In 2018 there were over 182 million prior authorizations conducted nationally according to the alliance of health plans called the Council for Affordable Quality Healthcare (CAQH). That same year, Health Affairs reported that $54 billion of medical spend was challenged by insurance companies. After that level of scrutiny and approval seeking, it is remarkable that so much spend is still disputed. Clearly the level of friction and frustration in the healthcare system is damaging to all involved and promises to be dramatically re-architected by innovative new technologies.
According to the political advocacy group America’s Health Insurance Plans (AHIP), less than 15% of all healthcare products and services even need prior authorization (PA). Of the 182 million interventions, only 23 million were fully automated; the balance either included some level of automation or were entirely manual. An analysis by the American Medical Association concluded that 73% of providers wait on average of at least one day for approvals (21% wait between 3 – 5 days). Tragically, 28% of providers reported at least one severe adverse event due to PA delays.
Overall, the CAQH estimates that $350 billion is spent annually on healthcare administrative costs, of which PA is around $25 billion. Nearly 20 years ago, it was mandated that PA needs to become more automated. The CAQH posits that $102 billion has been saved through (partial) automation of this administrative function and that there is another $13.3 billion of savings readily identifiable with further automation. Across the many PA steps, the significant contributors to potential cost savings due to increased automation include improved eligibility and benefit verification ($5.2 billion), claims status inquiry ($2.8 billion), and remittance advice ($2.7 billion). It is believed that the healthcare system could save $42 for each patient encounter when PA is fully automated.
The impediments to automation are many from inconsistencies in data formats and codes, to the lack of integration of clinical and administrative operating systems, and quite simply, inferior software products in the market to address this problem. Additionally, there are long-standing regulatory requirements at the state level which mandate a certain level of manual intervention to ensure proper compliance, avoid diagnostic mistakes, etc.
While this investment in automation has been a priority for many, the chaotic patchwork nature of the U.S. healthcare system has made this utopian vision challenging to reach. Interestingly, the pandemic has brought renewed attention (maybe even institutional commitment) to address this issue. The Commonwealth Fund reported a nearly 60% decline in patient visits at the outset of the pandemic, which has slowly recovered to pre-COVID levels. Many health insurers “turned off” PA at the beginning of the pandemic, providing a glimpse of the possible.
This groundswell of support to “close gaps in automation” was reflected in the 2017 “Patients Over Paperwork” initiative put forth by Centers for Medicare and Medicaid Services (CMS), which set out to improve patient experience, lessen administrative burdens, and drive operating efficiencies. There have been some notable recent improvements such as streamlining office visit documentation, addressing evaluation coding frameworks, and overhauling the Medicare quality payment program. Most recently there have been indications coming from Office of Management and Budget that new rules will be promulgated to “improve electronic exchange of healthcare data and streamline prior authorization.” Tantalizing.
Inherent in this discussion is the tension between provider and payor. Doctors feel second-guessed and frustrated by the interminable disruptions with utilization management disguised as PA, while payors are focused on the amount of unnecessary procedures and amount of waste. Certainly, providers are leery of any actions which disrupt the continuity of care and often find step therapy frustratingly problematic, searching for lower cost alternative treatments.
The Institute of Medicine recently estimated that from 10% – 30% of healthcare expenditures are unnecessary, pointing to an estimated $200 – $800 billion spent each year on testing in an AHIP letter to Administrator Verma at CMS last year (almost an unbelievable figure). The debate between cost containment versus proper medical need rages on. This adversarial relationship is made worse by incentives for third-party outsourced providers who share in any savings found in recovery audits.
Overarching all of this is the undeterred march to value-based care delivery models and the need for greater simplicity and transparency. Setting aside the obvious patient benefits with greater transparency from radically improved PA, a more streamlined administrative process promises enhanced working capital for providers, and for the better providers, presumably greater patient volumes and market share. With better PA, payors will see a marked decline in member abrasion which presumably will lead to better member satisfaction and retention. Inevitably, health insurers should be able to design more appropriate narrow networks of providers offering higher quality care at lower costs.
In addition to a number of large legacy vendors such as Optum, Evicore, Magellan, and AIM Specialty Health, there have been a handful of exciting early stage companies created to address this market opportunity including Olive (which recently raised $255 million and acquired Verata Health for over $120 million) and Cohere Health, a Flare Capital portfolio company. Interestingly, this past week saw the proposed $28 billion combination of Salesforce with Slack, pointing to a future of deeper integration of collaboration tools for the enterprise. The industrial logic of this merger should play out in the healthcare sector.
The Cohere platform automates the collaboration process among specialists, payors, and patients, dramatically reducing the administrative burden while ensuring adherence to clinical guidelines. Such a science-based approach promises to meaningfully reduce wasted expense and eliminate unnecessary friction and delays in care. As Gary Gottlieb, Cohere’s Executive Chairman and Flare Capital Executive Partner, states “such an intensely transparent process takes everyone away from being the villain.” A data-driven focus on processes at the point of clinical decision will dramatically improve care at lower costs while improving patient and provider experience.
Siva Namasivayam, CEO of Cohere, observed that with better PA at point of care there will be a host of future benefits realized including a dramatic reduction in the number of denials, improved care coordination, more effective provider performance with greater level of data analytics and transparency, and significantly lower healthcare costs. Platforms such as what Cohere is bringing to market will facilitate the adoption (finally) of evidenced-based care bundles. Ultimately lower costs should also be reflected in lower premiums with much better experience ad outcomes for patients.
The healthcare world changed profoundly this year. The dramatic move to make the system virtual, on-demand in response to the pandemic also must now more effectively assess and “underwrite” procedures as spending and volumes quickly recover.
Reproduced from Peterson-KFF Health System Tracker; Chart: Axios Visuals