In 2016, healthcare spending grew to $3.4 trillion and is expected to reach $5.5 trillion by the year 20251. In response to this growth, the industry has been on the search for the answer to cost control. Value-based care and alternative payment models were introduced to the healthcare lexicon as strategies to curb the massive spending growth in the industry.
Value-based care is designed to incentivize providers to deliver a higher quality of care through fewer, more effective services. In a fee-for-service model, providers are paid for performing services regardless if they are medically necessary or even if they are redundant procedures. The goal of moving toward value-based care from the fee-for-service model is to achieve better clinical outcomes for patients at a lower cost to the industry.
Progress toward a value-based care model has been admittedly slow. However, the efforts toward achieving this new payment model have been largely focused on the clinical side of the healthcare experience, with little emphasis on the administrative processes that support the transition. Instead, payers can look to trends in healthcare payments to develop the strategies and processes needed to deliver value-based care more broadly in the industry.
Payment convenience offers true value to consumers
So much of the value-based care conversation has to do with ways to promote better clinical outcomes, such as increasing patient education and prevention while reducing readmissions, hospital stays, and unnecessary tests or treatments. However, often missing from the conversation are the cost impacts to the consumer.
Overall in the healthcare industry, consumer spending is expected to grow to $608 billing by 20182. The new reality in healthcare is that consumers not only owe more—in the form of deductibles, copayments, coinsurance, and health plan premiums—but the amounts are higher than they ever have been before. However, many in the industry are slow to recognize the new role of consumers as key stakeholders.
Though value-based care has the potential to lower costs for healthcare services, consumers may have little knowledge of how a provider is going to get paid by their health plan. In fact, consumers are more confused by the healthcare payments process than not. Only a third of consumers understood their payment responsibility when a deductible or copay were part of their health plan3.
This gap is perpetuated by a general lack of literacy on common terms in the healthcare payments vernacular—only 7% of consumers could successfully define terms such as plan premium, deductible, co-insurance, and out-of-pocket maximum4.
Value-based care would have to completely reverse current healthcare payment trends related to consumer responsibility and confusion to allow payers to deprioritize the role of consumers in the healthcare payments process. Instead, payers have the opportunity to bring consumers and providers together in one place by offering online payment functionality in their member portals. This will allow consumers the convenience of paying somewhere they already go for healthcare information and ensure that providers receive the payment for the consumer responsibility.
The payer and provider paper disconnect
Value-based care was designed to bring down costs in the healthcare industry. However, more can be done with less effort and process overhaul by eliminating paper from the industry. If electronic transactions were to become the norm in the industry over today’s paper processes, the potential annual savings would be $9.4 billion in overall administrative costs5. Put simply, electronic options for payments require fewer resources to complete a transaction when compared to paper transactions.
Healthcare is one of the last industries where the majority of information is primarily transmitted via paper, including the information associated with the payment process: EOPs, EOBs, mailed paper statements, paper check payments, etc. Every year, three billion transactions take place via paper-based and manual processes between providers and payers (2016 CAQH Index Report).
Payers’ ability to support these paper-based transactions require manual processes that cost valuable resources. It appears that payers may be ready for the change from a paper-heavy payment market to realize the potential of electronic transactions as nearly 30% of payers said that cost reduction strategies were their top priority for 20176.
Payments to providers are a prime opportunity for payers to cut costs by increasing electronic transactions, over expensive paper-based payment processes. In fact, 88 percent of providers reported that they received paper checks and EOPs from one or more of their payers. With that same group of providers, 85% said that they preferred to receive payer payments via electronic remittance advice (ERA) and electronic funds transfer (EFT). Yet, only 13% of providers said they prefer payments in the form of paper checks and 2% preferred virtual card payments from payers6.
Trends in Healthcare Payments Seventh Annual Report: 2016
While value-based care may be the future of the healthcare industry, trends in healthcare payments must be considered to achieve any forward progress in the industry. The data in this article was pulled from the Trends in Healthcare Payments Seventh Annual Report: 2016. For the last seven years, InstaMed has released this report to objectively educate the market and promote awareness, change, and greater efficiency through quantitative data from the InstaMed Network and qualitative data from healthcare providers, payers, and consumers surveyed nationwide.
- Centers for Medicare & Medicaid Services. “2016-2025 Projections of National Health Expenditures Data.” February 2017.
- Kalorama Foundation. “Out-of-Pocket Healthcare Expenditures in the United States.” May 2015.
- University of Connecticut’s Health Disparities Institute. “Health Insurance Literacy Survey Report.” April 2017.
- UnitedHealthcare. “UnitedHealthcare Consumer Sentiment Survey.” September 2016.
- CAQH. “2016 CAQH Index Report.” January 2017.
- LHK Partners. “Payer Healthcare Payments Survey 2016.” January 2017.