Electronic transactions could save healthcare industry $16.3B

Transitioning to fully electronic transactions could save the healthcare industry $16.3 billion, or about 42% of existing annual spend on administrative transactions.

That’s according to the Council for Affordable Quality Healthcare’s 2020 Index, which tracked 10%, or $39 billion, of the $372 billion spent on administrative complexity in the U.S. healthcare system. Streamlining administrative work has been eyeballed as a source for major savings for years, with some advocates seeing Medicare for all as one solution to lower spending by putting all administrative transactions in one system.

However, the industry has already made major efforts to reduce administrative spending, avoiding $120 billion annually by automating transactions. Still, “meaningful opportunities for additional savings remain,” the authors of the eighth annual report found.

CAQH’s report tracks changes in adoption of fully electronic administrative transactions in the medical and dental industries. In 2020, medical plans increased adoption across all transactions except claim submission and eligibility and benefit verification. In particular, prior authorization has the lowest adoption rate among medical transactions in the report, though the field saw an eight-percentage point increase. 

As adoption of electronic transactions increased in 2020, so did transaction volume. Medical transactions overall rose 16%, and “the increase in medical volume was driven by a gain in electronic transaction volume of 22[%],” the authors report. Along the same trends, partially electronic and manual volumes combined fell 3% in the medical industry.

As electronic transactions increased, industry spending dropped to $39 billion––down 4%, or $40.9 billion, in 2019, for both the medical and dental industry. Eligibility and benefit verification accounted for the majority of the total medical spending, 47%, of the transactions. Electronic eligibility and benefit verification represents a $6.7 billion potential savings source annually for the medical industry alone.

While spending fell, the opportunities for further savings rose. That’s because the gap between the cost for electronic transactions and partially electronic and manual transactions grew, the authors report.

“The potential savings opportunity increased 35[%], from $9.9 billion to $13.3 billion,” they write. “The increase in the overall cost savings opportunity for the medical industry is due to higher costs reported for most manual and partially electronic transactions, combined with lower reported costs for most electronic transactions.”

Not only are cost savings to be had, but transitioning to electronic transactions can also save time, the report shows. The time needed to complete an eligibility and benefit verification through a web portal or the electronic HIPAA standard remained stable in 2020, but conducting the transactions took 13 minutes on average, up from three minutes, according to the report.

“Medical providers reported spending, on average, 11 more minutes conducting an eligibility and benefit check manually compared to electronically,” the report reads.

For prior authorization, the savings potential isn’t as large but is still significant. An estimated $417 million could be saved annually if plans and providers convert to fully electronic transactions. The industry has already partly shifted away from manual and partial electronic transactions in this area already, saving $482 million annually. However, prior authorization is the most time-consuming transaction for providers––an average of 20 minutes for a manual transaction. Some providers even reported spending up to an hour to complete a manual prior authorization. Switching to fully electronic transactions could save providers 12 minutes per transaction. 

“Achieving sustainable reductions in time is particularly critical for providers conducting prior authorizations, as delays can negatively impact patient care,” the authors write.