however, complexities and confounding factors quickly emerge. Plans and payers that have grown by acquisition and support their core transaction requirements on multiple legacy systems face even greater challenges, as they attempt to consolidate and integrate the data required to generate accurate and timely invoices. The accuracy of the final bill is entirely dependent upon the quality and completeness of the underlying data about who is covered, on which account, and for what benefits. These data elements are by their nature dynamic, particularly in the group coverage market, where established employees leave, new employees are added, and dependents and family status changes. Timing and coordinating the updates and changes to these core data elements is critical to producing an accurate bill. Failures create delays and rework in the form of multiple costly cycles, manual reconciliation and adjustment processes, and interruption and unpredictability in cash flow and customer satisfaction. BILLING Identify the s Identify benefits/ Calculate the price/benefit/ Calculate the bill Produce and deliver the bill Identify all systems with records Identify all systems with benefit records MULTIPLE CORE SYSTEMS Identify all the records Identify all the benefit records Reconcile and integrate records Reconcile and integrate benefit records CORRECTING BILLING ERRORS Validate errors Correct core system records to prevent future errors Adjust and recalculate the bill Beyond Premium Billing 2

3 New Demands Require a New Approach Product Innovation Health plans and payers face significant process and system challenges as they begin to address business requirements from innovations in products and services. The ability to vary health benefits and prices for different family s presents a significant challenge to systems and processes originally designed to produce bills for products where dependents benefits were identical to those of the subscriber. More recent consumer-directed health coverage product innovations have expanded the decision-making role of individual consumers and their financial participation in their health coverage, straining the limits of premium billing processes designed to support a group purchasing model of health insurance coverage. Consumer-directed products and their billing challenges are not limited to the individual coverage market. Many employer group purchasers now demand consumer-directed products for their employees. 2 In these cases the plan may need to bill individual employees separately for some products and services in addition to billing the group for the core components. Fifty-eight percent of e-bill recipients said that environmental impact was either important or very important in their decision to view and pay bills online... 5 Complex Consumer Funding Arrangements Adding even more complexity, consumer-directed products are often coupled with sophisticated pre-tax and retirement savings plans that allow consumers many payment options and increase the coordination and integration requirements of the plan billing system and revenue management processes. 3 These types of innovations show little sign of slowing. Many of the proposed federal and state mandates designed to increase insurance coverage to the uninsured call for sophisticated cost sharing and co-funding of premiums and contributions from multiple sources, all of which will pose significant coordination and integration challenges for legacy billing processes and systems. Electronic Billing and Payment Processing The expectations of healthcare consumers and group purchasers are also placing pressure on plans and carriers and their billing processes. The growth and adoption rate for electronic billing and payment presentment functionality has created powerful expectations among consumers and institutional purchasers for similar functionality from their health insurance provider. 4 Institutional purchasers, seeking functionality that lowers their internal administrative costs, demand online billing and payment presentment functionality that allows them to quickly reconcile invoices to their internal records, resolve discrepancies immediately and complete the payment transaction in a seamless process. Legacy health plan billing systems and processes with their billing cycle orientation must be transformed not only to meet the Web-enabled functional requirements but also to eliminate the lag times and delays that are typically part of the reconciliation and adjustment process. The self-service demands of individual consumers are similar to those of institutional customers with the added expectation of a high degree of personalization similar to what they experience in online retail store fronts. Green Business Practice The increasingly green expectations from customers and regulators that are being placed on businesses are a direct challenge to the paper-intensive billing process that is still common in the health plan and payer sectors. While these expectations and formal regulatory pressures have primarily focused on manufacturing and on information technology infrastructure and practices, prudent decision makers should begin to consider them if they have not already done so. Operational Efficiency There are compelling internal reasons for health plans and payers to transform their billing processes as well. At a time when pressure to minimize overhead and administrative costs is at an all time high, the labor intensive and redundant manual processes that characterize legacy premium billing are an obvious target for redesign and reimplementation. Competitive pressure on plans to operate Beyond Premium Billing 3

4 efficiently and to manage cash flow aggressively underscore the inefficiencies that result when there is incomplete integration and coordination of cash management, billing, reconciliation and adjustments, and accounts receivable activities across the revenue management function. End-to-End Revenue Management Meeting these new demands and market pressures will require a new definition of the billing function that places it seamlessly within the context of an end-toend revenue management function. The end-to-end function must support not only billing, but must include cash management, all forms of fund and account reconciliation, as well as accounts receivables activities. In this context health plans and payers can ensure that they provide a comprehensive solution to the new and emerging requirements of all types of internal and external customers. From a strict billing perspective the plan must be able to generate invoices that integrate -level information from multiple back-end systems, across different lines of business. For some payers this will also include the ability to bill for services and products from outside vendors. Given the demands of consumerdirected plans and new mandates for cofounding and subsidies, the plan must also be able to create separate bills for multiple payers on a single account. Plans must be able to deliver bills and accept payments in a variety of secure formats that meet the needs and preferences of institutional and individual customers. Customer reconciliation processes, particularly as they relate to enrollment corrections, must be supported, and adjustments verified and processed without the delay of an additional billing cycle. Once the bills are presented, adjusted and paid, the process must provide a seamless transition into accounts receivable management. Payment plans, past due notices and other follow-up activities must be integrated and coordinated with future billing activities. Payment and adjustment history, payment agreements on file and other accounts receivable information must be available in a variety of secure formats based on internal and external customer requirements. Fund accounting and reconciliation requirements for managing the various funds in consumer-directed health plans, and other product segments as they emerge, must be supported, again in a variety of secure formats, based on internal and external customer requirements. Finally the entire process must be supported by reporting and analytics at each process step that produce both accurate working tools and reports and meet the forecasting and predictive requirements of the cash management function. Ideally the reporting function will be extensible to external customers under a variety of security scenarios, to provide value-added service and support to key accounts. REVENUE MANAGEMENT AND BILLING Forecasting and Cash Management Produce and Deliver Bill Invoice Reconciliation and Adjustment Payment Receipt Payment Allocation and Reconcile Manage Account Receivable Reporting and analytics Beyond Premium Billing 4

5 Building the End-to-End Revenue Management Function Relying on legacy billing systems and processes is costing health plans in both overhead to support manual intervention to meet minimum billing requirements and in poor integration and coordination across revenue management functions. Health plans that still rely on a core transaction system to support billing function calculations must take a hard look at whether that approach is meeting current needs, and whether it can meet requirements presented by product innovation, customer expectations and emerging mandates. At a minimum the billing calculation function must be able to support variation at the level within an individual account and within family units in group accounts. It must be able to aggregate account billing information across multiple product lines, services, geographies and other divisions, and it must be able to calculate multiple integrated bills for a single account. Electronic bill delivery, reconciliation, adjustment and payment are relatively late in reaching the health plan and payer segments of the insurance market, but in other sectors they are the de facto standard of service. 6 Paper-intensive billing and payment processes are costly to operate and to maintain, and they result in lags and delays in effective accounts receivable management. Health plans that cannot deliver bills and receive payments electronically in a variety of secure formats are at a competitive disadvantage in customer service levels and administrative cost management. Premium billing and payment processing are only components of the end-toend revenue management process in health plans. Billing and payment functions must be integrated with overall accounts receivable management to meet the financial and operational requirements in an increasingly cost-conscious and competitive environment. Billing processes must be able to inform accounts receivable management activities, which must, in turn, be able to inform and update subsequent billing activities. Outputs from both billing and accounts receivable are required for the forecasting, predictions and planning that inform the health plans overall cash management activities. Health plans that cannot support an end-to-end revenue management function, with effective integration between billing, payment processing and accounts receivable management activities are at a competitive disadvantage from a cost and service level perspective. If these functions are not supported with effective analytics and reporting, health plans are missing important opportunities in cash management strategy as well. Billing systems that cannot meet these requirements are candidates for enhancement or replacement. Health plans that have not begun this process are at a competitive disadvantage which will only become worse over time. About the Authors Paula Gallo is a Principal in CSC s Global Healthcare Group, responsible for revenue management and billing solutions for health plans and payers. Jordan Battani is a Principal Researcher in CSC s Emerging Practices Group, the applied research arm of CSC s Global Healthcare Group. For more information contact us at healthcaresector@csc.com or Beyond Premium Billing 5

6 References 1 Burns, Carrie. Leave a Good Impression With Electronic Payment. Insurance Networking News (June 2007). 2 Availability, Contributions, Account Balances, and Rollovers in Account-Based Health Plans, and Retirement Plan Participation and Asset Allocation, 2007, Employee Benefit Research Institute, Vol. 30, No. 11 (November 2009). 3 Availability, Contributions, Account Balances, and Rollovers in Account-Based Health Plans, and Retirement Plan Participation and Asset Allocation, 2007, Employee Benefit Research Institute, Vol. 30, No. 11 (November 2009). 4 Burns, Carrie. Leave a Good Impression With Electronic Payment. Insurance Networking News (June 2007). 5 Fiserv Survey Shows Online Banking Growing, Now Used by Four of Five Online Households. Fiserve Press Release, (July 14, 2009). 6 Burns, Carrie. Leave a Good Impression With Electronic Payment. Insurance Networking News (June 2007). Beyond Premium Billing 6

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