Health Care Payment Reform: A Proven Model for Addressing Escalating Health Care Costs

Whether you pick up a newspaper or turn on a news program, the hot topic of the day is health care reform. It is a priority for many individual states as well as the federal government—and for good reason. In 2009, U.S. health care spending represented 17.6 percent of the country’s gross domestic product (GDP). By 2017, the share of GDP devoted to health care is expected to reach 19.5 percent. Between 2007 and 2017, government economists expect U.S. health care spending to nearly double, from about $2.2 trillion to $4.3 trillion. What’s more, health care spending now accounts for approximately 30 percent of total state budgets.

These numbers reflect a looming financial crisis unless positive steps are taken now to control and even reduce health care costs. Indeed, in a June 2009 speech to the American Medical Association, President Obama said, “Health care reform is the single most important thing we can do for America’s long-term fiscal health.” The umbrella of “health care reform” is a large (and controversial) one. There are many aspects of reform, ranging from how health care providers are compensated for overall treatment plans rather than individual services (sometimes referred to as “quality of care”), to who is covered by what kind of insurance/payment plan. Experts suggest that the problem is so large that it must be addressed as inter-related pieces in order to invoke sustainable reform.

This paper focuses on one aspect of reform—that of processing the payments made by patients and other payers (private insurers, Medicaid/Medicare) to health care providers. Fifteen percent to 20 percent of the cost of health care in the United States is devoted to the administrative aspects of the payment system. Health care is still a highly paper-based sector with a lack of automation across many administrative processes; 60 percent of transactions are still manually processed. Expenditures on the processing of bills, claims and payments; bad debt; and other transactions total more than $300 billion a year. It is these costs that can be significantly reduced through the use of proven payment technologies and automated processes successfully deployed in other industries.