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Take the financial sting out of prior authorization

March 17, 2015
by Julie Miller, Editor in Chief
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Here’s a great way to save $8 billion: Move to electronic transactions. According to the Council for Affordable Quality Healthcare (CAQH), the industry as a whole could save that much money by eliminating manual, paper-based business processes—such as filing claims and requesting prior authorizations—in favor of using electronic means.

The 2014 CAQH Index research report, released today, finds that providers and health plans are moving to more HIPAA-standardized electronic business transactions, but 1 billion transactions are still completed manually, with faxes or postal mail, for example. It’s significant considering it’s been 20 years since HIPAA established rules for use of electronic functions.

How much it costs

CAHQ says providers generally spend $5 for each manual transaction they have with managed care payers, compared to $1.60 for each electronic transaction. The most costly process is the cumbersome back-and-forth with health plans to receive prior authorization for patient treatment, costing $14.07 for manual requests and $5.14 for electronic ones.

“When we measure the cost of these transactions, we measure the cost of sending and receiving information,” says  Jeff Lemieux, director of research for CAQH. “We think with prior authorization, the urgency of those requests and getting answers quickly may lead to additional staff time and cost. We have heard anecdotes that some prior authorizations are sent by FedEx to the insurer to get a response when they’re not being done electronically.”

According to the study, which tracked calendar year 2013, only 7 percent of healthcare providers used electronic prior authorization, even though 64 percent of health plans were using the capability.

“A significant component with the manual prior authorization is the labor cost, and the labor associated with the clinically focused transactions is higher than purely administrative transactions,” says Andrew Naugle, principal and healthcare management consultant for Milliman, which conducted the research.  “You might need to involve some physician time and some clinician or nurse time to prepare those requests versus non-clinical personnel to do a non-clinical transaction.”

But there is some good news. Ninety-two percent of claims are submitted by providers and received by payers electronically—the highest combined use rate among the six transaction types studied by CAQH. Year over year, 2013 saw 15 percent fewer claims transmitted manually compared to the 2012 study period. The manual cost for a provider to file a claim is $2.39, compared to 16 cents for electronic claim submission, according to CAQH.

The organization offers a calculator tool that providers can use to estimate their own potential to save. The shift away from a paper-based culture has increased accuracy and productivity, reducing costs and the collective frustration among providers and health insurance plans, according to CAQH.

In the future the organization aims to parse out provider data by specialty. More than 112 million patients and 4 billion transactions were collected in the 2014 index, including managed Medicaid and Medicare Advantage.

Six transactions studied:

  1. Claim Submission
  2.  Eligibility Verification
  3.  Prior Authorization
  4.  Claim Status
  5.  Claim Payment
  6.  Remittance Advice