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The Banks Are Coming

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Technological innovation and savvy marketing are hallmarks of the financial services industry. Both have allowed financial institutions to automate and perfect a variety of complex transactions involving stock trading, annuities, 401(k) accounts, individual retirement accounts—all in the name of saving time and money.

Lately, financial leaders have begun to investigate how to use their transaction expertise to transform another industry: healthcare. While bringing their own houses to an unprecedented level of automation, financial institutions have long cast a covetous gaze at healthcare’s inefficient billing, collecting and reimbursement. Now, as the employer-based health insurance model continues to deteriorate, consumers are shouldering an increasing percentage of costs and playing a growing role in healthcare decision-making. Such consumer engagement means the healthcare sector is paying closer attention to goals such as transparent pricing, standardized quality measures and electronic medical record-keeping.

But as mass media outlets focus on skyrocketing premiums, they’ve largely missed a strong underlying shift--that financial institutions may soon wield heavy indirect influence in healthcare through their custodianship of health savings accounts. By 2010, consumer-directed health plans coupled with HSAs will make up 24 percent of the commercial insurance market, Forrester Research predicts. Someone will have to service—and safeguard—the billions in deposits that will accompany such penetration. With HSAs predicted to total as many as 25 million accounts by 2010 with $75 billion in assets and deposits, according to consulting firm DiamondCluster International, former healthcare outsiders have learned that by cutting prices and raising value, they can make a lot of money.

A fourth-party payment system?

Even if those lofty market share predictions for consumer-directed plans are only half right, in addition to collecting from third parties like Medicare and more traditional health plans, providers will derive a much larger portion of their income from a fourth party—an array of individual consumers for which most providers are not ready. Despite a greater awareness of the importance of collecting copays and coinsurance money at the time of service, most hospitals and physician practices still have a difficult time collecting money from patients. As deductibles and coinsurance rates rise ever higher, providers face the unpalatable option of billing ever higher amounts to the patient, unless they can adjudicate the claim at time of service.

Right now, few providers can do that. But they’ll have to get better, experts say, in order for HSAs to work toward the goal of limiting double-digit healthcare cost growth. Network contracts with insurers that prohibit providers from collecting at the time of services will have to be reworked, as well. An army of banks, mutual fund companies, credit card processors, IT vendors and others will be willing to help.

Providers worried about the expense and bad debt exposure from having to bill and collect after services are rendered from hundreds of individuals will need some assistance—a carrot or two to get them to buy into the concept. Otherwise, so-called consumer-directed healthcare is doomed from a practical perspective, say experts (see “Beware Payment Snafus,” page 24). One of those carrots is real-time adjudication and ability to determine the patient’s share of the bill, which will require infrastructure investments such as point-of-service machines and software upgrades that providers won’t necessarily be lining up to pay for.

But banks and other financial institutions have plenty of incentive to make sure the process of adjudicating claims and getting providers paid promptly is as painless as possible. HSA Bank, for one, is working on it, says Kirk Hoewisch, president of the Sheboygan, Wis., institution. HSA Bank is an early entrant into the health savings account space with 150,000 accounts representing about $312 million in assets and deposits.

“It would be really nice if at the point of sale you know what the price is, to eliminate the need for billing and collections for providers,” he says. “Everyone’s working on it furiously.”

Hoewisch predicts that capability may be in place by 2008, but in vendor pilot programs, some providers can already offer real-time adjudication and collection through specialized terminals, “like a credit card machine that’s programmed to have an interface,” he says. “We don’t want collection costs to be the reason HSAs aren’t ultimately adopted.”

Shifting roles

Consumer-directed healthcare, characterized by more money for care coming out of patients’ pockets through HSAs or health reimbursement accounts mated to high-deductible health plans, is still a small part of the commercial market. But that’s changing fast. Many consumers like HSAs because they are portable and tax-advantaged. With HSA deposits likely to grow exponentially over the next 10 years and beyond, financial institutions are partnering—and sometimes engaging in low-profile turf tussles—with large health plans over control of the money stream. One health insurer already owns a bank, UnitedHealth Group’s Exante Bank, and others are trying—most notably the Blue Cross Blue Shield Association, which hopes to begin operating Blue Healthcare Bank by January 2007.

Other health plans are forming partnerships with banks and other financial institutions to leverage their expertise in immediate fund transfers and custodial experience with other tax-advantaged savings vehicles like 401(k) and IRA accounts. Under the majority of such arrangements, health plans provide the integration of protected health information and adjudication of claims, while financial institutions service and transfer money from the HSA accounts to providers. That way they stand to collect on asset-management and transaction-processing fees.

“We’re just seeing the beginnings of those partnerships,” says Greg DeBor, partner in the global health solutions practice of El Segundo, Calif.-based Computer Sciences Corp. DeBor cites Fidelity Investments’ entry into the payroll domain as part of its plan to attract deposits the way it has with 401(k) programs. “But the process is broken around the automation of figuring out the appropriate deductions and payments the patient is responsible for,” he says.

Fidelity’s game plan of getting into HSAs as a retirement tool is slightly different from traditional banks that hope to have an advantage on a transactional basis. The company is aggressively positioning itself directly with employers in an attempt to attract HSA holders to its investment products, like mutual funds.

Brad Kimler, senior vice president of the benefits consulting group at Fidelity Employer Services Co., a division of Fidelity Investments in Boston, helps employers design their communication campaigns surrounding HSAs. “The vast majority of employees don’t have access to retiree medical benefits,” says Kimler, adding that Fidelity has tested HSAs and the challenges and opportunities they present through its own employees, including himself. “The biggest need in retirement is healthcare. It’s confusing and intimidating for people to understand the value of participating in it.”

Stewards or money-changers?

Banks’ role in healthcare is still undetermined—especially those not owned by health insurance plans trying to preserve their control over money and transactions. The activist role assumed by Minneapolis-based UnitedHealth Group’s Exante Bank as a steward of their accountholders’ healthcare, for example, is likely to differ from that of a bank that partners with a health insurer. Such banks forgo the management of the enrollment process and other administrative tasks, instead simply holding funds for patients’ use when they are needed.

Employer allies like the Auto Industry Action Group are keen on engaging banks as patient advocates, however, to ensure that the services they provide support high-quality care.

“I’m very much in the hopeful camp if banks are willing to be stewards rather than just money changers,” says Joe Fortuna, co-chair of the Southfield, Mich.-based trade association that focuses on improving quality and processes in the automotive sector. More than 1,500 automakers and suppliers are members, representing 18 million employees. “If they want to be a partner in value with employers, they have a chance at keeping more of that HSA money in their banks, which is what they want.” In the long run, Fortuna says coaching patients in the most efficient use of their healthcare money will result in less spending on emergency room care, for example. “It’s both efficient and effective,” he says.

In an ideal outcome, Fortuna envisions that financial institutions see themselves as a long-term partner in the health and wellness of their accountholders, just as employers do, reasoning that the healthier they are, the longer their money stays in the accounts.

“If you’re a member of a managed care plan, you’re locked in for a year at a time,” Fortuna reasons. “If you don’t like the way the plan performs, you can’t change until the next November, if at all.” By contrast, patients who are dissatisfied with their HSA administrator can change at any time. “Banks in this case may have the same incentives that patients and employers have,” Fortuna says.

The creation of an ally interested in preventive healthcare and the overall long-term health of employees is key to holding down health costs, many experts agree. Indeed, among consumers with HDHPs, the RAND Corp. suggests that healthcare utilization is likely to drop 24 percent to 30 percent. By contrast, traditional health plans have had comparatively less incentive to focus on the long term or cut utilization because they generally have strong beneficiary turnover.

“Most have the members for an average of 18 months to two years, so why should they spend lots of money for wellness?” Fortuna asks.

By comparison, banks and other financial institutions will have a stake in the long-term health of their accountholders, either in partnership with health plans or because a health plan owns that bank, says John Casillas, founder and executive director of the Medical Banking Project, a Franklin, Tenn.-based organization focused on bringing banks and health plans together to increase value and limit cost increases. “Because banks are going to be managing billions in HSA assets, there is this notion that these banks should be good stewards of this money,” he says. “Consumers don’t always make the wise healthcare choice, and if they don’t, it’s going to come back and bite the employers.”

Many, if not most, high-deductible plans already encourage preventive care by covering such services at 100 percent regardless of the deductible, with no separate deductible for prescription drugs—among the benefits of many HSA offerings from state Blue Cross plans.

United’s vision of good stewardship of its accountholders’ money includes owning the transaction process from patient to provider through its Exante Bank subsidiary. At press time, Exante controlled 213,000 HSA accounts with a total of $265 million in deposits and $340 million in assets under management. Rather than just passing insurance premium dollars from employers to providers, a bank that manages HSAs has a significant interest in creating value for each employee who chooses it as its HSA custodian. If the bank doesn’t do a good job simplifying the sign-up process or managing accounts, consumers can take their business elsewhere.

“The potential of Exante is to completely integrate the health election and financial integration such that consumers see it as seamless,” says D. Dean Mason, president of the Salt Lake City-based bank. Once HSA holders reach $2,000 in a straight savings account, Exante offers several mutual fund investment options for which it is not compensated and allows them to choose automatic claims payment.

Pressure on Providers?

But what about the time it takes providers to collect payments? Long a bugaboo of the third-party system, many are worried that instead of collecting from just a few big payors whose payments may be slow but at least predictable, providers will have to collect from hundreds, if not thousands, of individuals. Even payors and HSA custodians who recognize the importance of making the CDHP system work for providers acknowledge many kinks still must be worked out.

Of course, if the money’s already in the health savings account, and the HSA holder has already authorized automatic claims payment, it’s not too much of a stretch for providers to set up point-of-service card-reading machines that can get them paid immediately. But determining the patient’s share of the bill in real time poses some challenges. A system that is able to do that reliably and consistently hasn’t debuted yet—although many say that it’s only a matter of time because the stakes are so high.

“We don’t think anyone, including us, has gotten it just right yet,” says Mason. Exante is working on a solution, however. The bank is testing a system in Texas called OnePay, which pays providers immediately for services incurred by the HSA holder in return for a small discount off the negotiated rate that goes directly to the consumer.

Initially, this disruption in payment methods “is going to drive providers crazy,” says Shawn Jenkins, chief executive officer of Charleston, S.C.-based Benefitfocus Inc., a software company that provides benefit enrollment, electronic billing and data exchange to insurers and their enrollees, including several Blue Cross Blue Shield plans, Humana, Anthem and Allstate. “As much as they are at odds with insurance companies, the (current) system is still the way they get paid.”

Collecting and billing hundreds, or even thousands, of individuals “turns their collections department upside down,” says Jenkins. Since such collections constitute such a small part of their business now, providers collect from individuals passively, then turn it over to collections and “get pennies on the dollar,” he adds. “They will adapt, but the smart ones will start setting up their accounting systems to track down individuals.”

That’s not an appetizing concept for many providers, including Bob Seehausen, senior vice president of business development and sales for Novant Health, a seven-hospital system in Winston-Salem, N.C. Seehausen feels that so far, the growth of high-deductible plans and HSAs has had a minimal effect on his system, even though Novant has rolled out a high-deductible plan coupled with a health reimbursement account for its own employees.

“We don’t have enough volume yet to have formed an opinion,” he says. “There’s a lot of hype around these plans.”

Even so, Novant and its hospitals and physician practices are doing their best to prepare for their impact, given the fact that a major local employer, Hanesbrands Inc., has recently moved 100 percent of its employees into an HRA-backed HDHP. Seehausen says Novant is getting better at communicating out-of-pocket cost estimates to patients before services are rendered.

“I would rather have someone fully informed than mad afterwards,” he says, adding that many healthcare facilities will be keeping a close eye on bad debt as such plans get more popular. “If that’s tripping providers up, then it goes back into pricing,” he says. “Facilities will try to make sure contracts align with their collection policies. If they have strong upfront collection policies, there will be strong negotiations about what they can collect at the point of service.”

Still, despite all the complications necessary in rolling out new benefit plans and encouraging employees to sign up for them—as well as the billions in assets, deposits and transaction fees at stake—execution will determine whether financial institutions can make a profitable go of healthcare.

“All it takes is a couple of bad transactions in a physician office,” says Seehausen, “and they’re done dealing with it.”

Philip Betbeze is finance editor with HealthLeaders. He can be reached at pbetbeze@healthleadersmedia.com.



Doing the Math

Bob Seehausen had a choice to make, so he treated it like a business problem.

Two years ago, the choice was whether to enroll his family in a high-deductible health plan offered by his employer, Novant Health, a seven-hospital system in Winston Salem, N.C.

“As an employer we’re motivated by a lot of the same things as other employers. We have all of the same healthcare trends and wellness and disease-management issues everyone else has.”

Seehausen says participation in the health reimbursement account high-deductible plan among Novant Health’s 17,000 employees the first year was minimal at best, owing at least anecdotally to the initial skepticism employees had about the program and the perceived lack of a broad physician network.

An HRA arrangement, say many experts, is vastly inferior to a similar plan mated to an HSA, because HRAs are simply reimbursement vehicles, aren’t portable, and don’t allow employees to build a healthcare “nest egg.”

Even so, Seehausen wanted to see for himself, so he did a “little model of our family’s healthcare expenses. It was not easy.” He stuck with the traditional PPO plan, he says, after he designed a spreadsheet to determine which choice would likely be most beneficial for himself, his wife and three children.

In terms of projected healthcare expenditures for the year, “if you were extremely low or extremely high, the HRA was the way to go,” he says. “If you were in the middle, the traditional plan worked out better.”

—Philip Betbeze



Beware Payment Snafus

Nothing could damage consumer-directed health plans’ viability more quickly than if providers simply refuse to deal with it, say many experts. That will happen if payors and financial institutions can’t figure out how to adjudicate and determine the patient’s portion of the bill in a timely manner.

“Today it is primarily being done via paper,” says Paula Fryland, senior vice president and managing director of the national healthcare group at PNC Financial Services Group in Louisville, Ky. In the near future, she says, “providers will have a direct connection to their payors and can transfer patient information. That’s what PNC has done and where the banking community can add help to the industry.”

That can only be accomplished, she says, with widespread adoption of electronic data interchange as a standard for healthcare providers. Gains can be substantial, she says, and the cooperation of the financial services industry can help facilitate EDI.

“The business of healthcare is becoming increasingly financial. Providing a disciplined method of transacting business on the back end is really the secret sauce,” says Shawn Jenkins, chief executive officer of Benefitfocus, who says the potential gains for financial institutions from participating in healthcare transactions are so impressive, they can’t afford to mess it up.

“The amazing thing is that HSAs are so much bigger potentially than retirement,” he says of the profit potential for financial institutions in custodianship and transaction management. “The retirement system is about one-tenth the size of the healthcare annual spend. In five to eight years one-fourth of the healthcare spend will go into bank accounts.”

Getting providers paid immediately will be very effective in gaining their acceptance of the new model, he says. “Why can’t the banking system work with medical practices to get EHRs available on a free ASP model?” he says. “Then they would be able to protect confidentiality and effectuate immediate transfer of monies and have an EMR second to none.”

In return, banks get access to the deposits and transaction fees with the docs, which they desperately want.

The ultimate goal is automating the enrollment and provider processes so it’s seamless for the provider and the consumer, says Kirk Hoewisch, president of HSA Bank. “So he or she goes to the insurance site, and they see everything with a single sign-on, from their account balance to their insurance coverages to brokerage investments and medical claims.”

All of which sounds fantastic, says Bob Seehausen, senior vice president of business development and sales for Novant Health. But he wonders whether all the challenges can be navigated before providers have a bad taste in their mouth.

“I would encourage the insurance companies to get the transaction side clean and smooth because that will kill it if providers experience problems getting paid. That will put a significant damper on the growth of this product.”

—Philip Betbeze