Last week, we touched on how the shifting financial responsibility of medical costs towards consumers is impacting providers from a collections / revenue cycle management (RCM) perspective. Beyond these direct RCM implications, increasing consumer interaction directly with providers as a result of this cost shift is placing broader systemic burden on the U.S. healthcare systems’ transaction processing capabilities, which have largely been built to accommodate payment, transaction, and data flows between institutional entities (hospital systems, commercial payers, and CMS) rather than between consumers / individuals and institutions, like most other industries in the U.S.
The combination of increasing healthcare spend and transaction volume alongside greater consumer financial responsibility has led to a growing need for reform to a system built on legacy processes and procedures that are no longer sustainable. This is largely due to the fact that former B2B processes, which were highly manual and paper based, have proven to be inefficient and incapable of handling the demands of the “new normal” in our healthcare system (i.e. accepting multiple payment types). From 2012-2014, the average amount paid by a consumer to a provider increased ~11% from $128 to $142 per encounter, while over the 2011-2014 period, total transaction volumes increased nearly 200%. As higher transaction flow and more frequent instances of shared payment responsibility permeate the system, a two-tiered pain point is developing for providers.
First, as reimbursement rates become more aligned with patient satisfaction (i.e. HCAHPS scores), providers are struggling to deliver an experience that is robust enough to drive patient engagement and meet consumer expectations around payment acceptance (i.e. use of credit cards, online bill pay, etc.), rapid turnaround time, and transparency amidst an environment already mired by consumer confusion. Unlike any other industry in the U.S., consumers and providers often have no concept of their financial exposure or benefit coverage at the point of care, frequently resulting in consumers experiencing “sticker shock” after receiving one, or more frequently, several, invoices from a given episode of care. Tied together, this often results in frustration and dissatisfaction which can impact provider quality scores for reasons entirely disassociated from the actual quality of clinical care.
Successfully managing the consumer experience is only one side of this challenge, and a second dynamic we expect to become more acute is the hard costs associated with handling higher throughput across the system. Roughly 30% of all healthcare spending by 2022 is expected to be driven by wasteful processing dynamics, underscoring the need for a solution that can deliver cost-effective results to an industry already operating at slim margins. However, as is often the case with healthcare, appropriately managing the nuances of the current system while still successfully driving automation and the integration of multiple, often disparate, data sources (i.e. patient accounting, claims data, and electronic health records) is not a simple task that can be replicated based on a solution successful in a different industry vertical. Our perspective is that for this reason, existing payment processors that have succeeded in other industry verticals have been unable to independently “crack the code” and emerge as a leader within the healthcare payments universe.
Taken together, we see a nascent market niche that is ripe for exploitation by innovative, forward thinking businesses. With nearly $1 trillion in revenue cycle impact in 2012 driven by a system incapable of handling B2C transactions (see above), we see a window of opportunity for disruption by two main sub-categories of market participants:
- Payment Processors: Ability to manage EFT and electronic claims processing, direct integration between payers and providers (EDI), cash management linkage, and electronic remittance (ERA) integration
- Provider / Payer / Consumer Integrators: Point-of-service eligibility verification, cost estimation and electronic benefit explanations (EOB), real time claim adjudications, and multi-payer clearinghouses
Key success factors are likely to be an ability to replicate the user experience seen in other areas of our economy, such as retail online banking and travel management, into the more nuanced healthcare arena. We view the ultimate long term ‘winners’ as businesses that can clearly articulate a hard ROI, provide an enterprise-class integrated solution, and bring to market an offering that is differentiated and defensible to what is likely the last ‘greenfield’ niche of the broader payments processing landscape in the U.S.
Let us know what you think.