Single-Payer Healthcare – Part 1: Benefits

Reducing Waste in the Hospital Revenue Cycle

By Matthew Kopetsky

On 5-26-11, Vermont became the first state to sign a bill into law mandating the development of a statewide single-payer healthcare system.   In this two-part post, Tom Best and I will explore the potential implications of single-payer healthcare – both positive and negative.

Although the critical path in implementing Vermont’s new system (called Green Mountain Care) is estimated to be a minimum of six years, in my current world of hospital revenue cycle improvement, this development brings with it exciting implications for my good friend TIM WOOD:

T:  Transportation
Although most large payers today process claims and communicate with healthcare providers electronically, some small payers still require faxing, phone calls, or even mailing documents such as required medical records.  This inefficient means of communication could be eliminated and claims could instead be sent electronically to a single-payer.  Additionally, many payers rely on intermediary companies to produce Electronic Remittance Advice (ERA) files (835s).  These intermediaries provide 835s for numerous payers all in one bulk file and if delayed in processing payments, money from every payer could be delayed.  With one payer, there is less opportunity for variability in this process.  Finally, technical and procedural support could be much more readily available and in a closer physical proximity.  Healthcare providers would no longer have to work with out-of-state or even overseas support for claim processing issues.

I:  Inventory
By Little’s Law, a decrease in processing time will eventually result in an overall decrease in inventory in steady state.  If a single-payer is successful in achieving larger efficiency gains than individual payers are currently capable of, the volume of pending, Work In Process (WIP) claims will be reduced.  In practice, I have seen commercial payers averaging about 28 days from submission of a claim to actually paying it.  I have seen Medicare, however, average merely 19 days from submission to payment.  Whether Vermont is able to achieve these same processing times that have been achieved on the federal level is yet to be seen and will be explored further in the opposition article.

M:  Motion
The hundreds of payers that compete in the current healthcare world each bring with them shockingly different technological capabilities, payment contracts, expected reimbursement amounts, and processing requirements.  As one example of the standardization that hospital billing and claim follow-up offices would benefit from, a list of timely filing requirements for many of the current California payers is included to the right.  The difficulty in tracking the statuses of thousands of claims as they approach the hundreds of different timely filing deadlines would be streamlined under a single-payer system and healthcare organizations will collect many claims which were previously written off.

W:  Waiting
For healthcare organizations, following-up on claims pending hundreds of different payers (each with different contracts and requirements) is very time consuming.  A single-payer could maintain a single source of the statuses of all of an organization’s pending claims.  The availability of online claim statuses could greatly reduce the need to follow-up on claims and one day it could even become unnecessary.  However, this process change, while greatly simplifying hospital processes, places a much greater burden on the single-payer entity (Tom will explore this further in Part 2).

O:  Over-processing
With many payer contracts requiring different levels of detail for payment of a claim, excessive amounts of detail are often also provided unnecessarily to the less stringent payers.  For instance, a complete 100+ page medical record may be provided to a payer when only a small section of the record was actually required to process the claim.  This excessive work could be avoided because organizations would only have a single contract to adhere to.

O:  Over-production
Since tracking payers’ receipt of claims sent both electronically and hardcopy can be difficult, many claims are sent to a payer more than once before payment is actually received.  A single-payer will hopefully greatly improve this process.

Upstream from the revenue cycle, doctors would no longer be incentivized to issue unnecessary medical tests/treatment and overall cost of care will hopefully subside.  However, Vermont’s plans to curb preventative medicine and the legal ramifications of medical malpractice remain to be seen.

D:  Defects
Complex payer requirements, coupled with the ever changing world of procedure codes (ICD-10 will replace ICD-9 in the US on 10/1/13), can result in claims being billed to payers incorrectly.  Incorrect claims, and hence the need to send corrected ones, will hopefully be greatly reduced with a single-payer.

This article is continued in Part 2 – Opposition:  Don’t Scrap Multi-Payer Healthcare – Redesign it!

Single-Payer Healthcare – Part 2: Opposition

Don’t Scrap Multi-Payer Healthcare – Redesign it!

By Tom Best

A major difference between single- and multi-payer insurance is the level of choice.  The single-payer system significantly limits the health insurance options for individuals and companies.

I’m not saying anything new here.  Many of us acknowledge this difference.  Some of us are comfortable with sacrificing choice on this manner if that sacrifice leads to the better care for society and stalls or stops the rise of healthcare costs.

I emphasize the “if” in the previous paragraph.  In my opinion, that “if” is unrealistic:  I believe healthcare costs to society will not decrease and care will not improve by switching to a single-payer system.  A redesigned version of the multi-payer system has a better chance of achieving those goals.  TIM WOOD chimed in with some support:

T:  Transportation
The private and public development of useful digital networks for sharing health information between providers and payers is already occurring in our multi-payer system.  A single-payer umbrella would only help the adoption process if it (1) improved the results and/or (2) expedited the design and implementation when its valuable to do so.

1. If any single-payer oversees the implementation of the networks, it will (at best) only introduce additional communication requirements between the entity’s oversight body and the developers.  At worst, the overseers will take some of the developers’ losses as their own (and redirect those losses onto taxpayers), stifle developer competition before the market determines the best option, and thus reduce the quality of the networks in the long run.
2. Instead of expediting the adoption of the networks by eliminating the payers who aren’t on-board, I agree with an indirect approach:  a third-party regulator incentivizes the current multitude of providers to utilize these networks.

I:  Inventory
There are no guarantees that a single-payer system will reduce processing time or total WIP.  On the other hand, if the single-payer creates a bottleneck in claims processing (e.g. an approval checkpoint with limited capacity to quickly manage a large volume of claims), overall processing time may actually increase over the multi-payer model.  High processing variability would still be likely, since the volume of claims through a single-payer would require division of responsibility within the single-payer’s umbrella to address them quickly (e.g. state-level or city-level microcosms of the overall entity).

The leaders in a multi-payer system will find ways to reduce their own process inefficiencies if the market rewards them for doing so.  A single-payer system will only extend the current “top-down” incentives (e.g. P4P), and the rewards and punishments from these new incentives may or may not be necessary or realized in a less-regulated market.  Even a small payer may be able to process a particularly complex type of claim more quickly and effectively than a large payer, and thus capture enough of this market segment to remain viable as a company and benefit society with its superior service.

M:  Motion
To me, Motion is a reference to the activities of those completing the work, and Transportation references the movement of the work itself.  Both a single and multi-payer system will have similar potential for wasted Motion, since the single-payer would need a very large operating budget to satisfy the total demand of the multi-payer system.

In addition, true reductions in Motion waste will require a careful analysis in either payer system.  One way in which a governing regulator could be beneficial in this model is to provide a central network for expertise in addressing wasted Motion in this office environment.  Industrial engineers trained in Human Factors would be a good fit for this role.

W:  Waiting
In addition to the WIP arguments above, there are other reasons why Waiting (in its general sense) will increase in a single-payer system.  Without competition from other payers, it’s less likely that the single-payer can sustain a burning platform for improvement.  While the initial leadership of a single-payer system may be motivated to eliminate the current problems with claims processing, the lack of a third party also trying their best to make profit in the industry will make it very difficult for successive leaders to maintain the same level of effort and incentives towards substantial improvement.  As a result, society would have to wait a long time for these changes, especially if those changes were initiated only by a select few at the top of the single-payer’s long hierarchy.

O:  Overprocessing
The tendency in a single-payer system may be to eliminate some necessary variation in the claims processing work system, in favor of the simplicity and feasibility of “over-standardization” and a “single contract” like my colleague Matthew mentions.  If the single payer does eliminate necessary process variation, it may result in a simplified process, but the process might impose potentially unnecessary actions on a given claim (e.g. double-checks) just to satisfy the requirements of all the different original types of claims.  These unnecessary actions are (to me) the same as overprocessing.

O:  Overproduction
In a broad sense, overproduction is providing products or services where they are not needed or desired by customers.  In this sense, overproduction helps us define the universal coverage that may or may not be mandated by a single-payer system.  In my novice opinion, there are a variety of strong arguments for and against mandated, universal coverage, and it’s likely that a carefully designed compromise is the solution with the least waste.  Either way, it seems feasible to incorporate this compromise in a multi-payer system.

D:  Defects
Let’s step back from insurance claims processing and consider how we prevent defects in general.  There are three categories of defect detection (in order of their strength):  auto-correction, auto-shut-down, and warnings. 

It is difficult to develop a truly practical auto-correction solution, but such development arguably has a higher chance for success in an organizational structure with competition.  Even if the single-payer system manages to keep competition intact, they will likely increase the current level of supervision of those who develop the ideas, and decrease the means (e.g. $) for the competitors to test their ideas.  In summary, the single-payer can only further stifle the current pace of progress toward error-reduction in our already regulated multi-payer system.

Also read Part 1 – Benefits: Reducing Waste in the Hospital Revenue Cycle.

Conclusion

By Matthew Kopetsky and Tom Best

A single-payer system may succeed in simplifying the revenue cycle from a provider/hospital’s perspective by refocusing the need for process improvement and standardization on the single-payer itself.  However, the long-term success of either single-payer healthcare or multi-payer healthcare will depend on the ability to eliminate waste and pursue continuous incremental improvement.  If our nation’s healthcare can establish and sustain this burning desire for improvement in a single-payer, it may be successful.  If not, the spirit of competition that only a multi-payer healthcare system can bring may be required.