Breaking the Log Jam in Healthcare Payments Innovation

In the healthcare payments space, the doctor is the merchant. As the payment receiver, doctors not only want to get paid faster they want to be paid fairly. How can payments innovation thrive in an ecosystem complicated by paper payments? Bill Fox, Senior Vice President of Emedon, explains to MPD CEO Karen Webster that the solution for breaking the innovation log jam lies with the payers themselves.

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KW: For those who might not know, Emedon exists in the healthcare payments space to help maximize revenue in payments cycle management. What are some of the points of friction that you are wrestling with today as it relates to the healthcare payments system?

BF: In terms of the payer/provider space, there are two dynamics going on at the same time – there are really twenty dynamics but let’s narrow it down a little. The one big dynamic that is traditionally extremely heavy paper transaction which is travelling with a lot of other paper information from the claim system. At Emedon, we’re sending 50 million statements a month and were still paying over $100 million in paper checks. The other dynamic we find in healthcare is that you don’t take the admonition that healthcare is different too seriously. Unlike other B2B payments industries, where you talk about “the merchant” where one company might be making a widget to sell to another company and they put it together to sell a product, the merchant in our case are doctors. That sets up a situation for a lot of friction around the payments amount itself. Doctors bill for the payments, claims get adjusted. It is a combination of paper laden with other inherent frictions that you might not have in other industries.

KW: You make a good point that with the doctors as merchants they want to accept payment but there is an existing claims process that sits in the middle of all of this. How do you make that more efficient?

BF: There was a study done a couple of years ago that there was $700 billion of waste in healthcare. Now, not all of that is due to payments. The traditional claims system does cause a lot of friction. There is a sort of continuum of places where the solution set needs to get better so that you can do things in a more efficient way. One of those things is price estimation, so when you go into the Apple store you know immediately how much the phone costs and you can buy it or not or finance it. When you go to the doctor you generally don’t know what it costs and you certainly don’t know what your responsibility is nor does the doctor since it depends on your health insurance. It’s important to get some clarity around pricing. The payers are entering a very different market now – traditionally you were insured by whomever you worked for and you switched insurance when you switched jobs. Now, you’ve got a huge marketplace where payers are competing in an open marketplace for business. Part of that is the ability to be able to attached providers to their network. It’s a combination of understanding price, getting used to more modern solutions in the space whether that’s credit card payments or ACH payments or whatever it might be. There needs to be a pretty big evolution fairly quickly in terms of how that relationship is viewed.

KW: There many different stakeholders in what you just described and that is true of a lot of other complicated ecosystems. Where do you start getting the industry to break the logjam?

RT: I think it needs to start with the providers themselves. The payers have more sophisticated systems that are handling large sums of money. But in a provider practice in particular, where there is a big range of players in that space, are traditionally used to getting paid in one way. They have a process – no matter how personal – they’re used to it. It really is an education process about the fact that these solutions are evolving and hopefully the payers as well as the spenders in the space can develop efficiencies that allow these types of payments to happen with the friction that comes from change. There is so much change coming on in healthcare all at the same time with open exchanges and the risk taking that when you start changing the payment process on them that’s kind of the last thing on a provider practice’s list. I think it’s really incumbent on the payers and providers in this space to be really thoughtful that education process by understanding what the providers real needs are and not getting overly enthralled in the just the technology and really making it work in healthcare.

KW: That’s interesting because it is the equivalent of the merchant side that needs to get on board and that’s been the bane on the retail payments side. But on the provider side, don’t they want to get paid sooner – isn’t that enough of an incentive?

BF: They do want to get paid sooner but they also want to get paid fairly and they want to get paid as much of the payment as they can. I think there’s been an overestimation in the market around factoring and things like that. Technology companies think they have the solution to help doctors get paid faster. If a doctor has an ongoing practice that factoring piece has not proven to be that important. I think what’s much more important to them is that they want to feel like they are getting paid fairly and are getting paid the right amount for the work they did. That really crosses over from the payment piece and the fee piece that comes along with certain kinds of payments with the claims piece that can’t really be solved in the payments world around “you’re cutting my bill”, etc. Payment accuracy and claims accuracy is a big piece of the puzzle but where the real savings will happen is when the friction is removed from billing issues. As more ACOs and other risk-taking organizations form there is less motivation on either side to end that friction around “am I getting paid the right amount?” On the other side you have the issues of the actual payment technology and fees and costs to see how much you’re paying to get this money in the door.

KW: So payments innovation in the healthcare space is really well beyond getting money into the doctor’s bank account there is so much more that has to wrap around it, is that right?

BF: Yes, there really is. So when we talk about a “final adjudicated claim” that can be a long time after services rendered. If you want to be on that payments platform you have to understand that it all starts with that eligibility swipe to determine if they’re eligible, what’s their deductions, etc. While we are talking about B2B payments here it is another unique part of healthcare in that you go in and buy something and part of it will be paid by a business and part of it will be paid for by the consumer. In 2005 there were about $200 billion in patient responsibility and by next year that number will go up to $600 billion. So when you talk to people in this world people ask: “Why haven’t people solved this on the consumer side before?” Just five years ago, no one really cared. If there was a $200 deductible usually the doctor just wrote that off. Now the average family that’s buying a plan faces a $6,000-$10,000 deductible given that the average family income is $60,000-$70,000 and they walk in and the hospital swipes their card for $5,000 it’s just not going to happen. So all of these issues around finance and what is the proper amount of the payment is really a brand new issue in healthcare, all of which are being addressed at the same time which plays into the B2B side as we get into a more retail market when it becomes up to the insurance companies to attract consumers to buy their plan. The ability to offer providers solutions as part of their payment platform to more of that consumer responsibility –

research shows that once consumers leave the doctor’s office they’re good for about twenty cents on the dollar. This is going to be a major issue for providers and if payers can offer that as part of integrated payment platforms that going to be a lot more attractive.

KW: What you’re talking about really takes the idea of split transactions to a whole different level. I think this also suggests that this will shift the focus of healthcare towards prevention in other words, taking better care of the individual so you can mitigate these expenses downstream as well.

BF: There is hope that the added financial burden on consumers will cause a perfectly concurrent added motivation on their end to take better care of themselves. There are many companies outside of the payments space who are frantically trying to work on behavior change like wellness programs. That aspect of it is probably harder than the payments part.

KW: I agree with you. What are some of the innovations taking place that aim to monitor the health of an individual but also enable payments?

BF: What we have is this extremely connected network that has been built over many years so we’re connected to virtually every payer. We pay almost every provider in the country as well as being connected to hospitals and pharmacies. If you think of the old analogy of the cable companies, they took all that time and now those are intermediary companies (phone or internet companies). So once you have that integrated network you can really start to think about how you can tie the process together. For example, we see the claim come through and the payment going out, there’s a patient perhaps with a wearable device and I’m trying to coax an action of out that payable device. That’s where you start to get tied into the payments of it. A person visits their bank portal five or six times a week and I think the stats on visiting your insurance portal are around once a month if you’re lucky. So how do you get the person to think about their health when they’re healthy? Probably if you tie it to their money. So if you can figure out the right incentive to encourage people to go on their insurance portal and enter certain fields three times a week, we’re going to take $2,000 off your copay. Now people are starting to get engaged in that integrated between what healthcare costs with trying to get healthier. If you can get that triangulation going, now you’re looking at a diabetic going to the hospital one less time a year – that’s saving hundreds of thousands of dollars. When you start thinking about how to tie in the smartphone that’s in their hand that they’re already paying for everything else with to detailing how and when they get sick. Money would seem to be a key motivator in being able to do that.

KW: I would agree with you. I think that the apps, the connection to the internet, the data and the incentives seem to be a winning formula on the retail side of payments. I’ve noticed, as an employer, people really seem to value the healthcare benefit. I think that suggests that healthcare costs are significant enough to be material to how people think about their overall financial situation.

BF: I think you’re 100% right there. People now don’t just expect to get a job with healthcare to then have it forever. So they’re actually looking at that as a bigger part of the decision making process. We’re talking about other retail areas in healthcare and I think what’s happening at a meta level is that we’re becoming more and more “retail”. Consumers are going to sort of demand that their type of interaction with the system will stay the same. If I’m a consumer and my employer payment amount is going to change shouldn’t I get some kind of notification and be able to pay whichever way I want, i.e. PayPal, etc. They’re going to demand those kinds of solutions that should be able to fly in that environment.

KW: Just like in retail payments, consumers will push the demand – they’ll push it into the system and they’ll demand those solutions which could potentially break the log jam.

BF: It’s been a very exciting time to be in this space both in terms of the startup side as well as more established enterprises. We often talk about changing the airplane engine while it’s in the air. In the healthcare space nothing can really stop, not even overnight, to allow those changes to take place. With all of the different priorities that these healthcare innovators are facing since they’re not in the business of making payments or selling products. When you’re in the system you see an incredible amount of waste – the dollars add up really fast. If you can take some small percentage type of wasteful costs out of the system, you free up a lot more money to focus on care. In what other kind of business does the government tell you that 85% of your costs need to go to patient care while 15% of your costs should be administrative? They actually tell you what patient and what’s administration care. It’s a whole other piece of the puzzle which is why I would like to make this big change to my payments system but it’s an administrative costs but I don’t have any money left in that bucket to do it. So there are a lot of moving pieces to get through in order to bring innovation to the healthcare space.