Enclarity CEO Points Out $26 Billion Losses


The healthcare industry is losing an estimated $26 billion a year through billing errors, check reissues, fines, frauds and administrative costs, according to Sean Downs, president and CEO of Enclarity. A venture-backed Southern California firm, Enclarity is applying data cleansing techniques borrowed from the financial and consumers services industry as a solution to outdated and bad provider data, which Downs sees as the bane of the healthcare industry. Digital HealthCare & Productivity spoke with Downs about the effect of the National Provider Identifier (NPI), and how advanced analytic technology can improve business and operational processes for the payer community and pharmaceutical companies.

DHP: What is this $26 billion healthcare data problem?

Downs: Every year, inaccurate provider data costs healthcare payers an estimated $26 billion, clogging attempts to create efficient operations. About 40 percent of provider records have errors or missing data, which can come from data that is manually entered, from public or private sources, or from information pulled from other networks. This bad data can account for inaccurate claims processing and ineffective correspondence with providers. When this happens, payers can end up re-issuing checks and processing claims manually instead of through auto-adjudication, or the processing of claims without human intervention. About 12 percent of checks are undeliverable and need to be reissued, a cost of about $20 per check, versus pennies for an auto-adjudicated claim.

DHP: Doesn’t bad data cause a sort of viral effect that can permeate through the entire system?

Downs: That’s right -- inaccuracies can affect the provider-member relationship; members can get sent to the wrong address or find that a practitioner’s information is erroneous, causing member dissatisfaction. There are complications in compliance, resulting in late-penalty fees, incorrect provider 1099s leading to IRS fines, or penalties from the Centers for Medicare and Medicaid Services (CMS) for paying sanctioned doctors whose status was not shown in the database. There’s vulnerability to fraud when provider data is in disarray. And on a larger scale, the industry’s inability to fix the provider data problem can hinder the establishment of treatment protocol, consumer-directed healthcare and pay-for-performance reimbursement.

DHP: But what about the government’s National Provider Identifier mandate — will this solve the problem?

Downs: Under HIPAA, healthcare transactions will need to use a standard, unique 10-unit identifier, but the challenge is ensuring that the underlying legacy provider data is accurate and up-to-date, or NPI won’t be effective. Although the compliance date has passed, no penalties will be enforced, giving a year’s grace period for health plans to test and refine their systems. I would say that most health plans are not ready, and that the biggest obstacle has been that CMS has still not published the NPI dissemination rules. The latest date when the NPI file will be available is now Sept. 4, and we’re hopeful that this is the end of the road. The NPI date has been moved so often that it may stick this time, but it’s hard to predict. Meanwhile, health plans are still working on updating and accessing legacy file information systems, administrative processes, reference files and forms to comply with NPI, and to put into place continuity between old provider identifiers and the new NPI. Practice management software and hospital systems may require re-engineering to accommodate the new NPI standard. But even when this standardization is in place, how do you continually manage the data changes to ensure accuracy? Health plans need to focus on evaluating the impact that NPI will have across the operation; clean, standardize, and integrate legacy provider data; crosswalk NPIs by matching them to legacy data; and actively manage and clean provider data records.

In the short term, NPI actually creates a source of friction. Some health plans and government are saying that they are going to kickback claims if the doctor doesn’t supply an NPI number. You have the potential to disrupt cash flow for providers. The health plans, for the most part, are using NPI for a report-only field where they have to have an NPI coming in on a bill to be able to process it, and they have to be able to return the NPI number with the payment, but they are not using the NPI number as the primary identifier to process the claim.

DHP: What can we learn from how the financial industry has standardized data?

Downs: I think there are technology and tools in financial services to help reduce administrative and transaction costs in healthcare. I was at Fair Isaac, where we worked on pattern recognition for fraud detection. Fair Isaac is known for its FICO scores, and those same automated cleansing and automation techniques can be used for healthcare applications. Enclarity aims to become the credit bureau of the healthcare industry by polling data, including claim information and specific data about providers, and then using advanced analytics and scoring from the financial and consumer industry to order the most accurate and reliable provider information. This information can be integrated into customer systems, claims processing, online Web directories, and decision support capabilities. We use an ASP hosted model, automatically pulling data down, cleansing it, and returning it.

We started in just this one area, fixing provider data errors, but there’s technology to help increase auto-adjudication rates. Since most physicians are still paid by check, there’s a great opportunity in electronic funds transfer, creating more of an electronic environment similar to the banking world. Because of the third-party system, it’s often unclear to consumers as to how much they owe, and now its getting more complicated with consumer-directed health plans and health savings accounts where there are large deductibles. I think the challenge for technology vendors and health plans is to link up those records in a more seamless way to give consumers a clearer picture of their costs and how much is owed. This will help drive down administrative costs, which are currently about 25 percent of the healthcare dollar, versus the credit card world, where administrative costs are less than 10 percent.

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