By any measure, the U.S. health care industry is far behind most others in automating data exchange to make their operations more efficient. Over the last half-century most industries automated their business transactions by adopting standards and embracing automation to exchange information. Starting with IBM punch cards in the 50s, manufacturing, retail, financial and a host of other services developed ways to reduce paper intensive processes. This effort raised efficiency to new levels as industries adopted standards that allowed them to exchange data.

Today, standardized data exchange is the backbone of commerce. Information about purchases scanned at a retailer can be electronically communicated to a manufacturer, who can make real time adjustments to its manufacturing processes and just-in-time inventories and shipping schedules. Standardized information today flows between widely disparate industries. The retailer can order goods from many different manufacturers and have it all shipped on the CSX Railroad and pay for it through its Miami bank with minimal transaction costs.

Sadly, the American health care system did not follow this drive towards automation. While the reasons are many, from a reluctance to divert funds away from patient care to the evolution of our third party payment system, the costs of administering health care today consume nearly one third of each healthcare dollar. While many hospitals have automated the materials-management side of their operations, they didn’t do the same on the administrative or clinical side. With no standards in place, and thousands of payers from Medicare to the regional and national insurers, everyone established their own specifications for claims filing. These non-standardized processes spawned intermediaries such as Claims clearinghouses who physicians and hospitals have had to rely on to deal with massive and complex paper operations.

The Health Insurance Portability and Accountability Act (HIPAA)
As health care evolved in one direction, employment also has experienced a migration towards a mobile workforce. A few decades ago, people stayed in one or two jobs throughout their lifetime. In those days people had no need for the Health Insurance Portability and Accountability Act (HIPAA), because their jobs were stable. But today, in a time when careers are constantly changing, HIPAA was designed to make a big difference.

The course of events that compelled legislators in their effort to create HIPAA standards is indeed a slippery one. While the stated primary purpose of HIPAA was to enhance health insurance accessibility for people changing jobs or leaving the workforce, from inception the focus has been on the exorbitant cost of American health care. HIPAA contains a section entitled “Administrative Simplification” whose provisions are designed to promote the transmission of confidential healthcare data electronically. Recognizing the risks of portable health information, Congress proposed not only a formula for significant dollar savings for health plans and providers by simplifying administrative transactions, it rightly also included privacy and security requirements to assure that electronically transmitted data will remain confidential and secure.

Physicians who implement HIPAA will be able to reap the most benefit from the new rules on uniform transactions. In addition to demonstrating to their patients they are genuinely concerned about the safety and confidentiality of their medical records, providers will be preparing for the future as many health plans will begin to require that claims are submitted electronically. For example, all Medicare claims must soon be submitted electronically in HIPAA-compliant transactions unless no method is available to do so or the provider making the claim has fewer than ten full-time equivalent employees.

A $300 Billion Annual National Waste
The healthcare market spends $300 billion in annual administrative costs. An estimated 6 billion claims are routed annually resulting in 30 billion transactions handled by 290,000 clinics and hospitals. 70% of these transactions are through paper and manual touches. According to the American Medical Association, over thirty percent of claims are rejected nationally. Of that number, up to forty percent are rejected for incorrect or missing identifiers. Half of those claims are never resubmitted. The new HIPAA rules allow real time and batch eligibility determination including patient identifiers and co-pay amounts. Under HIPAA you will be able to submit electronic eligibility inquiries directly to the health plan to easily determine eligibility.

Each health plan must support all of the HIPAA transactions which also include the status of a claim, referral and authorizations, as well the electronic remittance advice. If providers leverage this capability, they will improve their accounts receivable outstanding and should be able to ease the long waits at registration while staff spend valuable patient time trying to determine eligibility.

Current estimates reveal that manual referrals cost primary care providers about $40 each and specialists about $20. Going online with standard referral and authorizations will result in significant savings. The rules also enforce electronic documentation of claims receipts so that the excuse “We never got it” won’t be heard.

However, for electronic processing to become a reality, the industry is still devoid a core capability. While we now have standards for the complete life cycle of electronic data exchange among employers, health plan payers and providers, we have no standard way to execute the delivery of transactions. Many point to this deficiency and the delay in standard national identifiers as one of the reasons that HIPAA appears to be stalled at present. Many of these specific trading partner elements appear in the form of payer “companion guides” which have introduced a “where is the standard” cry from providers. For many those four hundred different claims formats have simply transformed into one format, but with hundreds of variations based on the flexibility within the standards to accommodate specific trading partner relationships.

On Demand Applications Enable Straight Through Processing
Technology however is poised to once again come to the rescue. Many confuse what should be done on the Web versus what should be done with EDI over the Internet because EDI is perceived as an old technology. The vision is clearly electronic claims going from directly the provider’s system to the payer’s system and then auto-adjudicated without manual intervention. What the HIPAA standards were intended for is the electronic exchange of standard formatted documents between the application systems of two computers.

Web services will prove to be the perfect mechanism to automate the delivery of standard transactions across many disparate systems and telecommunications channels. Leveraging a services oriented approach, this new capability will allow provider application vendors to seamlessly connect to health plans which are offering Web services to manage not only the information exchange, but also communicate on-demand the array of information contained in their transaction companion guides.

As health plan and provider applications adopt the use of Web services to enable a more efficient exchange of standard documents, new Web services will emerge. These will allow additional computing and specialty resources to be leveraged from a grid of services which will enable organizations to share on-demand otherwise expensive resources that would have been absorbed by a single entity.

As easily and inexpensively as electricity is consumed today, the promise of Web services is to make on-demand computing a reality in health care to lower costs while improving the efficiency and effectiveness of an increasingly collaborative industry. Just as Siebel, SAP and PeopleSoft helped to transform the computing fabric of the financial and manufacturing industries, so will organizations such as Webify Solutions and IBM. On Demand Applications enable real-time transactions that provide straight through processing, reduce transaction costs and improve patient care. Today the estimated cost per transaction is up to $15 per transaction for insurance companies and up to $8 per transaction for healthcare providers.

Using On Demand Applications can drive down costs per transaction by 70% or more up to $5 for insurance companies and $1 for healthcare providers. Enabling the flow of standardized information across the spectrum of healthcare organizations with disconnected computing infrastructures, Web services could prove to be the savior of a distributed healthcare delivery and our third party payment system.

Walt Culbertson is the Chief Technology, Privacy and Security Officer, Webify Solutions, The On Demand Applications Company. Widely recognized as one of our nation’s leading healthcare technologists and HIPAA authorities, Culbertson’s 28-year career includes significant technology and operations experience spanning provider, payer, clearinghouse and financial solutions delivered across mainframe, midrange and networked personal computer foundations.