A Much-Needed Prescription for Healthcare’s Payment Pains

Co-Authors: Candler Rich, Allie Saviola

The $4.5 trillion(1) U.S. healthcare system accounts for a staggering 17% of the country’s GDP(2). Yet despite this enormous expenditure, the healthcare billing landscape is an unhealthy mess, plagued by poor translation between medical record documentation, coding, and subsequent insurance billing. The prescription to remedy this already exists: AI, machine learning and cloud-based computing systems are already helping streamline how revenue gets billed and collected. The core question is how quickly the industry can continue to adapt to new technologies and processes that further reduce fraud and waste, boost efficiencies and, most importantly, ensure the healthcare system is focused on what it’s supposed to be focused on: helping sick people get better.

The healthcare industry’s backbone relies on three outdated, siloed technologies with minimal interoperability: Electronic Health Records (EHR), Electronic Medical Records (EMR), and Practice Management Systems (PMS). These systems, while essential, lack robust payment and billing tools and sometimes fail to integrate with general ledgers, leading to operational inefficiencies and revenue leakage. Indeed, errors and inefficiencies lead to 15% of revenue never being collected, according to Adonis,(3) (and represent a $17 billion annual cost-saving opportunity(3)). And that’s just unintentional revenue leakage: According to the National Health Care Anti-Fraud Association, billing fraud is potentially costing the U.S. healthcare system another $300 billion annually(4).

Emerging trends transforming healthcare payments

The healthcare payments industry is undergoing a significant transformation driven by various evolving factors:

  • The rise of value-based care (VBC) is shifting the industry away from the legacy fee-for-service billing models, which focus on volume. Under new models, the focus is centered on patient outcomes and the quality of care provided rather than the volume of services rendered: in other words, quality and efficiency over quantity
  • VBC models often involve risk-sharing arrangements which entail the redistribution of financial and performance risks between healthcare providers and payers. Providers are rewarded for meeting or exceeding specific outcome-based benchmarks. This approach requires new robust data and analytics platforms to track peer benchmarks, population risk and performance metrics, and patient engagement.
  • As healthcare costs grow and patient demand for upfront cost transparency rises, there is also an increasing shift towards cash-pay services away from utilizing insurance-pay.

Revenue cycle management (RCM) systems have been the primary fundamental mechanism that practices have used to ensure they are compensated for patient care services, which historically have been structured around individual service charges. However, evolving payment trends specific to VBC necessitate a departure from conventional billing practices. New risk management, revenue cycle platforms and VBC-focused platforms are becoming a critical part of the healthcare technology stack to address these evolving challenges.

Tackling pain points in healthcare’s billing and reimbursement solutions

One of the core principles at Centana Growth Partners is our focus on the intersection of technology and financial services. Specific to healthcare, we see significant opportunity for companies that act as “connective tissue” systems between payers, providers, and patients – including RCM platforms, data layers and VBC-focused platforms – that address some of the still-common prevalent pain points related to billing and reimbursement models

  • Coding Errors: Coding is complex due to the volume of codes, coding specificity and detail needed, and variation in clinical documentation. According to studies, coding error rates can be as high as 40%(5). The administrative effort to correct and resubmit claims is substantial, increasing operational costs and reducing overall efficiency.
  • Slow Claims Adjudication Process: The insurance adjudication process is sluggish and can take up to two weeks(6). Nearly 20% of healthcare claims are denied(6), and nearly 60% are never resubmitted(7). Providers deliver medical services upfront while reimbursement from insurers lags, putting stress on provider margins and working capital cycles. 
  • Shift Towards Value-Based Care Payment Models: New payment models are emerging, such as capitation, bundled payments, and shared savings programs under VBC models. For example, under capitation, providers are paid a set amount for each enrolled patient per period, regardless of how many times the patient visits or the extent of services provided. RCM platforms must be flexible enough to adapt to these new billing structures.
  • Risk Sharing and Population Performance Metrics: Under VBC, providers are financially incentivized to manage the health of their patient populations effectively. Providers will need to track metrics like rates of readmissions, adverse events, patient satisfaction scores, and other indicators of quality and effectiveness.
  • Fraud & Waste: Fraudulent claims cost the entire system including consumers by driving inefficiencies and increasing the perception of waste and low value in the system. Fraud can come from things like “up-coding,” billing for services that were never rendered, unbundling of services or falsifying records(4).

In a landscape fraught with inefficiencies and outdated technologies, new payment and reimbursement solutions represent a critical step towards a more efficient and financially healthy healthcare system. Last year, we invested in RepeatMD, a specialty healthcare and payments business, to help build out cash-pay strategies for healthcare consumers. We are continuing to invest in the space and back innovative technology and payment solutions.

If you are innovating at the intersection of financial services and healthcare around any of these identified areas, please connect with us (info@centanagrowth.com)!