Profit in Confusion

Gary Baldwin, for HealthLeaders Media, April 22, 2008

Reader David E. Rogers, MD, a physician in McKinney, TX, sent me a pithy observation after reading my HealthLeaders magazine article “Claims Quagmire.”

Just read your article and have a question/comment.

Q: Who do you think benefits from this inefficiency?

Comment: That is all you need to answer to figure out why, despite all of our glorious technology, that it isn't likely to get better anytime soon. And furthermore, I contend that this whole quagmire was planned long ago by those who designed claims processing software. I believe they knew very well what they were doing and have ridden the wave for over a decade now.

There is profit in confusion.

David’s not the first physician I’ve spoken to with such a contrarian view about the way the industry operates. While I don’t know if the claims mess was “planned ” to be the way it currently is, I do know that in healthcare, one person’s inefficiency is another person’s bread and butter. The reporting I did on this claims article (the second part will run in the May issue) was some of the most challenging I have ever encountered. It seems like the claims food chain is kind of like the elephant being described by the blind men. Everyone has a peculiar view of it—and no one seems to fully understand it from end to end.

I think it is fair to say that many parties along the way have their finger in the claims pie. And the PNC study that spurred my story points out a high degree of administrative overhead can be attributed to the inefficient processes around claims. Even a few pennies on the dollar can become an astronomical sum when you factor in the size of the industry. So it would be no surprise to encounter resistance to streamlining a highly tangled process when so many people are economic beneficiaries. I think this is one of the points that Dr. Rogers is making in his short letter.

All the reworking adds to the administrative overhead, which accounts for 30% of healthcare costs, according to the PNC survey. “There is tremendous complexity in the claims submission and remittance process,” says Paula Fryland, the PNC executive vice president who explained the scenario using an analogy. “A hospital is like a busy restaurant. Only the price of a hamburger is different for virtually every customer. The waiter must get in the order, deliver a tasty hamburger, and figure out what to charge. It’s a challenge to get all the information in the right format for each payer.”

Fryland cited consumerism as one of the driving forces behind this health plan complexity, noting that the tangled—and highly individualized—benefits packages have been created in response to employee demand. Here, it’s not like a universal, single payer model, wherein everyone has the same benefit package. In the U.S., plans vary widely. And even when people ostensibly have the same benefits, such as in the Medicare world, providers struggle just to understand what constitutes a permissible charge. The coders and billers who must interpret Medicare rules are like machinists working the most complicated Rube Goldberg machine imaginable (I know because I am married to one, a coder--not the machine!)

Fryland says electronic data interchange is the way out of the claims quagmire, but allows that plan complexity can derail the benefits. In her view, consumers are becoming increasingly sensitive to the amount of money spent by nonprofit enterprises on administrative overhead, noting that many charities now routinely reveal such figures. In time, consumers may indeed demand the same of hospitals and health plans. Claims transactions and software programs do not always mesh well. The endless decision tree of the former does not fit neatly with the yes/no logic of the latter. Trying to harmonize the two does keep many people—like my wife—employed. As Dr. Rogers so eloquently stated, “there is profit in confusion.”

Gary Baldwin is technology editor of HealthLeaders magazine. He can be reached at
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