The U.S. Healthcare System: Medical Debt, Insurance Claims And The Data Conundrum

Medical debt is the number one source of personal bankruptcy filings in the United States, exacerbating financial stress as insured and uninsured Americans seek alternative debt mechanisms to pay their medical bills.

US healthcare spending reached US$3,3 trillion or $10,348 per person in 2016 alone.¹ A third of this is spent on administration, yet the onus is on the patient to manage and navigate through the complicated medical insurance market. Alarmingly, a mere 4% of Americans have an understanding of important health insurance concepts, which, altogether presents a disastrous situation waiting to happen.²

It’s happened.

More than 25% of American adults struggled to pay their medical bills in 2016.³ This includes both insured and uninsured individuals. While the Affordable Care Act (ACA) of 2010 (Obamacare) pushed to increase accessibility to medical insurance through lower premiums, a combination of high deductibles ($4,358 per individual/ $7,983 per family)⁴ and unrealistic co-payments has seen medical debt swell to new levels. It’s no wonder that medical debt held by collection agencies is 3x larger than bank-related debt.⁵

A predominant factor contributing to rising medical debt is the medical billing insurance claims process. It is the responsibility of the medical provider to ensure that all medical records and superbills are correctly administered and processed. Considering medical codes represent the highest exposure to error risk, this creates a high susceptibility to an error-prone environment. Hence input errors, code omissions (undercoding) and codes entered for non-administered services (upcoding) are far too common.

This is where billing errors come in.

A 2015 study found billing errors in ~90% of hospital bills examined.⁶ Consequently, two in three Americans are consistently overcharged by ~26% as a result of these preventable errors. Taking into account the current market structure of the US healthcare industry, it is the patient who holds the burden of rectifying the error.

Finding an adequate solution poses a significant challenge for patients. 15% to 20% of calls to insurers drop, volatile automated systems and/or telerobots cut-out and insurers and providers frequently lose documentation.In addition, the claims appeal process implemented by The US Department of Health and Human Services (HHS) is document-intensive, time-consuming and complicated.

Providers fill out an average of 20,000 forms every year, approximating to a total cost of $0,4mn per annum. A multiple of 6x the cost, equating to $2,4mn, is allocated to misfiled documents while document recreation inflates labour costs by 11x, to $4,4mn.⁷

So, what is constraining the opportunity for change? The free-flow of data, or lack thereof.

THE THREE-HEADED DRAGON

The market could not be readier for the three-headed dragon that is Amazon, Berkshire Hathaway and JPMorgan Chase & Co. While in its early-stages, the group plans to setup an independent company that will primarily focus on technology solutions to reduce healthcare’s burden on the US economy.

With initial emphasis aimed at cost-effective and transparent healthcare for the American employment sector, the reality of the opportunity size is so large that it has the power to fundamentally disrupt the healthcare supply chain and transform the medical billing insurance claims process. This was reiterated by ex-Remedy Labs CEO, Victor Echevarria, “Since Amazon, Berkshire Hathaway, and JP Morgan can create a full-stack provider/payer health system, they are in a position to enable innovation from startups that would otherwise inevitably run into roadblocks from one of the many bureaucracies in the today’s system.”

The consortium is well placed to build its own standards and protocols, specifically for patient medical records. This capability, combined with its aptitude for AI and Machine Learning potential, will have a fundamental impact on the restrictive dynamic within this healthcare vertical. This breaks the vice grip Epic Systems ‘Epic’ has on the US medical record space, boasting a 54% share of American’s medical records.

In other words, Epic is the gatekeeper of all things data-related in the US healthcare market.

Epic Systems

Founded in 1979, Epic is the leading Electronic Health Record (EHR) platform in the United States. While its market reach extends across 190 million people globally, its expansive product and service offerings set it apart from market peers — Cerner, Allscripts, Meditech and AthenaHealth (to name a few).

While Epic’s network effect proves useful for the internal transfer of medical records between providers, the tech platform has been criticised for its unwillingness to share its medical data with external parties.

Taking a step back, the 1996 Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule gives individuals the right to access their medical records on request, allowing providers to charge administration fees for data access.

Epic has hidden behind HIPAA regulations to justify ‘information blocking’. This has had a fundamental impact on the ability of ambitious entrepreneurs and startups to innovate and disrupt the well-documented ‘broken’ system, directly affecting the American healthcare consumer. As was the case with healthtech startup, Remedy Labs, which exhausted its pool of funds on the back of inflated data acquisition timelines and associated labour costs.

It should not be Epic that solely takes the blame, but market sentiment on the back of its industry dominance has justified significant criticism in light of the above. This has seen Epic make a concerted effort to embrace interoperability between EHR providers, however it still falls down in providing a sufficient data pipeline that sits outside medical providers’ digital infrastructure.

Fast Healthcare Interoperability Resources (FHIR)

This is in stark contrast to the Fast Healthcare Interoperability Resources (FHIR) proposed data-sharing standard developed by Health Level Seven International (HL7). FHIR’s intention is to transform the data acquisition approach from document-centric to API-driven data-level access.

In the same way that PSD2 will fundamentally disrupt European (EU) retail banks by requiring them to open up their data to third parties, FHIR’s public APIs encourage developers to create new apps that will complement the healthcare industry. While Epic has taken proactive steps to align itself with FHIR through the introduction of the Epic App Orchard marketplace; it is believed that ‘information blocking’ is still prevalent in the space, with startups continuing to face ample headwinds in obtaining medical data efficiently.

MEDICAL CLEARINGHOUSES

Historically, providers and insurers have entered into contractual relationships with clearinghouses to mitigate associated risks, handling ~90% of all US healthcare claims transactions. To provide some context, clearinghouses were introduced to pre-screen claim errors and replace the US Postal Service at the transition to electronic claim submissions.

As digital infrastructure continues to play an integral role in healthcare administration, software providers have shifted focus onto simplifying the medical billing and claims process. Hence, Revenue Cycle Management (RCM) EHR software integration is fundamentally transforming the outsourced third-party medical billing and claims service industry — threatening the relevancy of clearinghouses and experts within the field.

While the alternative promotes cost and efficiency savings, it has the tendency to create more harm than good. For many software providers RCM is an untapped supplementary revenue opportunity, which runs the risk of underperforming when compared to their core offering. Unless the RCM service is highly reputable and well-integrated with existing software, it can expose medical providers to additional risks and create greater vulnerability for debt-burdened Americans alike.

Why is RCM integration a contradiction to HIPAA’s agenda? This is because some software companies have the propensity to outsource billing and claims services offshore, to cheaper labour markets. Offshoring of patient information creates data security risks, while the urgency to meet industry demand typically sees RCM providers compromise on hiring skilled workers which thoroughly understand the US healthcare market.

Ensuring Patient Access to Healthcare Records Act

Acknowledging the death grip that EHR providers have on American medical records, Eastern Washington Congresswoman Cath McMorris Rodgers (R-WA) and Senator Bill Cassidy of Louisiana (R-LA) introduced the bipartisan Ensuring Patient Access to Healthcare Records Act on December 11, 2017.

The aim of the bill is to provide patients with access to their medical records by giving clearinghouses the ability to do so effectively. HIPAA currently prevents clearinghouses from using this data so far as processing claims. Hence, the bill will provide accessibility to claims, eligibility and payments data to encourage further development and support across the US medical sector. While the bill was previously introduced in 2016, its reintroduction comes on the back of increased pressures to push for data transparency in the space.

It is clear that necessary reforms are urgently required in the US medical sector. Fundamentally, should universal data access be achieved, the financial wellness of all Americans is likely to change for the betterment of society.

While some members of Congress recognise the importance of universal data accessibility, it will take more than current legislation to enact sustainable change in an industry that is ironically crippling majority of Americans. The lack of a sustainable data pipeline has eroded the opportunity to address this issue at hand. It is not for a lack of trying, but rather pushback from providers that constrains the opportunity for change.

The free-flow of data is the answer.

Or is it? If you are passionate about the space, and would like to discuss the contents of this thought piece further, please reach out.

E: Dario@Anthemis.com
L: Linkedin.com/in/dariodewet
T: Twitter.com/dario_dewet

[1] Centers for Medicare & Medicaid Services, 2017, “National Health Expenditures 2016 Highlights”

[2] Mangan, D, November 2016, “Many Americans don’t know much about health insurance — and it will cost them”

[3] Backman, M, May 2017, “This is the №1 reason Americans file for bankruptcy”

[4] Bloom, E, June 2017, “Here’s how much the average American spends on health care”

[5] Lamontagne, C, October 2014, “NerdWallet Health Study: Medical debt crises worsening despite policy advances”

[6] Rosenthal, E, May 2015, “The medical bill mystery”

[7] ReferralMD, August 2016, “30 healthcare statistics that keep hospital executives up at night”