Posted on January 30, 2023 | 3 min read
How “Forgotten” Systems Drain Health Plan Profitability
Many health plans take an “if it ain’t broke, don’t fix it” approach to their IT systems and administrative processes. Workarounds, patches, and band-aids are standard operating procedures often deployed in an attempt to save money and keep current systems coasting along. This approach not only delivers little IT or administrative savings, it actually ends up costing the plan more money in ways that may not be readily apparent.
As budgets are tightening across the industry, health plans need to take a fresh look at the areas of their business that are highly manual and leverage out of date home-grow systems or ones that are paper-based and typically difficult to scale. Sure, the claims adjudication process is a well known source of high costs and many plans take strides to reduce those costs. However, there are many areas and associated processes that are not top-of-mind that can be huge sources of financial drain, and are ripe for a cost containment review.
With the multitude of systems that plans run, it’s easy to turn a blind eye to particular areas, such as member enrollment and prior authorization, and focus efforts elsewhere where there might be greater perceived savings to gain. However, these areas can be sources of substantial financial loss, and employing a strategy of full or partial automation can offset that loss even after accounting for a new technology investment. Let’s explore two avenues where payers can realize substantial cost savings towards the goal of improving financial profitability:
1 – Eliminating Unnecessary Operational Overspending
Health plans rightfully focus their cost containment efforts on large scale processes. Yet, just as much opportunity can be realized when examining high cost, low scale activities. Take prior authorization for example. In research conducted by CAQH, plans can spend roughly $3.50 per prior authorization with a substantial amount of that cost being attributed to the manual nature of the process (faxes back and forth between the payer and provider, etc.). If these costs could be reduced to less than a dollar, what would that mean for your plan?
Another high cost area is member enrollment, which includes rationalizing enrollment data from many sources, and getting it ready for effectuation in the back ended membership systems of a health plan. While costs vary based upon the line of business, if payers can move from paying roughly $4 per enrollment file to one with costs at less than half that amount, the savings add up quickly. Yet, these are areas that plans continue to patch and develop workarounds for as opposed to modernizing and streamlining operations. Addressing these areas with automation reduces costs while better positioning plans for strategic scalability.
2 – Minimizing Unsustainable Labor Costs
Traditionally, health plans have added additional labor to address highly administrative tasks to keep operations moving forward and current systems functioning. Given the state of the labor market and a looming recession, this approach is not sustainable. In 2019, according to McKinsey & Co, payers spent $45B on industry-specific administrative costs (such as costs related to member enrollment). Reducing the reliance on a physical workforce during a labor shortage enables payers to mitigate administrative costs by utilizing elements of process automation and workflow management. For example, a large multi-state health plan organization realized a $33M YoY cost savings largely by automating their value-based contracting process using Edifecs. These savings were primarily driven by:
- Reducing the monthly, quarterly, and yearly labor resources needed to collect data to feed over 1600 existing contract variations across multiple states
- Decreasing the reliance on under-staffed finance resources to handle myriad variations of settlements
Process automation enabled this organization to scale and accelerate their value-based strategies. Without automation and the labor efficiencies and cost reductions it delivered, this organization may not have been able to achieve their strategic, value-based goals while reducing costs.
As demonstrated above, health plan finances can be bolstered by an emphasis on cost containment. There are significant hidden costs in sustaining manual processes and homegrown technology, or in outsourcing or investing in high-dollar labor. These need to be weighed in totality against the true cost of modernizing operations. When you’re ready to re-evaluate your approach, Edifecs can help you determine your expected return and build the business case to upgrade your operational infrastructure as a means to strengthen your organization’s financial outlook. Contact us today to start the process.
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