Healthcare industry could save $25 billion with automation, CAQH says

Health plans and providers are making progress in doing more administrative tasks electronically, but the new CAQH Index indicates there’s still plenty of work remaining.

This week, CAQH released its 10th annual Index report measuring progress in automating business functions. The report shows more of those tasks, such as eligibility and benefits verification, are being done electronically.

Still, the healthcare industry could save $25 billion annually by making the full transition to automating business transactions, according to CAQH, a nonprofit group pushing for more efficiency in innovation in the industry.

The CAQH report also showed a sharp increase in spending on business tasks. Measuring nine common administrative functions, the healthcare industry spent $60 billion on those functions in 2022, an increase of $18 billion over the previous year.

A confluence of factors led to the increase in spending, April Todd, CAQH’s chief policy and research officer, told Chief Healthcare Executive in an interview Wednesday.

Much of the increase is driven by more people seeking healthcare services, including some who delayed care earlier in the COVID-19 pandemic, she said. The volume of transactions increased 28% in the medical industry, CAQH reports.

“Part of the increase in spend is just pure volume and pent up demand,” Todd said.

Healthcare organizations also have seen staff shortages, with some key workers leaving.

“We had a lot of people retire,” Todd said. “We had a lot of people just decide they weren't going to go back to work. So that left a lot of openings, particularly in the medical field, where we had providers that were doing some of these transactions, and they're very highly paid administrative staff to be doing these transactions.

"We also had a lot of new staff that were coming in that didn't know what they were doing," she added. "And so it took them more time and more money to do these jobs.”

Hospitals and health systems have struggled to fill openings and organizations are paying more to recruit and retain employees. “We were in a point in time where the economy was essentially very favorable to employees. So there was a lot of demand for employees and salaries went up.”

The uptick in administrative spending could well be an outlier, due to the demand for services in the pandemic, Todd said. And because of the progress already made in automating more functions, CAQH projects the healthcare industry is saving $187 billion annually.

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Success and shortcomings

The industry has made great strides, particularly over the 10 years CAQH has studied electronic adoption, Todd said.

In 2022, 90% of eligibility and benefit verifications were handled electronically, up from 84% two years ago, according to the CAQH report.

While she’s glad to see continued progress, Todd said, “We still have a ways to go on eligibility.”

“It's nice to see that keep going up, and it would be great to get towards 100% here,” Todd said. “There are 18 billion of those transactions. It is the largest transaction in the healthcare industry. Eligibility transactions are going every day for numerous things. And so that in and of itself is just a huge spend. And so anything that we can do to make that more automated is going to significantly impact the industry.”

While most eligibility verifications are done electronically, that’s not the case with prior authorization, which is among the most onerous transactions in healthcare.

In the process known as prior authorization, providers must obtain approval from payers for certain treatments, medications or procedures. In 2022, only 28% of prior authorizations were handled fully electronically, which is actually an increase of two percentage points over 2021, CAQH reports.

As recently as 2019, only 13% of prior authorizations were handled electronically. So while providers seethe over the time spent in prior authorization, Todd said she is glad to see more progress in automating those transactions.

“Prior authorization is still a very low adopted transaction,” she said. “It's still below 30%. But we've seen a quadrupling in growth since we've been measuring the index, and particularly in the last couple of years, there has been some nice growth there.”

The prior authorization process is more complicated than other transactions, since it involves clinical and administrative systems, Todd said.

She cited another stumbling block in reforming the system: the lack of any standard for attachments, such as lab results that would show a surgical procedure is warranted. So a health system might submit a request electronically, but the provider might need to fax the lab results.

“That's why there's so many faxes that are done for prior authorization,” she said.

On the upside, the Centers for Medicare & Medicaid Services recently proposed a standard for attachments, which could lead to a significant increase in automation of prior authorization, Todd said. Health plans and vendors have been reluctant to develop standards for attachments that could run afoul of federal agencies, because they fear they would have to spend millions to comply, Todd said.

“It really does impact investment decisions,” she said. “And so the attachment standard from CMS is a very, very big deal.”

In 2022, 91% of transactions involving the coordination of benefits were handled electronically, up from 87% a year earlier, CAQH reports. And 72% of claim status inquiries were automated in 2022, up from 68% a year earlier. Claim payments dipped slightly, from 76% in 2021 to 75% in 2022.

After lagging behind other medical organizations, dental practices are increasingly managing business functions electronically, which is a welcome development, Todd said. “Automation in that space has been really nice to see as well,” she said.

Advice for leaders

Given the influx of new employees in healthcare organizations to fill vacancies during the pandemic, leaders should focus on training, Todd suggested.

“We need to really train these new folks that are coming in,” Todd said. “Spend time, help them make sure that they're understanding the transactions, so that we can get the time down on what it takes to do those. There really is a need for that, from what we're hearing. There's a lot of new people in this space right now.”

Organizations should continue to press to improve automation in prior authorization, and other functions with low electronic adoption, Todd said. “That's what we hope people use the index for. It gives them areas to focus on and helps to highlight how much money they can save by doing that,” she said.

Smaller hospitals and health systems should embrace the move toward handling more business functions electronically, perhaps with more urgency than larger organizations, Todd said.

“For smaller systems, having electronic systems might actually be more important,” Todd said.

“They're operating on lower margins, lower revenue, and the more automated that they can make their systems, they're going to get paid more quickly, they're going to get paid more accurately,” she added. “And that that only helps them to be sustainable.”