Electronic Claim Payment: Why Health Plans are Pivoting to Stay Competitive

By Jeffrey Brown, President, VPay
Twitter: @VPayUSA

The evolution of electronic claim payments in healthcare continues, with nearly two-in-three providers embracing electronic funds transfer (EFT). In an increasingly competitive landscape, many health plans are finding they need to expand beyond traditional electronic payment options to mature their strategies and keep up with market pressures.

The U.S. healthcare payments market is enormous, covering $3.65 trillion in healthcare expenditures in 2018, according to the Centers for Medicare & Medicaid Services. And although health plans are increasingly embracing digital payment models to address growing numbers of claims, the majority of healthcare providers still rely on legacy processes like paper checks for 37 percent of payments. One reason: EFT requires sharing banking information with health plans—something providers are hesitant to do in an era of increased cybersecurity risk.

One way health plans can improve this outlook is by embracing emerging electronic payment options like virtual cards. These options can serve as a bridge to greater electronification of overall payments. They can also support improved provider satisfaction and a stronger bottom line, while decreasing fraud and security concerns.

The Virtual Card Advantage
The value of virtual cards, and their expected use, is expected to grow by 90 percent over the next four years, according to Juniper Research. Notably, the healthcare industry represents the highest-value sector, at $277 billion in transactions.

Despite these figures, health plans have historically been reluctant to adopt virtual cards due to concerns over provider pushback related to the associated interchange fees. In contrast, third-party administrators have been much swifter to take hold of disruptive payment technologies, and many are realizing the benefits of reduced administrative costs associated with payment.

Virtual card payments offer numerous benefits for the healthcare sector, which seeks to move beyond the limitations of ACH and wire transfers. According to the Association of Financial Professionals, transaction costs for paper-based payment total $3 to $20 for each paper check issued. For an organization sending 20,000 paper checks per month, the cost ranges from $60,000 to $400,000 monthly. In addition to overcoming costs associated with paper-based payments, virtual cards further offset processing costs because providers get their funds faster (two to four days faster than ACH), improving cash flow.

For health plans, virtual cards offer an attractive means of providing efficient, cost-effective secure payments for providers, while reducing administrative costs. Virtual cards reduce the costs of producing and mailing paper checks, and eliminate associated treasury management, escheatment and check fraud expenses. While check-based claim payment can take more than 10 days for providers to receive, turnaround of virtual card payments often equates to a couple of days.

Virtual card options also appeal to providers because they eliminate the need to enroll or provide sensitive banking information to take advantage of electronic payment. This makes it easier for providers to accept electronic payment from insurers they are not frequently paid by. Cards can be easily deactivated and replaced if they are lost or stolen, and third-party fraud issues are remedied pursuant to network operating rules with no risk to the payer or the payee.

Moving Toward a More Modern Approach
The electronic claim payment landscape continues to evolve, and forward-looking health plans should take steps to broaden their portfolio. The reality is that there are more choices at their disposal than ever—from ACH to virtual cards to real-time payments—to improve efficiencies and offer providers more choices when paying claims.

Because there won’t be a single solution to the evolving challenges in the industry, virtual cards will comprise one component of a diversified digital payment approach. Payers can build good faith with providers by offering a variety of payment options and positioning virtual cards as an advantage on a number of levels. Approaches to consider include:

  • Allowing providers to choose EFT payments instead of virtual cards
  • Disclosing if acceptance fees will apply to a particular form of EFT
  • Clearly explaining how to elect the form of EFT the payee prefers

As the move toward electronic payments from health plans to providers steadily increases, stakeholders that embrace this change will be best positioned for sustainable success. Now is the time to look beyond ACH transactions toward the diverse and growing number of electronic payment solutions that enhance provider satisfaction while reducing costs, increasing efficiency and limiting risk.