March 11, 2012

One Foot In Healthcare: Property And Casualty Payer Integration


The Property and Casualty Insurance and Healthcare industries have a significant opportunity to reduce substantial friction costs and mend their necessary but tenuous relationship.

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Tied At The Hip
The Property and Casualty (P&C) Insurance and Healthcare industries have a significant opportunity to reduce substantial friction costs and mend their necessary but tenuous relationship. The two are inexorably linked because the latter provides the medical treatment and the former pays the bills associated with Workers Compensation and Automobile Insurance medical claims. This relationship produces millions of transactions involving tens of billions in payments annually.

Electronic records and fund transfers between the industries have not even reached a nascent state and beyond that huge opportunity is the even bigger prospect of Property and Casualty aligning with government and healthcare payers in a common effort to contain medical costs.

Left Standing At The Station
The government mandate of electronic health records (EHR) leading to electronic data interchange (EDI) for Medicare and Medicaid payments, combined with the increasing adoption of both by private health insurers, is driving the healthcare industry toward the efficiencies of increased connectivity. But the Property and Casualty industry has not been part of that effort, probably because it does not think of itself as a healthcare payer.

The Property and Casualty industry makes multiple manual payments for each claim while government, and increasingly private health insurers, pays once on the basis of the initial diagnosis. Traditional payers operate under the theory that making a fair diagnosis based upfront payment encourages providers to be as efficient as possible. The Property and Casualty approach requires that providers earn their fee treatment by treatment, which can encourage overutilization.

The contrast between traditional payers and the Property and Casualty industry is stark; the traditionals incur one electronic data interchange transaction while the Property and Casualty industry processes multiple bills per claim manually and issues multiple checks per claim. The traditional payer approach saves significant processing costs for both the providers and payers.

Additional interconnectivity opportunities include benefits coordination, the avoidance of double-dipping, and subrogation.

An Ounce Of Prevention
With most healthcare payers making diagnosis based upfront payments, providers place greater emphasis on diagnostic code selection, and this has led to the phenomenon of Diagnostic “Upcoding,” the intentional substitution of a more severe diagnostic code than is justified to obtain a higher fee.

In response to diagnostic upcoding problem traditional healthcare payers are making increasing use of predictive modeling tools. Such tools analyze and compare the historic coding patterns of providers to discern those with chronically above average severity coding. In contrast, the Property and Casualty industry continues to rely on tools that offer no defense against diagnostic upcoding.

As traditional payers tighten their controls, billions in additional medical costs are being shifted to the Property Casualty industry, as has been reported by the Insurance Research Council.

A Long Way To Go
It would be disingenuous to suggest that traditional healthcare payers have achieved anything close to perfection related to preventing hard or soft fraud, but they are far ahead of the Property and Casualty industry.

By combining forces with traditional payers not only could the Property and Casualty industry vastly reduce transaction costs and begin to deter excessive treatment, but it could also contribute to the overall payer effort, speeding the evolution of increasingly effective solutions.

But instead, Property and Casualty efforts underway in this space are largely fragmented, not only by carrier, but often by line of business within carriers. These multiple divergent efforts all aim at covering the same ground that traditional payers have already navigated.

If You Can’t Beat Them, Join Them
Moving to a universal healthcare platform would open up additional doors, including expanded Preferred Provider Organization (PPO) networks, medical management expertise, and shared efforts at identifying and shutting down professional fraudsters. The larger the sample, the more statistical significance, and the easier it becomes to develop reliable and actionable data.

What should be most obvious is that managing medical costs is the core competency of traditional healthcare payers, not the Property and Casualty industry. In the competition to contain medical costs, traditional payers are winning to the point where billions in costs are annually shifted to the Property and Casualty industry.

The Property and Casualty industry should begin moving in a direction that might even lead them to outsource their medical payment process to advanced healthcare payers. Incenting traditional payers to effectively lower Property and Casualty medical costs would produce a substantial win/win. The biggest winners of all might be Property and Casualty customers who have unwittingly been picking up the tab.

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