Health economists analyzing a single payer system don't account for enough of the savings derived from the elimination of our chaotic claims processing methods. These comparative images, one from the US and one from Canada, give us something to think about.

By Henry Broeska- July 23, 2019- Irvine, California

We already know that Canada’s healthcare costs across the board are cheaper by half. And we know that Canadians don’t pay personal premiums, co-pays, or anything out of pocket for their basic medical care, and that includes hospitalizations. So how can Canada cover everyone and do it for less than we pay in the United States?

US-based opponents of government-enabled health insurance schemes would have us believe that countries like Canada do it by rationing access to medical care with long wait lines because inept governments can't manage anything. But that's just 'boiler plate' rhetoric from an ongoing industrial propaganda campaign against the concept of universal healthcare. For over 50 years the American health insurance industry has been using misinformation to keep Americans in the dark. The last thing they want is more concerned citizens understanding how well other nations’ universal healthcare systems work.

Whether single payer or multi-payer, all universal healthcare plans world-wide really practice the same conventions. Successful national healthcare systems have been able to expand coverage to everyone and control costs for five main reasons: 1) They’ve created one comprehensive plan for everyone, 2) they’ve reduced the number of payers allowing everyone to run on a common, secure electronic platform, 3) they’ve reduced medical and administrative costs through rate regulations, 4) they’ve adopted global budgeting for purposes of running hospitals, and 5) they negotiate formula pricing with all drug manufacturers and fiercely guard against the manipulation of generic pharmaceutical supply and pricing. An ancillary benefit of these controls is that they’ve eliminated the possibility of healthcare fraud, a major problem in the US and an element that shouldn’t have the opportunity to exist in a well-managed system.

But none of those imperatives are features of the US healthcare system. In this article, I'll make comparisons between the US and the Canadian healthcare systems' claims adjudication process to provide evidence that it’s possible to derive far more efficiencies from a single payer system at far less cost.

For no socially beneficial reason...

From World War II on, to make their customers believe that healthcare was a market-based 'commodity,' American insurance companies needed to differentiate their insurance contract offerings. Nowadays when industrial spokespeople and their political surrogates talk about the importance of 'choices' in health insurance, what they are really reinforcing is that commodity perspective. The uniquely American belief that health insurance policies should include 'choices' in their benefit structures has been carefully planted in the subconscious of every American over decades.

I often hear some of my American friends say, “I have good healthcare,” referring to their all-inclusive personal health insurance policy. It’s a statement that’s difficult to understand for someone who didn’t grow up in America. What do they mean by adding the word “good?” In reality, there is only 'healthcare,' based on best practices. As an American reader, that last sentence may be just as foreign to you like the concept of “good healthcare” is to a non-American. It simply means that other countries have left patient treatment decisions to their doctors, not insurance companies. * But that one seemingly small distinction is the underlying reason for America’s dysfunctional healthcare system. When it comes to healthcare, Americans are essentially speaking a different language than the rest of the world.

“I just interviewed the German Minister of Health, and it was an exhilarating experience because it was a totally different language. It was obviously important that everyone should have the same deal in healthcare.” ― Uwe Reinhardt

One of the most powerful visual aids I can imagine illustrating the difference between Canada and the US is in the area of claims processing. Claims processing is the receipt and adjudication of a claim filed by the insured against a third-party insurer, often through a Clearinghouse. Claims are accepted or rejected based on the member’s insurance policy. In the US, there are over 4000 health insurance carriers contracting with millions of employers, each offering perhaps hundreds of differently structured health insurance policies. 1

The commercialization of health insurance creates an almost endless number of different contractual terms and conditions adjudicated by thousands of different companies ― each processing claims in their own unique way. Millions of claims are transacted daily in the US. Each claim can trigger hundreds of actions based on strict rules and regulations. Clearinghouses designed to help manage claims, a process many trillions of these actions each year.

This ponderous variability across multiple stakeholders makes the US claims payment infrastructure the most complex, the most expensive, and the least efficient claims processing system anywhere in the world. It’s also the reason why the US consumes at least twice as much healthcare administration like any other comparable industrialized country.

Fig 1. (below) depicts the Rube Goldberg-Esque processing method we've developed to adjudicate healthcare claims. This image isn't meant entirely to be a lampoon of the system ― it's a true representation of the actual system we use. In fact, the illustration doesn't include nearly enough features; there are layers upon layers of processes and rules that sit below what is shown on top.

Fig 1. US Healthcare Claim System Payment Infrastructure

Healthcare Claims Processing United States

The main components of the claims adjudication process are: the transmission and receipt of claims, rounds of review, re-submission of denied claims, payment processing, distribution of Explanations of Benefits (EOBs), claims data recording and claims archiving. Every activity and feature seen in the above flow chart fulfills one of those 7 functions in what we call 'the US healthcare system,' even though it is not one, but many systems that interact at some point with everyone in the US ― including the uninsured. But if it only fulfills 7 functions, why should it be as insanely complex as the flow chart?

To get a clearer picture, let’s go to a second chart. The pie chart below accounts for all 329 million Americans by how they interact with the many parts of the US healthcare system. Everyone on American soil is in some way included. Even the uninsured have the right to be treated through the Emergency Medical Treatment And Labor Act (EMTALA). 2 For many who walk into a hospital in medical distress, it's their only and last chance at being treated for acute conditions through a hospital emergency department. No matter how someone is insured, or not insured, once they enter the system their data must be accounted for somehow, and that’s all reflected in the claims process.

The simplest and least costly systems are the government-run systems that include Medicare, Medicaid, and the Veteran's Administration (VA). These systems are modeled on a single payer system with lower costs than the private system, but not as low as Canada's. Why? Because some part of the private healthcare system is involved in almost every insurance claim. It's really the convolution of so many variables that makes claims processing an administrative nightmare ― and very close to the chaos it appears to be.

Henry J. Aaron, the noted American health economist described the system: “I look at the US healthcare system and see an administration monstrosity, a truly bizarre mélange of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird.” 3

Fig. 2. Total US Healthcare Coverage (millions of ppl) by insurance type (April 2019)

Healthcare Claims Processing United States

Fig 2. The 8 major segments can be further broken down into many more smaller segments, all performing a different claims adjudication process. For example, the Employer Segment can be broken down by Large Group Plans, Small Group Plans and State and Federal Gov. Plans, as well as by scores of insurers, all performing the claims process differently.

“Every healthcare system is perfectly designed to get the results it gets.” ― Don Berwick

Obviously, anyone designing a healthcare system wouldn't plan it like this. As Henry Aaron suggests, it’s an inherited legacy of bizarre circumstances that we’ve been building on for decades. Nothing about this healthcare system happened through strategic planning; it all happened by accident. 4 Employer-based healthcare was invoked as an ad hoc emergency war measure during World War II. Its enactment as a temporary tax relief against employer health spending was a desperate act by the federal government to keep domestic workers from the real possibility of going on strike in the middle of a war effort. It was not meant to last ― and it certainly wasn't meant to be the cornerstone of enlightened nation-building. But the private insurance companies, who profited mightily from the business of healthcare based on the method, lobbied heavily for it to remain in place after the war, so it stayed.

The unfairness of the American employer-based healthcare system wasn’t immediately recognized as a failure of its design. Our traditional Puritan ‘work ethic’ emphasized work, that is, a job, as the ultimate fulfillment of being ‘American.’ Almost anyone who was idle was considered unworthy of deserving healthcare. But employer-based coverage bypasses entire swaths of the modern population who are unemployed, disabled, aged, or impoverished. People without jobs, money or means make poor candidates for private health insurance based on employment. A different way for these large American sub-populations to access healthcare had to be found. In response, Medicare and Medicaid were established in 1966 as social services to help fill the societal gaps which affected seniors, minorities, and the poor disproportionately. These new separate entitlement programs created different claims processing systems, most of which included both private providers and insurers, and of course, many additional rules and regulations.

The Digital Revolution

The acceleration of administrative complications within our fragmented healthcare system started with the massive expansion into electronic health records in the 1990s. To get rid of the paper, data had to be stored and transferred electronically for the system to work. Similarly, all healthcare-related financial transactions became automated. Computerization meant that insurance companies could expand and offer more differentiated products to a broader market. But computerization also attracted more government scrutiny and more regulations to safeguard private health information ― and to avoid an increasing amount of fraud. The heavy regulation of electronic health data started in 1996 with the passage of the health insurance Portability and Accountability Act (HIPAA) 5 into federal law, locking down data privacy and security provisions for the protection of medical information.

New rounds of regulations and rules were written up every time new programs like the Children's health insurance Program (CHIP) and the Affordable Care Act (ACA or 'Obamacare') were enacted. New privacy legislation 6 applying newly adopted standards came into effect. Health Information Technology (HIT) became its own sector of the economy. Growing communications, data-handling and security challenges have in turn spawned the emergence of many more third-party specialty technology suppliers, all needing to be profitable as businesses. The burgeoning trend towards more and better HIT that started in the 1990s has only gathered momentum since.

The original thinking of all healthcare stakeholders was that automated claims processing would make life easier. Everywhere in the healthcare field, there were new business opportunities being created through internet connected technology innovations. The insurers were all in too. To help expedite the claims process, insurance companies expanded their administrative divisions and technological capacities by building in-house solutions and/or by contracting with third-parties like Cerner, Epic, or McKesson among others. Insurers believed it was just a matter of time before hundreds of billions in technology investment would pay off. At least, that’s what they told us.

"The good news about computers is that they do what you tell them to do. The bad news is that they do what you tell them to do." ― Ted Nelson

As the fragmented administrative processes became more complex each year, they also became institutionalized. By institutionalized, I mean that each one of those small way-points, or ‘cells’ in Fig. 1 connected by an arrow to some other function in the process represents an entire area of industry where dozens of companies, each with thousands of employees compete for dominance only within that silo of specialized function.

For example, in Fig 1. I've circled one of those little cells in red. It's an acronym that most of us have never heard of. Electronic Data Interchange, or EDI, 7 is a government-regulated necessity for the secure transfer of health data between multiple organizations. IBM, SAP, Microsoft, and a hundred other smaller companies offer EDI solutions for healthcare utilizing a national set of coding and format standards for all electronic transactions related to healthcare. A coalition called "The Workgroup for Electronic Data Interchange" or WEDI, comprises of thousands of individuals and organizations that represent a cross-section of the American healthcare industry.

It’s impossible to do without EDI in US healthcare, but similarly, it’s impossible to do without all of the other complexes, rules-based functions as well. They all must connect to make the system work. Over 100,000 rules apply to any healthcare-related insurance transaction performed in the United States. If I picked any of the other way-points, I could point you to third-party activity on a massive industrial scale, where like EDI, scores of companies and thousands of technicians and coders are diligently working to drive efficiencies into the process.

Unfortunately, there is no magic bullet that will improve the system's performance when so many rules and regulations need to be followed. Gains in efficiency, if they can be found at all, are going to be insignificant to the overall cost. In the current scenario, none are large enough to change the growth rate of healthcare inflation, which far outstrips the growth in American workers' wages.

Comparable industrialized nations have far less complicated health insurance systems. Typically, governments rigorously regulate national health insurance plans that cover most or all citizens with unchanging rules and uniform fee schedules. Such systems cannot help but keep administration costs low. Compared to countries like Canada, the US healthcare system is more complex by several orders of magnitude. Given the out-of-control administration costs that the US is experiencing, it’s little wonder that health policy reform has been a subject of discussion for decades.

“If the rule you followed brought you to this, of what use was the rule?” ― Cormac McCarthy

For those incrementalists who assume that making small changes in the current system will lead to lower costs, the Affordable Care Act proves that isn’t true. The complexity of the US system makes incremental or piecemeal health reform impossible. Unless the current system is abandoned altogether, changing the rules in one part of the system has enormous effects on every other part of the system. In most cases, there are unintended and costly consequences of changing rules, even when the change is made for noble reasons, like attempting to cover more people with affordable healthcare. The introduction of the Affordable Care Act reduced some direct costs significantly, but increased others, further complicating the picture. Ultimately, the ACA has done little to reduce our claims processing problem and has only created more of those little flow chart boxes.

If we truly believe that the private sector can deliver cheaper healthcare more efficiently than the public sector, then all Americans deserve an explanation from both industry and lawmakers as to how private healthcare that costs twice as much as it does in so-called ‘socialist’ countries is benefitting us as taxpayers.

The Shut-out

Consumers deserve much more for their healthcare dollar. Chief among consumer complaints are dangerous delays in treatments, erroneous denials of care, incorrect bills, surprise charges, and costs not covered by their plans. Bill corrections often take so long to fix that outstanding balances ― for money not owed, mind you ― have already been handed off to collection agencies and members’ credit ratings have been damaged as a result. Sometimes patients don’t even know they are in debt collection until they search their credit score. Unpaid bills lead to other problems that can impact health. Patients requiring care often don’t get seen by their doctors for reasons related to unpaid bills. A basic question that Americans must ask themselves is: Why am I willing to accept this kind of shoddy treatment from my insurer and from no other vendor?

The US stands alone in this Dystopic model of administrative inefficiency, which is reflected in almost any healthcare-related statistic you care to name. A growing number of Americans – over 40% - have medical debt problems. About 31 million Americans have no health insurance at all. About a third of each dollar spent on healthcare in the US goes to supporting the waste, fraud, and abuse in the system ― over a trillion dollars each year. *** Incremental changes are not enough. Unless there is a profound change in the way our healthcare system works, our nation, and each of us, are locked into a nearby date with a bleak and uncertain healthcare destiny.

“Masters in our own house we must be, but our house is the whole of Canada.” — Pierre E. Trudeau

For comparison, I’ve created the same claim adjudication flow for a healthcare system like Canada’s, where every citizen is covered (Fig 3). Keep in mind that claims for exactly the same medical tests and procedures occur in Canada as the US. But there is no use for all of those 3-letter acronyms that have become regulated institutional fixtures in the United States. Canadians don’t know what EDI, HRAs, HSAs, HMOs, PPOs, MCOs or ACOs are. In each Canadian province, there's only need for one secure interface between 2 computers for the adjudication process to work. To put it into terms that Americans understand, Canadians are all members of the same plan with the same coverage.

To make a claim for a service provided to a patient, a doctor or his office staff simply enter the provincial tariff codes into a database hosted by the Payer. For Providers, there is only one set of prices for each province based on a fee-for-service payment structure. These prices are maintained for years with an annual inflation factor added. For patients, there is nothing to do; no paperwork, no bills. Less work and fewer rules mean administrative costs are lower.

The administrative comparisons between Canada and the US are stark. It takes about 8 billing clerks to enter billing data for a large ~900-bed Canadian hospital. Contrast that to Duke University where their 957-bed hospital requires the employment of 1,600 billing clerks and an additional unknown number of billing consultants. 8

"Change the rule and you will get a new number.” ― W. Edwards Deming

In a well-known comparative study, 9 administrative overhead accounted for 11.7% of private plan healthcare expenditures in the US, compared to 1.9% for provincially administered plans in Canada. Hospital administration costs in Canada are around 11% of total operational costs while in the US they are closer to 26%. And medical inflation rates in the US are running at over twice the inflation rate of Canada and other OECD countries.

Depending on the area of practice, 95-100% of physicians’ claims are paid by the provincial Payer every 15 days. That’s the length of the revenue cycle in Canada ― two weeks. The flow chart for the Canadian healthcare system looks like Fig. 3. It's clean, simple, and precise, with no need for any of the billion dollar technology features and onerous government regulations that must be applied to the same adjudication process in the US. And fraud? The system is so simple and transparent that fraud in the Canadian healthcare system is rare and nearly unheard of.

Fig. 3 Healthcare Claim Payment Infrastructure in Single Payer System

Healthcare Claims Processing United States

Healthcare claims are like snowflakes...

The medical billing process is a major driver of healthcare spending in the US. Technology has streamlined many other consumer/industrial sectors; everything from banking, to online purchasing, to media distribution, to ride sharing. But that’s not true for the healthcare claims process.

The statistics underscore the instability and inconsistency of the American health insurance industry. 42% of all newly submitted claims are found to be coded incorrectly. Most are denied on the first submission and only 60% is paid upon the second submission. 10 It isn't always the fault of the people submitting them. Rules change so quickly that most insurance companies must electronically update rule changes daily; weekly is not often enough! The complexity of the process with its multiplicity of plans and contracts, medical codes that may or may not be billable, rules that are different in each American state, different networks, different formularies, different medical Providers charging differently, different shares of public and private funding, multiple accounts to draw from for the same claim, different cost-sharing arrangements, inconsistent deductibles and reimbursement levels, even within the same plan ― and on and on and on ― make it impractical to apply algorithms. Algorithms are computations that deal with finite numbers of precisely defined successive states, eventually producing a final outcome. Algorithms have made consumer-facing companies like Amazon, Facebook, Snapchat, and Uber successful. But health insurance claims are more like snowflakes ― no two are exactly the same, making algorithms that depend on ‘sameness’ difficult to adapt. No matter how many feedback loops you build into the process, there continue to be so many computational failures along with the algorithmic flow that real humans must intervene every so often to resolve problems and move the claim forward. Human touches are expensive and time consuming ― and make the fantasy of real-time adjudication a false choice. ****

In the topsy-turvy scenario that's playing out, healthcare stakeholders have placed a higher value on a good revenue cycle strategy than the delivery of healthcare itself.

The effect on physicians and clinics can be overwhelming. Unable to make automation work the way it works for other industries, all healthcare stakeholders are hiring more low-level administrators to manage the choke-points. In this scenario, there is no need for more physicians who would only generate more paperwork ― best to curtail the care to lessen the admin burden and raise prices to pay for the new hires. In the topsy-turvy scenario that's playing out, healthcare stakeholders have placed a higher value on a good revenue cycle strategy than the delivery of healthcare itself. The result? Higher healthcare premiums, higher co-pays, more high-deductible plans, and far less coverage than ever before. The other result that’s perversely and indefensibly higher is insurance company profitability. It doesn't matter that the insurers have failed spectacularly in their mission to provide affordable plans to Americans. It only means that ‘whoever has the gold makes the rules.’

Fig. 4 Growth in Physicians and Administrators US Healthcare System 1970-2017

Healthcare Claims Processing United States

Cleaving the Gordian Knot

The Canadians have created a plan benefit design that is comprehensive and their laws have given provincial governments the regulatory teeth to make it work. They understand that the more players who are allowed to represent more variable and alterable plans, the more administrative problems it creates for Providers and patients alike. The more Payers and plans ― what we like to call ‘choice,’ in America ― the greater the reduction in cost-effectiveness. Although opponents of 'socialized medicine' typecast it as 'Americans under the thumb of Big Government,' it's impossible to conceive of a system that's more bureaucratic, wasteful and corrupt than what we have now.

According to a Harvard study, we put up with $60 billion in overpayments (Americans being charged and paying more than they should have been billed) Uninsured and under-insured generates $85 billion in uncompensated care costs covered by us, the taxpayers. There is $272 billion in medical billing fraud each year. 11 The American system absorbs more in unrecoverable costs due to fraud each year than the entire Canadian healthcare system costs to run! There are also $262 billion in medical claims that are denied, leaving patients to scramble to either get the denial decision reversed or find an alternate means of financing their care. 12 Physicians give away $125 billion in free services for rejected claims each year. 13

Attempts to reclaim these losses cost additional untold billions in administrative costs, not to mention the millions of hours of unpaid time spent by patient families attempting to get the medical care they need. In fact, every pointless and unnecessary cost in the system is recovered on the backs of the American consumer – you and me. That’s because insurers don’t endure the cost; they simply recoup losses by increasing premiums, raising deductibles and decreasing coverage.

Through all of this, it's key to remember that the number of uninsured Canadians is zero, and the personal debt accumulated for insured medical care is zero. Because the provincial plan pays, no Canadian has ever been denied care or accumulated personal debt for a medical reason. Canada can offer this to everyone because they've wrestled their costs to the ground. Canada and Scotland have the lowest hospital administration costs in the world. 13 There is much to be said about the simplicity and practicality of viewing healthcare as a right and not a commodity.

Incredibly, many American lawmakers, coerced by the insurance companies and the drug manufacturers (insurance companies are often the biggest single contributors to re-election campaigns in the United States) 14 still drone on about more market forces being the answer to the American healthcare system becoming more efficient. Health economists, in trying to lay blame for high healthcare costs, will write tomes on the supply shift needed to balance the demand shift and the shortage of doctors creating artificially high prices, but will never once mention the obvious claims processing problem.

The accelerating loss of health insurance coverage year-over-year portends a disastrous outcome for the health and welfare of tens of millions of Americans if we don’t act immediately. At this point, invoking ideologies is not useful to honest policy discussion. To eliminate bias, we must identify and marginalize lawmakers who take re-election campaign funding from private insurance and pharmaceutical companies. We must recognize that political self-interests have turned our healthcare system into both a public health risk, 15 and one of our greatest national security threats. 16

Although Canadians worry about how to finance their healthcare system in the face of escalating costs (news flash: every country does) *****, they manage to provide care to everyone who needs it for less than half of what we pay here. They do it by prioritizing care for those who need it most, prudently managing the claims process and making sure that expenditures are kept within budget forecasts.

If a picture is worth a thousand words, then the two comparative process diagrams I’ve illustrated surely provide an eloquent answer to our healthcare problems. But the gains found by eliminating the tortuous claims process only occurs by moving to a simpler system. It’s time to take a good look at how other countries deliver healthcare for half of what we pay. It’s time to cut our losses and move quickly to a single payer system that will work for all Americans.