Leading the Business of Healthcare
RCM Advisor

Quarter 4 2020 - Volume 25, ISSUE 4

HBMA RCM Advisor: The Journal of the Healthcare Business Management Association


The Importance of Direct Payer Connections

Uncomplicating the tangled web of clearinghouse and payer connections.

At the dawn of clearinghouses, they were revolutionary—organizations dedicated to managing and organizing millions of data points and processing billions of transactions, all with the intention of making both providers’ and payers’ jobs easier. Given that each year, 15 billion transactions1 occur between more than 900 payers2 and nearly 880,000 healthcare providers,3 this major undertaking was a win-win for everyone involved.

But somewhere along the way, the function of clearinghouses—to simplify administrative tasks—ended up adding complications, as preferred organizations became bottlenecks and gatekeepers. Now, as the healthcare industry pushes for simplicity and clarity, direct payer connections are possible. These direct connections should be aggressively pursued among players in the RCM and clearinghouse space to open doors for better processes and eased administrative burden.

The Backstory of Preferred Clearinghouses
For a while, it was easy for clearinghouses to prove their value to any provider and payer. Providers were unloading a critical part of the complex billing process to a trusted single source and getting better results. Payers were receiving cleaner paperwork and streamlining the process of transacting with providers.

Then, the multipoint data exchange processes started to favor individual payer preferences over valuable provider time, and some clearinghouses became preferred organizations by bending and customizing their rules to meet payer demands. In the 1990s, HIPAA laws.4 encouraged the entire healthcare industry to increase the use of digital processes. Payers, who were keen to start receiving electronic transactions, began implementing unique rules and rebate programs for the select few clearinghouses that would follow them.

These elite preferred clearinghouses, selected by payers, received a small dollar amount back from the payer on each claim they submitted electronically, creating exclusivity that exemplified the bureaucracy we still see in healthcare today. Other, non-preferred clearinghouses and partners had to go through these “last mile” organizations to work with payers, creating even more layers in the middle ground of the clearinghouse landscape.

Early on, rebates were an attractive attribute for preferred clearinghouses, as it was a significant part of how they made money. However, as technology progressed, digital processes, like electronic claims, became standard. As a result, payer rebates.5 have dropped drastically, from $1 per transaction in the 1990s to 35 cents in 2004 to just a few cents today, if any. And “preferred” status has begun to fall by the wayside.

The Benefits of Direct Payer Connections
Without payers favoring one clearinghouse over another, there has been greater flexibility for any clearinghouse or RCM organization to establish and expand direct payer connections.

Through direct payer connections, partners and clearinghouses can transact with payers one to one instead of wasting time and money going through their preferred counterparts. By going direct to payer, organizations can expect more up-to-date transaction statuses and more transparency in transaction processes without an additional middleman.

As one example, a pediatric RCM solution, PCC, was able to have its Electronic Data Interchange (EDI) team establish direct-to-payer connections—a big accomplishment in 2014. As a result, PCC’s provider customers experienced real-time eligibility verification for some plans. Other clearinghouses and organizations have been feverishly working to expand their own direct connections. While a direct-to-payer transition won’t happen overnight, it ultimately will help clearinghouses and RCM partners deliver a solid ROI to their provider customers by creating a better, more efficient transaction experience.

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How to Transact With Payers One-on-One
It’s promising to see organizations creating more direct connections with payers, including automated solutions. When evaluating technology and software to manage direct payer connections, clearinghouses and RCM partners have a few key considerations:

  • Consolidated Connections: Though direct payer connections are better for clearinghouses, acquiring them one by one can be a project. Using one automated solution equipped with many direct payer connections eliminates some of the administrative headache of making the shift.
  • New Routes: As clearinghouses update their payer connections with less expensive or faster options, it’s important to know how quickly their solutions can turn on the new connections to ensure that claims, remits, and other transactions are leveraging the new and improved routes. Is it within hours and days? Or weeks and months?
  • Transferred Enrollments: With new direct payer connections, clearinghouses should try to re-enroll providers directly to payers they had previously enrolled through indirect, preferred connections. Moving to direct enrollments cuts time out of the entire process and helps providers get paid faster, improving their overall customer experience, especially for repeat credentialing processes like payer enrollment.

Historically, clearinghouses accomplished what they set out to do, but a lot has changed over the years. Organizations pursuing direct payer connections may feel like they’re starting from scratch, but new, automated technology can enable better connections and ease administrative processes.

Jim Dougherty is an entrepreneur and innovator specializing in disrupting manual administrative processes by introducing new automation in healthcare and finance. As co-founder and executive chairman of Madaket Health, Dougherty leads the team toward its goal of automating healthcare’s hidden administrative transactions for frictionless payer-provider relationships.

1 https://www.caqh.org/sites/default/files/explorations/
2 https://www.iii.org/fact-statistic/facts-statistics-industry-overview
3 https://www.statista.com/topics/1244/physicians/
4 https://www.hhs.gov/hipaa/for-professionals/privacy/
5 https://www.instamed.com/blog/clearinghouses-are-becoming-obsolete/