Fundamental Guide to Understanding Healthcare Payments

Fundamental Guide to Understanding Healthcare Payments Monday April 22 nd 9:30 10:30am Stuart Hanson Director, Healthcare Solutions Executive Citi Enterprise Payments Irfan Ahmad VP, Healthcare Payments The Clearing House 2013 [Insert RPA Name]. All rights reserved. Through its Direct Membership in NACHA [insert RPA Name] is a specially recognized and licensed provider of ACH education, publications, and support. Regional Payments Associations are directly engaged in the NACHA rulemaking process and Accredited ACH Professional (AAP) program. NACHA owns the copyright for the NACH A Operating Rules & Guidelines. The Accredited ACH Professional (AAP) is a service mark of NACHA.

2 Agenda Understanding the Healthcare Revenue Cycle US Healthcare Spend The Key Players The Revenue Cycle Overview Legislative Efforts HIPAA Standards Healthcare Payments to the Co-pay/Co-Insurance Health Plan Payments Patient Out-of-Pocket Responsibility

3 Total US Healthcare Spend National health expenditures were $2.6T in 2010, making up 17.9% of GDP 1 $ Trillions 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 US Healthcare Expenditure 3.72* 2.92* 2.59 1.35 1.02 0.71 1990 1995 2005 2010 2013 2017 * Projected number Healthcare is the largest industry in the US, providing jobs for approximately 14 million people The US population is aging, driving demand for healthcare products and services The demand for professional healthcare services is eclipsing the supply of professionals providing services 15% of the population currently claims 75% of total healthcare expenditure. As chronic disease incidence is growing, associated expenditure is also likely to grow Innovative healthcare technologies have generally increased cost, whereas in other industries innovation usually decreases cost Source: National Health Expenditure. CMS; Bureau of Economic Analysis 1. 2012 CMS Statistics http://www.cms.gov/research-statistics-data-and-systems/research/researchgeninfo/cmsstatistics.html

4 Healthcare Revenue Cycle The Players Patient Physician (individual, group practice) Facility (hospital, clinic, long-term care, etc.) Health Plan Commercial Insurance Employer based Administrative Services Only (ASO) Fully Insured Individual Insurance Medicare Part A Hospital Part B Physician Part C Medicare Advantage Part D Drugs

5 Healthcare Revenue Cycle Where s the Money? Patient Copay/Coinsurance 1. Validate Identity 2. Check member eligibility 3. Collect any co-pay amount 1. Reconcile remittance 2. Update system to show check-in payment collection 1. Patient medical record updated 2. Medical procedure coded Check-in & POS Cash Collections Charge Capture & Entry Medical Record & Coding Check- Out & POS Charge Capture 1. Update check-out/patient tracking system 2. Member check out and any known co-pay/coinsurance collected Claims Submission 1. Electronic or paper claim created 2. Claim submitted based on medical event Claims Adjudication 1. Claim edits applied 2. Claim adjudicated or rejected 1. Verify member identity 2. Verify date/time of procedure & facility availability 3. Collect necessary insurance & personal health info. 4. Update check-in/ patient tracking system Admission/ Procedure Insurance Verification 1. Validate ID 2. Ensure Active Policy Pre-Reg & Pre Cert Scheduling 1. Determine if pre-cert required 2. Obtain pre-cert 1. Determine time 3. Update systems with pre-cert needed for event 2. Review provider & patient schedule 3. Book required time and facilities Enrollment Denial & Appeal Management 1. Provide member with plan description 2. Capture member selection 3. Update health plan system w/ eligibility 4. Provide member with enrollment package Payment Posting Rejection Processing. Secondary, Tertiary 1. Payment posted for adjudicated claim 2. System updated marking claim as paid 1. Receive rejected claim 2. Verify secondary/tertiary coverage 3. Submit claim to secondary/tertiary payer 4. Send patient responsibility 1. Receive appeal or grievance 2. Review case 3. Make determination re: appeal/grievance 4. Update claim status (adj, reversal, etc) Payment from Health Plan Patient Out-of-Pocket Payment

6 Legislative Efforts to Improve Healthcare HIPAA was the beginning of legislative efforts to improve quality, accessibility of care, privacy and efficiency in healthcare. HIPAA 1996 - Health Insurance Portability and Accountability Act Personal Health Information (PHI) any information about health status, provision of health care, or payment for health care that can be linked to a specific individual any information about health status, provision of health care, or payment for health care that can be linked to a specific individual. Covered Entities/Business Associates must comply with the Rules' requirements to protect the privacy and security of health information and must provide individuals with certain rights with respect to their health information. HIPAA Transaction Set Established standard transactions for Electronic Data Interchange (EDI) of health care data; including: claims and encounter information, payment and remittance advice, claims status, eligibility, enrollment and disenrollment, referrals and authorizations, coordination of benefits and premium payment.

7 HIPAA Standards for Electronic Transactions HIPAA created standards for healthcare data exchange that started to pave the way for increased automation, privacy, and fraud prevention s Payors Plan Sponsors Functions Functions Functions Eligibility Verification Pre-Authorization and Referrals 270 (Eligibility Inquiry) 271 (Eligibility Information) 278 (Referral Authorization and Certification) 148 (First Report of Injury) Enrollment Enrollment Pre-Certification & Pre-Certification Adjudication Adjudication 834 (Benefit Enrollment & Maintenance) Service Billing Claim Submission 837 (Claims Submission) 275 (Claims Attachment) Claims Acceptance Enrollment Claims Status Inquiries Accounts Receivable (AR) 276 (Claim Status Inquiry) 277 (Claim Status Response) 835 (Healthcare Claim Payment Advice) Claims Adjudication Accounts Payable Accounts Payable 811 (Invoice) 820 (Payment Order/RA)

8 Multi-Party Payment Process in Healthcare Healthcare is the only industry where you can receive services and leave before knowing what you owe, or paying the bill. Patient Encounter Post Encounter Adjudication COB/Patient Responsibility Patient Pay Check/Credit Consumer Co-pay Claim 837 CCD+/Check 835 Consumer Payor Premium 820 Check/ACH Employer Payor Day 1 Day 7-90 Day 63-146

9 Health Plan Payment to A substantial industry effort has been made to automate the process associated with health plan billing and payments to providers Patient Encounter Post Encounter Adjudication COB/Patient Responsibility Patient Pay Check/Credit Consumer Co-pay Claim 837 CCD+/Check 835 Consumer Payor Premium 820 Check/ACH Employer Payor Day 1 Day 7-90 Day 63-146

10 Health Plan Payments to s Overview s are paid by health plan once claims have been adjudicated. However, claims can be: Rejected due to formatting/coding issue(s), underpaid, denied Payments to provider can be: Bundled to include payments for many claims Adjusted to correct for previous billing/coding errors Sent via Paper or EFT Payment must be reconciled to the original bill submitted to the health plan Done by matching the payment to the Explanation of Payment or Electronic Remittance Advice (ERA/835) Often difficult as remittance advice and payment do not travel together. They may arrive at the provider on the same day, or even weeks apart Due to inconsistent practices by payors, automatic posting of the ERA may not process properly providers must then manually input remittance information and match to payments Leads to lots of inefficiencies, errors, and numerous calls between payors and providers

11 Linking the Payment to the Remittance Advice 835 Medical Claims 835 Clearing House 835 CCD+ Check Payor must reconcile payment (EFT or check) to remittance advice (835 or paper EOP) Paper EOP/ Check Paper EOP/ Check CCD+ TCH POLICY POSITION / BUSINESS OBJECTIVE CCD+ ODFI ACH Operators RDFI

12 HIPAA Standards for Electronic Transactions HIPAA transactions are focused on data exchange and B2B payments s Payors Plan Sponsors Functions Functions Functions Eligibility Verification Pre-Authorization and Referrals Service Billing Claim Submission 270 (Eligibility Inquiry) 271 (Eligibility Information) 278 (Referral Authorization and Certification) 148 (First Report of Injury) 837 (Claims Submission) 275 (Claims Attachment) Enrollment Enrollment Pre-Certification & Pre-Certification Adjudication Adjudication Claims Acceptance 834 (Benefit Enrollment & Maintenance) Added to HIPAA transaction set for EFT payments under Administrative Simplification in PPACA Enrollment Claims Status Inquiries Accounts Receivable (AR) 276 (Claim Status Inquiry) 277 (Claim Status Response) 835 (Healthcare Claim Payment Advice) ACH CCD+ Claims Adjudication Accounts Payable Accounts Payable 811 (Invoice) 820 (Payment Order/RA)

13 Mandate for Electronic Payments Patient Protection and Affordable Care Act (PPACA) Legislation calls for both standards and operating rules as key drivers in reducing administrative cost Medicare payments to EFT by January 1, 2014 Established Standards and Operating Rules for Healthcare EFT Payments CAQH CORE responsible for drafting operating rules NACHA selected as standards development organization for maintenance of the healthcare EFT standard Health and Human Services (HHS) issued Healthcare EFT Standard Final Rule on January 10, 2012 Became final rule on July 10, 2012 Defined Health Care EFT as a transaction under HIPAA Identified NACHA CCD+ as the HIPAA EFT standard format and content required for health plans to perform EFT transactions

14 Unique Characteristics of a Healthcare CCD+ CCD+ = Corporate Credits or Debits + one addenda record The CCD+ addenda record will carry the TRN segment for reassociation Trace number segment in addenda record that links the electronic payment (CCD+) and electronic remittance advice (ERA/835) Includes a mix of numbers and asterisks TRN*1*12345*1512345678*999999999

15 Example: NACHA file with CCD+ with 1 addenda If requested, RDFI must deliver minimum data elements necessary to facilitate reassociationto their provider customer Minimum ACH CCD+ Reassociation Data Elements CCD+ Record # Field # Field Name 5 9 Effective Entry Date 6 6 Amount 7 3 Payment Related Information

16 Linking the Payment to the Remittance Advice ISSUE BACKGROUND 835 Medical Claims 835 Clearing House 835 CCD+ Payor uses Reassociation Trace Number in the CCD+ addenda record to reconcile payment to 835 (remittance advice) CCD+ TCH POLICY POSITION / BUSINESS OBJECTIVE CCD+ ODFI ACH Operators RDFI

17 What Does this Mean for ODFIs Health Plan ODFI must work with their clients to ensure they comply with new rules: Use of HCCLAIMPMT in Company Entry Description Field Ensure CCD+ addenda record contains the ASCX12 Version 5010 835 TRN data segment (Reassociation Trace Number) Company Name field must contain Health Plan name that is easily recognized by the healthcare provider (receiver)

18 What Does this Mean for RDFIs RDFI must: Have product or service available for providing payment related information if requested Available by opening of business on second banking day from settlement Offer secure electronic delivery minimum equivalent of 128-bit RC4 encryption technology Accept the ~ as a data segment terminator Educate staff to understand what providers are requesting: CORE-required minimum CCD+ reassociation data elements Trace Number (note: this is not the ACH trace number)

19 Patient CoPay to Healthcare consumers have been engrained with the concept of co-pays Patient Encounter Post Encounter Adjudication COB/Patient Responsibility Patient Pay Check/Credit Consumer Co-pay Claim 837 CCD+/Check 835 Consumer Payor Premium 820 Check/ACH Employer Payor Day 1 Day 7-90 Day 63-146

20 Patient CoPay/Co-Insurance Payment Overview s are paid by patients prior to services being rendered Consumers are accustomed to making co-pay payments from personal, HSA, or FSA accounts: Cash Check Credit Co-Insurance can be challenging to collect, particularly in high deductible situations s may not know true amount to collect up front Estimator tools s holding deposits

21 Patient Out-of-Pocket Payment to As patient out-of-pocket costs continue to grow, collecting patient responsibility will become increasingly critical to the provider s bottom line Patient Encounter Post Encounter Adjudication COB/Patient Responsibility Patient Pay Check/Credit Consumer Co-pay Claim 837 CCD+/Check 835 Consumer Payor Premium 820 Check/ACH Employer Payor Day 1 Day 7-90 Day 63-146

22 Patient Out-of-Pocket Payment Overview s are paid by patients once a claim has been adjudicated by a health plan, and the provider is informed of the patient responsibility. s can often have difficulty collecting from patients once they have left the office: Patients do not understand bills Receive multiple EOBs bill is not easily reconciled to EOBs Bills are not easy to pay Payment methods vary and are not consistent across providers On-line solutions are not readily available Patients have competing priorities

23 Receivables Out-of-pocket receivables comprise approximately 19% of total provider receivables. As patient out-of pocket costs continue to increase, this further increases the likelihood of hospital bad debt. accounts receivables: Outstanding Receivables by Payer Type receivables is comprised of approximately 42% government, 40% third-party and 19% out-of-pocket. Out-of- Pocket, 19.3% Medicare, 29.3% As consumerism is adopted, transactions will convert from a third-party reimbursement insurance model to a first-party payment model (i.e., shift costs from employer/payer to patient). Medicaid, 12.9% Private Insurance, 40.1% Source: Hospital Accounts Receivable Analysis - 4Q 2009

24 Patient Out-of-Pocket Projected to Grow 42% Out-of-Pocket Spend by Type of Expenditure (in billions) $400 $350 +42% $300 $250 $200 $150 $100 $50 Nursing Home Care Durable Medical Equipment Other Non-durable Medical Products Prescription Drugs Home Health Care Other Professional Care Dental Services Physician and Clinical Services Hospital Care $- 2004 2006 2008 2010E 2012E 2014E 2016E Source: U.S. Department of Health and Human Services, Center for Medicare & Medicaid Services. National Health Expenditure Projections 2009-2019 24

25 Paying Healthcare Bills Can be Challenging

26 Project Financial Impact to s Bad News In 2011, patient Write-Offs represented an estimated 25% of collectible patient financial responsibility, or $102 billion Worse News The problem is expected to double to more than $200 billion; almost 33% of patient responsibility Billed Collections $172B 41.50% Patient Write-Off $102B 24.53% over 8 years Billed Collections $232B 37.14% Patient Write-Off $203B 32.49% POS Collections $141B 33.96% POS Collections $189B 30.37% Source: Citi analysis based upon 2011 data from the US Dept. of Health & Human Services & Center for Medicare & Medicaid Services

27 Current Focus and Factors Demanding Change Consumer challenges: Need for a Patient-centric focus on the revenue cycle Patients are frustrated Coordination between payers and providers is lacking patient suffers as a result Payment methods are scattered and inconsistent

28 A Need to Shift Focus Consumer challenges lead to provider problems: Slow collections from consumers High write-offs Lots of customer service calls & time on the phone Unhappy patients

29 Market Dynamics Opportunities exist to improve both the consumer s experience and the provider s bottom line Increased + s member difficulty in + Complex payment + responsibility collecting process Consumer responsibility has grown from an average of 12% in 2007 to 30% in 2012. This is a percent of total provider revenues 1 $101.4B in uncollected revenue in 2011 2 Average patient bad debt is 4%-6% 2 of total review 13% of providers say that higher copays and coinsurance are their most pressing issues 3 Consumers cite confusion or inconvenience for not paying bills more than for financial reasons 4 No real incentives exist to motivate consumers to pay more timely 1 2007 & 2010: the Retailish Future of Patient Collections, Celent, Feb. 2009, http://reports.celent.com 2. Department of Health and Human Services, CMS, Office of the Actuary; National Health Expenditure Data Projections, 2010 and Fifth Third Analysis 3. Recession boosting bad debt at Healthcare Organizations, Healthcare Finance News, May 11,2010 4. McKinsey Quarterly, May 2010 5. Communispace, December 2011 Advances in technology More than 50% of consumers are interested in an on-line payment solution for health care bills 5

30 Questions? Thank You!