Electronic Medical Billing and Timely Payment – Fiction or Reality?

Oligopsony (the market condition when few buyers can greatly influence price and other market factors) gives the insurance companies (buyers) tremendous negotiating power and prevents physicians (sellers) from addressing unfair payment practices. To solve this problem, all fifty states have instituted a law penalizing health insurers for late payments. In the past ten years, state courts have imposed at least $76 million in fines against insurance companies for failure to comply with prompt-pay laws, according to the AMA. The settlements between seven largest insurance companies and state medical societies amounted to more than $1.53 billion, with only $384 million for direct payments to physicians (see Dave Hansen, “The failed promise of prompt pay,” AMNews, Nov. 5, 2007).

An oligopsony, according to Wikipedia, is a market form in which the number of buyers is small while the number of sellers could be large. It’s a mirror opposite to an oligopoly, where there are many buyers but just a few sellers:

  1. World economy: Three firms (Cargill, Archer Daniels Midland, and Callebaut) buy the vast majority of world cocoa bean production, mostly from small farmers in Third World countries.
  2. American economy: tobacco growers face an oligopsony of cigarette makers, where three companies (Altria, Brown & Williamson, and Lorillard Tobacco Company) buy almost 90% of all tobacco grown in the US.
  3. American healthcare insurance: a single insurance company commanded at least 30% of the market in 299 of 313 metropolitan statistical areas. One insurer had 70% or more of the market in 74 areas, while in 15 areas one company had at least 90% (AMA’s 2007 update to “Competition in Health Insurance: A Comprehensive Study of U.S. Markets”).

In each of these cases, the buyers (payers) have a major advantage over the sellers (providers). They can play off one provider against another, thus lowering their costs. They can also dictate exact specifications to providers.

Today, forty-nine states require claims to be paid in 45 days or less. AMA’s Dr. Wilson’s proposal to the House Small Business Committee’s health panel in August 2007, listed multiple ideas for improved accountability, including:

  • A strong federal standard. Require payment within 30 days for clean paper claims and 14 days for clean electronic claims.
  • Stiffer fines than those in state laws to deter bad behavior. Assess interest on payment outstanding and increase the interest in step the claim’s delinquency. Include litigation costs when they win a claims dispute with an insurer.
  • Time limits for notification. Federal law should set a statutorily defined time limit for insurers to notify physicians that additional information is needed to process a claim. The notice should specify all problems with the claim and give an opportunity to provide the information needed. Insurers also should be required to pay any portion of a claim that is complete and uncontested.

But it takes years to pass new laws. Worse, the proposed standards ignore modern technology and lag behind other industries. For instance, the proposed 14-day healthcare insurance payment standard of clean claims is a far cry behind a Wall Street standard to settle massive volumes of trades within 24 hours, and a telecommunications standard to complete massive fee exchanges for phone calls between multiple carriers and customers within minutes of each conversation.

In addition to better accountability, comprehensive measurement and routine performance comparison must become integral to the payment process. Two physician and chiropractic billing and practice management companies, Athenahealth and Billing Precision, track and post payer performance statistics, including payment speed and percent of accounts receivable beyond 120 days:

  • Athenahealth (PayerView): the average days in accounts receivable

    1. Aetna 29.8
    2. Humana 30.6
    3. Cigna 31.9
    4. WellPoint 35.1
    5. Coventry Health Care 35.1
    6. UnitedHealth Group 38.3
  • Billing Precision Index: Percent of Accounts Receivable Beyond 120 days – September 2007 – 14.3
    1. Medicare Illinois 5.9
    2. Blue Cross Blue Shield Illinois 7.3 (up from 10 in August)
    3. CIGNA 11.2 (up to 16.4 in August)
    4. Aetna 11.7 (up from 12.7 in August)
    5. Medicare New Jersey 12.5 (up from 13.3 in August)
    6. United Healthcare 13.3 (down from 11.3 in August)
    7. Blue Cross Blue Shield Pennsylvania 14.8 (up from 28.3 in August)
    8. Blue Cross Blue Shield New Jersey 14.9 (up from 15.3 in August)
    9. GEICO 25
    10. Blue Cross Blue Shield Georgia 31.2 (down from 22.9 in August)

In summary, legal accountability, comprehensive measurement, and routine performance comparison must become integral to the medical billing and payment process.