Medicare computers ripe for upgrade

New technology could speed claims processing and provide real-time access to data.

By Markian Hawryluk, amednews staff. March 10, 2003.

Washington -- Physicians running old software on their computers might understand a bit of what Medicare is experiencing. It hasn't upgraded its computer technology in 18 years.

But with retirement of the baby boomers looming, the Centers for Medicare & Medicaid Services has contracted for a complete review of its systems with an eye toward streamlining its accounting process and possibly saving taxpayers billions.

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CMS has turned to IBM and Lexington, Mass.-based software developer deNovis Inc. to help analyze the agency's technology needs and install a new claims-processing system. CMS officials hope that an innovative system developed by deNovis will prove to be a perfect fit.

The technology company set out three years ago to make health care transactions as easy as using an ATM. Banks pay only a penny or two in administrative costs for each cash machine transaction. Health care insurers, however, spend an average of 15 cents of each premium dollar on administrative costs and profit margins.

That is mainly due to the inefficiency in their claims processing, said deNovis President and CEO Bradford Burkett. He said insurers manually examine between 30% and 60% of claims, and only 20% of the claims are paid properly the first time. Paperwork and electronic claims data often trickle in six to nine months after the services are provided.

Taking its cue from the banking industry, deNovis hired linguistic experts to develop Health Insurance Contract Language, a language that computers can read and process as easy as dollar amounts and decimal points. Now complex health contract language can be translated into HICL, and claims transactions can be processed in real time with minimal intervention. According to deNovis, 99% of claims can be paid automatically, with the data stored in a data warehouse where it can immediately be retrieved.

Banks pay only a couple of cents in administrative costs for each ATM transaction.

IT consultant Cap Gemini estimates that deNovis technology could drive out 40% to 50% of the administrative costs of health care for commercial plans. While insurers undoubtedly covet the cost savings the system can provide, the physicians who head Tufts Health Plan and Empire Blue Cross and Blue Shield of New York, which are installing the software, see tremendous clinical potential as well.

"The accountants get excited about the cost savings. The physicians get very excited about the opportunity to do real medical management," Burkett said. "They see for the first time they'll be able to deliver on the promise of HMOs and actually manage care."

By having real-time data on the services provided to a given beneficiary, the health plan can ensure that patient is seeing a doctor, undergoing therapy, filling prescriptions and following the insurer's protocols for managing given conditions.

An application for Medicare

Fee-for-service Medicare does not manage care, so its first steps with HICL -- if CMS adopts the software -- are likely to be less ambitious. "There's about $5 billion in annual cost savings that we can wring out of the Medicare system," Burkett said.

The Medicare contract envisions a four-stage process: an evaluation of the current system, design of a new one, development and implementation of that system, and maintenance. First, Medicare and its partners must determine if their transactions and relationships can be translated into the new computer language.

If they are found to be compatible, designing and installing a new system could take place in two to three years. Work would start with the common working file, a database through which fiscal intermediaries and contractors run all Medicare claims.

"We are very excited about this new technology coming down the road. We feel it has a tremendous amount of potential for administrative savings," said Wally Fung, chief technology officer at CMS. "However, this is not a proven technology yet."

CMS must be sure the system can handle the 1 billion claims Medicare processes each year. If all goes smoothly, physicians would be able to do online claims status inquiries within three to five years, Fung said. He hopes the work will prepare Medicare for the flood of retirees that will begin in the next decade.

"We need to get ready for this tremendous increase of claims that we're projecting," Fung said. "The system we've put together is simply not nimble enough to be responsive."