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QUICKLY ESTIMATING THE POTENTIAL BENEFITS OF ADMINISTRATIVE SIMPLIFICATION FROM HIPAA

PURPOSE

In order for hospitals and physician practices to identify the potential financial benefits associated with the HIPAA Standard Transactions and Identifiers, the Boundary Information Group (BIG) has developed a Quick and Dirty HIPAA Administrative Simplification Provider Benefit Calculation Estimator. This is a self-administered tool, which takes less than 30 minutes to complete. The resulting benefit calculations are rough estimates, as opposed to precise calculations.

BIG provides this benefit calculator as a service to the health care industry. In addition to utilizing it as a self administered tool that can be helpful in setting organization goals and objectives for HIPAA implementation in order to obtain the identified benefits, BIG is collecting the results from provider organizations, in order to compile benchmarks for the industry. As of January, 2001, 20 medical groups and 16 hospitals have responded. The resulting benchmarks are included below. Refer to www.boundary.net for benchmark updates. To contribute to the benchmarking database, fax your completed two-page form to (303) 488-9994. Your information will be kept confidential. Questions should be addressed to Steven S. Lazarus at sslazarus@aol.com or (303) 488-9911.

PROVIDER BENCHMARKS

  • Hospitals

    16 hospitals in the Western United States, with a total of 1,407 beds have submitted data. The total annual average hospital savings is $1.1 million dollars per hospital. On the average, this is 2.4% of revenue, with a range of 0.9% to 7.5% of revenue. Based on the assumption that there is little net benefit after implementation cost for the first year while health plans and providers are implementing the HIPAA transactions, the five year financial impact is an average savings of $4.4 million per hospital, excluding ongoing cost. For the hospitals, 69% of the savings potential are due to the reduction of bad debt, insurance claim denials due to timely filing, and patient statement postage. The hospital average potential savings in the business office is $1.2 million over five years.

  • Medical Groups

    20 Medical groups, including 19 medical groups of eight physicians or more have submitted data for benchmarking. These groups represent 1,000 physicians. The average annual savings per medical group is $360,000. This is approximately $7,200 per provider, or 2.9% of revenue, with a range of 0.6% to 6.0%. Based on the assumption that there is little net benefit after implementation cost for the first year while health plans and providers are implementing the HIPAA transactions, the five year financial impact is an average savings of $1.4 million per medical group, excluding ongoing cost. For the medical groups, 51% of the savings potential are due to staff reductions in the Business Office. The medical group average potential savings in the Business Office is $714,000 over five years.

INSTRUCTIONS FOR COMPLETING THE MODEL

Page 1:

The first row estimates the savings in personnel costs in the Business Office associated with implementing electronic remittance advice, increasing electronic claims submission to more health plans, utilizing online claims status inquiry, and accessing eligibility information on line. The underlying assumption is that 50% of the current staff performing these activities can be eliminated by significantly expanding the use of standard electronic transactions. Based on experience with some providers, this is a conservative estimate in staff savings with regard to remittance posting; less is known about the other Business Office aspects involved. In column one (1), enter the number of full-time equivalent (FTE) staff in the Business Office and elsewhere engaged in these functions. In column two (2), enter 50% of the staff number in column one (1). In column three (3) enter the estimated salary, benefits, and overhead associated with the number of staff in column two (2). The estimate of overhead should include space, computers, telephones, etc.

The second row estimates the savings in personnel costs associated with managed care. These personnel may be located in a variety of departments within the organization. They are involved with case management, processing referrals and referral authorizations, verifying eligibility and benefits, and applying for preauthorization. In column one (1), enter the FTE staff engaged in these activities. Do not include eligibility verification that duplicates the Business Office calculation. In column two (2), enter 50% of the staff from column one (1). In column three (3), enter the salary, benefits, and overhead associated with the staff in column two (2).

The third row estimates the financial savings associated with reduced bad debt, reduce denial of insurance payments due to lack of timely filing, and postage savings associated with sending out patient statements. The underlying assumption is that by having eligibility and benefit verification performed at the time of appointment scheduling/preregistration/registration, sources of payment can be confirmed before services are provided, resulted in an improved collections effort, and a reduction in insurance denials because of first submission to the wrong insurance company. As a conservative estimate, use the factor of 25% reduction through changes in workflow. Columns one (1) and two (2) are not applicable (NA). In column three, enter three numbers: 25% of last year's bad debt, 25% of insurance company denials due to lack of timely filing, and 50% of the postage and statement printing costs associated with patient statements.

In row four, column three (3), total up all of the numbers in column three (3). This is the total potential estimated annual savings from implementing the HIPAA standard transactions and identifiers, and changing workflow to take advantage of administrative simplification. It does not include a one-time positive cash flow that can occur by increasing electronic claims submission and the resulting faster payment, which also can be of significant value.

Questions about utilization of the form should be addressed to:

Steven S. Lazarus at Boundary Information Group, sslazarus@aol.com or (303) 488-9911. The Boundary Information Group would appreciate receiving a copy of your completed two-page estimating form so that it can be included in our confidential HIPAA database. Aggregate findings are published so that hospitals and physician practices will have benchmarking information with regard to benefits that are potentially achievable under HIPAA.

January, 2001


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