Payers, Providers Vie for Piece of e-Payment Pie

Health insurers are expected to save billions of dollars in billing expenses by offering e-payment to providers. But some innovative e-payment mechanisms are laced with fees, raising questions about fairness.

In an industry as big and bloated as healthcare, cutting costs is necessary, but insufficient on its own to combat waste. As cost-cutting generates windfalls, industry stakeholders also need to find a fair way to divvy up the cost-savings spoils.

Many observers have compared the reform-roiled healthcare industry to the Wild Wild West. The temptation to draw open-frontier analogies is irresistible, and I have galloped down that dusty trail for a story about the Pioneer ACO program.

With opportunity aplenty, fairness is a topic that has not arisen often; until last week, when I set out to explore healthcare's electronic payment frontier.

The feds launched an e-payment Gold Rush this year: requiring insurers to start offering e-payment to providers, which offers a number of benefits because paper checks come with administrative and mailing costs, which add up to billions of dollars of expenses for payers.

A 2012 Institute of Medicine report estimates that waste linked to paperwork and administration costs the healthcare industry about $190 billion annually. A 2010 study conducted by several industry stakeholders pegs the potential yearly cost savings from e-payment at $11 billion.

"It saves them a lot of money," Robert Tennant, senior policy adviser at the DC-based Medical Group Management Association, told me last week during a discussion about payers shifting away from paper checks.

Whenever there is "a lot of money" on the table, anyone within eyeshot of the pot starts thinking creatively. In the case of e-payments to healthcare providers, payers have not only adopted the standardized electronic fund transfers required under federal law, but also introduced innovations.

One of these e-creations is virtual credit card payment, which comes with fees ranging from 1 percent to 4 percent. Tennant believes it is unfair for payers or their automatic clearing house partners to take a fee for a digital process that costs significantly less than paper checks.

"Yes, there is a rule, but people are finding a way around it," Tennant said. "The goal was to save the country money, and people have not embraced it the way they should have."

When I contacted Emdeon, which is one of the country's largest vendors for administering healthcare financial transactions, Senior VP Tom Dean told me the company offers virtual credit card payment as part of a suite of options for providers.

"Emdeon realizes that not all providers are able to accept the federally mandated EFT-ACH transaction from all payers, therefore we offer a wide range of additional payment options to best serve the market, including virtual credit cards, image cash letters and printed checks," he said.

So this is how fairness works in the Wild Wild West of healthcare.

Payers are taking advantage of a newly opened frontier, not only offering federally required EFT payments, but also payment mechanisms that fulfill niche needs—for a price. Providers are struggling to keep up with the pace of change, with stragglers facing higher costs.

Like so many other dangers on the healthcare frontier, the downsides of e-payment are not as drastic or obvious as being robbed at gunpoint outside the local saloon. The main threat is falling out of touch with the evolving business environment and picking the wrong options in a field burgeoning with innovation.

On the new health insurance exchanges, inexperienced consumers are learning hard lessons about deductibles and other forms of coverage cost sharing. To avoid similar hard knocks, providers who are unprepared for EFT payments or uninformed about their digital reimbursement options need to school themselves on maximizing e-payment value.