Milliman Payor E Savings Report Final

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Milliman Client Report
Electronic Transactions Between
Payors and Providers: Pathways to
Administrative Cost Reductions in Health
Insurance
May 6, 2010
John L. Phelan, Ph.D.
Milliman, Inc.
john.phelan@milliman,com
DISCLAIMER AND THIRD PARTY USE:
This report was prepared by Milliman, Inc. for NaviNet, Inc. We understand that NaviNet may wish to
distribute it publicly and it is intended for public distribution. The report, however, should be distributed
only with the permission of Milliman. In addition, the study may be distributed to third parties only so long
as it is distributed in its entirety and Milliman makes no warranties to those parties of its accuracy or any
other aspect of the study. Milliman does not intend for this information to benefit any third party even if it
permits the distribution of this work product to such third party.. Further, any results presented in this
report represent an analysis of typical administrative processes. Industry averages may vary and may not
apply to a specific circumstance, healthcare payor, or point in time. They are not a guarantee of savings
in a specific situation.

Administrative Cost Reduction Opportunities in the U.S. Health Insurance Industry
through Use of Electronic Transactions between Payers and Providers
February 23, 2010
Milliman White Paper
Table of Contents
Executive Summary...................................................................................................................1
Background ...............................................................................................................................3
Methods.....................................................................................................................................5
Covered Transactions...................................................................................................................................5
Data Sources ..................................................................................................................................................6
Calculations for Costs and Savings.............................................................................................................7
Survey Findings .........................................................................................................................8
Additional Opportunities to Leverage Electronic Transactions............................................. 11
Electronic Fund Transfers.........................................................................................................................11
Internet-based Patient Responsibility Estimation for Providers..........................................................12
Real-time Claim Adjudication....................................................................................................................12
Clinical Messaging .......................................................................................................................................13
Strategies for Change............................................................................................................... 14
About Milliman........................................................................................................................ 15

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Executive Summary
Milliman conducted a survey examining the current state of electronic transaction adoption and
savings estimates for specific transactions among healthcare payors such as government entities,
health plans, and health insurance companies. From our findings, we estimate that one half of the
total savings opportunity available through the use of electronic transactions has already been
achieved. Most of this has been driven by electronic claim submissions, with a somewhat smaller
portion driven by electronic eligibility verification. At this time, efforts to increase use of electronic
eligibility verification and prior authorization would seem to hold the greatest promise for industry-
wide savings in the future.
Milliman estimates that, for an average healthcare plan with 500,000 commercial members, using
standard electronic transactions to communicate with providers, as defined in the Health Insurance
Portability and Accountability Act of 1996 (HIPAA), could result in annual administrative savings of
over $23 million. When extrapolated to the entire U.S. healthcare payor market, this represents up to
$19 billion in possible administrative savings annually over manual transactions if all transactions
were conducted electronically. We estimate that the industry has already achieved about $9.2 billion
of those savings.
For this study, Milliman looked closely at the five most common transactions involving healthcare
payors and providers: 1) claim submission (including attachments), 2) eligibility verification, 3) prior
authorization/referral certification, 4) claim status inquiries, and 5) remittance advice. Other uses of
electronic transactions between healthcare payors and providers that may reduce administrative
expense were considered as well, including use of electronic fund transfers (EFTs) for claim
payment, eligibility estimation, real-time claim adjudication, and clinical messaging. While the study
did not quantify the benefits from these activities, innovations such as these appear to hold
significant promise for future additional savings.
For all the potential it offers to reduce costs, implementation of electronic transactions between
payors and providers remains fraught with challenges. While often compared to the retail sector,
where very high levels of penetration have been achieved, use of electronic transactions in healthcare
is lagging with only approximately half of the basic transactions described in HIPAA conducted
electronically. This may be due in significant part to the complexity of the required transactions and
the lack of strong incentives among all stakeholders to drive adoption.
In addition to savings from increasing use of standardized electronic transactions, healthcare payors
have other opportunities to drive administrative savings through promotion of other types of
electronic transactions, such as use of EFTs for payments, providing estimates of patient
responsibility, real-time adjudication of claims, and use of electronic clinical messaging to physicians.
Health plans clearly have a significant incentive to drive adoption of electronic transactions. Even
small gains in use of electronic transactions result in material financial benefits. These incentives are
somewhat diminished for providers, especially smaller provider practices, where the return on

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investment is smaller or more difficult to actually realize through staff reductions. Several different
strategies are now available to payors and regulators for increasing adoption rates, including:
 Establishing additional financial incentives for providers
 Identifying and leveraging vendor programs that support electronic transactions and
communications, such as multi-payor portals, clearinghouses, electronic networks and other
electronic communications services
 Offering several options to providers for conducting transactions. These options can
support variations among payor information needs in certain transactions that cannot be
resolved through regulation alone, such as unique benefit designs
 Improving existing standards in areas such as claim formats and coding of certain key
elements
 Establishing standards for interoperability among electronic medical records
 Implementing mandates for providers to use electronic transactions

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Background
Achieving greater administrative expense efficiencies through electronic transactions has been a
stated public policy goal since the 1980s. The 1996 enactment of the Health Insurance Portability
and Accountability Act (HIPAA) provided further impetus for widespread use of electronic
transactions. This legislation included a major focus on developing standards to reduce healthcare
administrative costs through greater use of electronic transactions as well as mandates to protect the
security and confidentiality of electronic information. The Department of Health and Human
Services (DHHS) estimated that as a result of greater adoption of electronic transactions “[t]he total
net savings for the period 2002-2011 will be … $13.1 billion for health plans, and … $16.7 billion
for health care providers.”1
This white paper focuses on quantifying the financial savings that may accrue to healthcare payors
through adoption of certain types of electronic transactions. Almost 10 years after adoption of the
HIPAA standards, the DHHS estimate appears to represent only a portion of total possible savings
from using electronic instead of manual transactions. Unfortunately, no methodology can isolate the
impact of regulatory changes for causing a specific level of savings, especially because a number of
other factors contributed concurrently to increasing use of electronic transactions across the
industry.
What can be accomplished in looking at healthcare payor administrative savings, and is the focus of
this white paper, is to examine the extent to which savings appear to result from use of electronic
transactions compared to a more labor-intensive approach to the same transactions. More traditional
transaction methods involve telephone conversations and paper-based methods such as faxes and
mail.
Healthcare payors may also reasonably expect transaction savings to have a proportionately greater
impact on their operations than on those of providers. This is because conducting transactions is a
core function of healthcare payor operations. That is, as risk-bearing entities, one of the primary
responsibilities of a healthcare payor or health insurer is the receipt of funds from individuals and
organizations and the disbursement of those funds among medical providers for services rendered.
By contrast, the primary function of healthcare providers is to deliver medical services, with
transactions serving in a secondary role to provide funding for performance of these services.
In other analyses that examine the pace of the healthcare sector’s adoption of electronic
transactions, the industry often shows poorly when compared to the retail and financial sectors, in
which electronic transactions have been widely embraced for some time. There are a number of
reasons that account for the slower pace of adoption in the healthcare industry, such as:
 Need for greater detail in the transaction data for identifying the nature of the service
delivered. This may be in large part because a third-party payor, which cannot directly
1 Federal Register 65 Fed. Reg. 50351, August 17, 2000.

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observe the service that is being provided, must evaluate the appropriateness and payment
levels for the service. As a result, the healthcare system maintains a relatively complex system
of service coding and must work to assure that it is consistently applied. This has been a
problem for many years, especially given the regional diversity of healthcare. These coded
service explanations need to be part of the electronic transaction. HIPAA’s rules specifically
included setting standards for such codes, although the regulations for the codes are only
five years old and there is a continued effort to further refine this coding.
 Final service pricing often lacks transparency and immediacy. Unlike typical retail sales
in which there may be one product price or limited pricing variations based on purchase
quantity, healthcare service pricing may involve a wide variety of ways to bundle and
discount services and payments. Further, each of these ways may differ based on payor and
service provider. As a result, not only may uniform service coding be problematic, but
electronic transaction benefits may be less immediate because the final service price may
require multiple input variables before performing the payment calculation. For example,
some payments may bundle several different services.
 Standard transaction formats may not provide sufficient detail. Benefit designs, in
particular may vary significantly from payor to payor with unique characteristics that, such as
exceptions, exclusions and incentives that are difficult to capture in standard fields.
 Healthcare is seller-driven, not buyer-driven as in retail sales. Healthcare providers, in
many ways, determine the nature, prices, and availability of services. There is limited
comparison shopping. Therefore, there are fewer incentives for service providers to
implement technologies and service features that tend to have greater value for payors, who
are in the primary business of conducting transactions.
Despite these impediments, both government and private sector initiatives have long supported a
transition to greater use of electronic transactions in principle if not in practice; and, over the last
decade, there has been especially significant progress. Incentives for this, essentially a sea change in
payor and provider communications, include:
 Greater efficiency. Electronic communications, and especially transactions, generally require
substantially less staff time than the alternatives. This applies to both preparation of the
information for transmission and the transmission process itself. Human resources over time
tend to be significantly more expensive than electronic resources. This report will address this
issue specifically and evaluate payor savings potential from use of electronic communications
and transactions.
 Greater accuracy. A common source of errors in communications and transactions comes with
human involvement, for example, transcription errors. Computer software programs increasingly
support a capacity to access the critical information directly from source files and transmit it to
destination files with minimal or no human intervention, thus minimizing the likelihood of
errors.
 Increasing standardization of transaction formats. The healthcare service industry has
shown increasing support for standard electronic transaction formats. HIPAA reinforced this
trend by mandating common formats and coding for many transactions. The actions and

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proposals of industry trade groups and healthcare payors, providers, and industry vendors have
also helped significantly accelerate this trend.
 The growth of electronic transaction communication networks. Multi-payor portals,
clearinghouses, and other forms of electronic networks support an efficient communications
infrastructure among healthcare participants. They permit both the growth of standard
transactions as well as allow for payers and providers to communicate through more customized
messages, in the latter case for example, as clinical messages or unique patient benefit features.
 Decreasing costs for technology. There continue to be dramatic technological innovations
that permit wider access to computer technology at lower costs than ever before. In addition,
access to high speed connectivity is increasingly prevalent and affordable so the benefits of
adopting technological processes increasingly outweigh the costs.
The remainder of this white paper will focus in more detail on estimating the financial savings that
may accrue to healthcare payors through use of electronic transactions. The following sections will
describe the methodology for evaluating savings, provide results from the study, and analyze these
findings.
Methods
The purpose of the study was to identify potential administrative savings that may accrue to
healthcare payors from the use of electronic means compared to “manual” or “paper” means for
typical transactions between payors and providers. Historically, the U.S. health insurance industry
has relied on paper (by fax and mail) and telephones calls for communications between payors and
providers. In recent years, industry and government initiatives have driven adoption of electronic
options for many transactions.
Covered Transactions
A list of the transactions considered in this study is provided in the table in Figure 1. The definitions
are those used by the U.S. Department of Health and Human Services for HIPAA regulations.
Figure 1: Study Transactions Related to Service Payment
HIPAA Transaction Description
270 and 271 Inquiry to a healthcare payor for health care eligibility and benefit
information
837 Health claims and equivalent encounter submission
278 Referral certification and authorization submission
276/277 Health claim status inquiry
835 Healthcare payment and remittance advice
In addition to the “typical” transactions identified in Figure 1, the study also examined four other
provider/payor interactions where electronic means may drive administrative cost savings. These
additional transactions are listed and defined in the table in Figure 2.

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Figure 2: Additional Transactions Studied
Transaction Description
Payment/Reimbursement Transmission of funds from a healthcare payor to a medical provider,
generally through a bank check or electronic funds transfer, in response
to a provider claim. The amount of the transfer should match the amount
specified in a remittance advice.
Patient Responsibility
Estimation
A prospectively estimated amount that a patient is anticipated to owe on
a provider claim, as calculated in advance by the healthcare payor. This
amount is generally based on a patient’s healthcare plan of benefits and
not the amount based on actual adjudication of a provider’s claim for a
service.
Clinical Messaging From a healthcare payor perspective, this refers to a system for secure,
targeted, clinically related messages primarily focused on the needs of
specific patients that the healthcare payor sends electronically to
medical providers to support patient care practices. For example, a
clinical message could identify the need for a preventive examination or
the need for further patient evaluation based on patterns of treatment
identified from the patient’s claim data.
Real-time Claim Adjudication A capacity for a healthcare payor to adjudicate a claim and determine
the amount to be paid a provider immediately after receiving a claim.
Real-time adjudication requires that a provider electronically transmit a
claim to the healthcare payor.
Data Sources
In preparing this analysis and study, Milliman integrated data from several sources, including:
 Available studies, including healthcare transaction studies available through public,
commercial, and proprietary sources
 Milliman’s proprietary databases and tools, primarily its Degree of Administrative
Management database and its Capabilities Matrix, which details common and best practices
for insurance administration
 Qualitative and anecdotal findings from interviews and research to better assess study issues
more difficult to quantify such as the impact of clinical messaging
 Milliman’s survey of selected healthcare payors to provide a reality test of the results from
integrating findings from the other sources through a survey of healthcare payor experience
(attached) with the targeted transactions
The health plan survey provided a resource for validation of findings and expansion upon
information from the other sources by asking healthcare payor respondents to provide information
on current practices for electronic and manual transactions for each targeted transaction type. This
information included: (1) transaction frequencies; (2) processes used in completing transactions; and
(3) costs of time and staff.

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Calculations for Costs and Savings
Cost and savings estimates were developed based on operations for a 500,000-commercial member
health plan and then extrapolated to estimate potential savings for all health plans nationally. The
steps involved in developing the cost of time transactions were:
 Delineate tasks and estimate time in minutes required for tasks. Milliman used survey
data and professional experience in working with health plan clients to identify tasks
involved in completing both manual and electronic transactions and the time required for
completing those tasks. The study made allowances for instances in which a manual
intervention might be required to complete an electronic transaction, for instance in manual
adjudication of a portion of a claim that could not be processed electronically or for medical
review of prior authorization requests.
 Identify number of transaction-related tasks performed in a day by a single staff
member. Milliman estimated that the average staff member had six and a half hours, or 390
productive minutes, in one day. In some instances, transactions may have involved several
different staff such as mailroom and customer service staff.
 Develop fully loaded cost estimates per staff member minute: Milliman used survey
data and additional resources to estimate average wages for staff performing these tasks.
Milliman estimated fully loaded costs by multiplying estimated average employee salaries
times estimates of employee benefits and general and administrative cost that accounted for
such overhead factors as management and IT support and amortized equipment and facility
costs.
 Calculate composite cost per transaction considering all staff contributions. This
calculation combined and weighed the contributions of different staff that may have
completed specific tasks that are part of the transaction, such as mailroom costs and claim
processer costs in paying a paper claim. In addition, the calculations weighed the
proportional contribution of certain specialized staff, such as nursing staff, that are likely to
become involved in only a portion of certain transactions.
 Validate calculations based on research findings. Milliman compared its findings to
other published studies, such as those by the Centers for Medicare and Medicaid Services
(CMS). Generally, findings were close, and Milliman selected its estimates over those of
other studies. In a few instances, where the variances between other studies and Milliman’s
results appeared significant, the cause was explainable, such as use of different methods for
calculating overheads or the evaluation of different staff inputs to a task. In these cases, we
selected the most appropriate estimates.
 Estimate transaction frequencies: Milliman found significant variance in comparative
transaction frequencies among surveyed healthcare payors. After reviewing other research,
Milliman decided to develop frequencies for health plans based on findings in other
research, most notably the study “Overhauling the US health care payment system,” McKinsey
Quarterly, June 2007. Milliman used as a model a health plan with approximately 500,000
commercial members generating approximately 7 million claims per year.

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 Calculate savings. Savings calculations represent the differences between the estimated
fully loaded administrative costs for manual transactions and the fully loaded costs if those
transactions were conducted through primarily electronic means.
Survey Findings
Based on Milliman’s analysis and other research findings, healthcare payors have made significant
progress in achieving savings through efficiencies that result from increasing the use of electronic
transactions. Nationally, Milliman estimates that moving to electronic transactions has already saved
healthcare payors over $9 billion annually in hospital and physician transaction costs, compared to a
completely manual processing approach.
Based on a study by McKinsey & Company, payors and providers conduct approximately 13.2
billion transactions annually related to claims, not including the payment itself. As the chart in Figure
3 indicates, claims are the most common type of transaction as a percentage of this total.
Figure 3: Claims Are the Most Common Transaction
Source: “Overhauling the US health care payment system,” McKinsey Quarterly, June 2007.
The Milliman study evaluated the potential sources for cost savings per transaction for healthcare
payors if payors received all transactions electronically instead of through paper or telephone
communications. These calculations involved determining the difference between electronic and
manual transactions and multiplying the savings per transaction by the number of the estimated total
number of transactions. The savings per transaction were then compared to the total possible
savings for all transactions.
As shown in the chart in Figure 4, electronic claims contribute the greater proportion of potential
savings, followed closely by savings from electronic eligibility inquiries.

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Figure 4: Claims and Referral Certifications Represent the Greatest Savings
Opportunities
Note: Percent of potential savings by transaction compared to total potential savings assuming no electronic transactions
as the base. Percents add to 100% of total possible savings.
Source: Milliman survey and “Overhauling the US health care payment system,” McKinsey Quarterly, June 2007.
Nationally, Milliman estimates the current level of administrative savings from use of electronic
claim transactions compared to paper as $9.2 billion dollars including both commercial and
government payors, while the potential total savings, including current savings, that could result
from electronic transactions instead of paper or telephone for all transaction types could total up to
$19.1 billion annually based on transaction estimates from the McKinsey Quarterly. This calculation
represents the difference between the total calculated costs if all transactions were conducted by
paper or telephone methods compared to the total cost if all transactions were conducted
electronically.
Milliman also evaluated the impact of these savings for an average plan with 500,000 members, as
shown in the table in Figure 5. These annual savings for this plan appear significant, approximately
$23 million annually.

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Figure 5: Savings from E-transactions for 500,000-member Healthcare Payor
Manual
Costs
Electronic
Costs
Savings per
Transaction
Transactions
per Year
Estimated
Annual
Savings
Claims $2.20 $1.14 $1.06 7,000,000 $7,420,000
Eligibility Verification $3.19 $0.75 $2.44 3,000,000 $7,320,000
Referrals/Preauthorization $2.54 $1.04 $1.50 1,300,000 $1,950,000
Remittance Advice / EOP $0.81 $0.38 $0.43 2,800,000 $1,204,000
Claim Status $3.19 $0.38 $2.81 1,900,000 $5,339,000
TOTAL 16,000,000 $23,233,000
Note: Estimates and totals may vary slightly as a result of rounding.
Source: Milliman survey for dollar estimates and estimates of transaction frequencies based on “Overhauling the US
health care payment system,” McKinsey Quarterly, June 2007
The healthcare payor survey results revealed a wide variance among individual payors on the extent
of implementation of electronic transactions with providers. All payors surveyed, however, had
implemented electronic claim submissions with key providers and indicated implementation of
some level of electronic eligibility verification. Nationally, America’s Health Insurance Plans (AHIP),
an industry trade group for healthcare payors, reported that 75% of claims are submitted
electronically and 40% of eligibility inquiries are electronic. Not surprisingly, Milliman’s health plan
survey respondents indicated that facilities such as hospitals and large physician practices conducted
the greatest proportion of electronic transactions while smaller physician practices were often slow
to adopt these capabilities.
For a 500,000-member plan, this translated into $11 million of realized savings and $12 million of
potential additional measurable administrative savings. Other, harder to quantify savings are also
possible because electronic claims may reduce claim errors compared to paper. This could result in
less rework on claims with fewer rejections, less outbound calls and reduced investigations.
As the chart in Figure 6 shows, much of the future savings can be realized in eligibility verification
and claim status inquiries.

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Figure 6: Potential Significant Additional Savings in Eligibility and
Claim Status Transactions
Source: Milliman survey and “Overhauling the US health care payment system,” McKinsey Quarterly, June 2007.
Additional Opportunities to Leverage Electronic Transactions
In performing this analysis, Milliman also reviewed the impact of other uses of technology beyond
the standard electronic transactions between providers and payors, such as:
 Electronic fund transfers
 Electronic patient responsibility estimation for providers
 Real-time claim adjudication
 Clinical messaging
Following are Milliman’s findings and assessment for each of these types of transactions.
Electronic Fund Transfers
Many employers today make arrangements that enable employees to have their paychecks
automatically deposited directly into their bank accounts rather than receiving paper paychecks. This
method is not the case for physician offices, requiring healthcare payors nationally to mail out
hundreds of thousands of paper checks weekly. The mailroom process for printing, sorting, and
posting paper checks has become more efficient over the years with increased automation. Milliman
estimates, however, that a minimal expense remains at around fifty cents per check—including
paper, postage, and processes—for healthcare payors, with much greater resource cost for physician
offices in terms of staff time for receiving, reconciling, and posting paper checks.

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Milliman estimates that, nationally, healthcare payors could save over $1 billion annually from use of
electronic explanations of benefits (EOBs) or remittances. If healthcare payors must continue
mailing paper checks to providers, the potential savings from electronic remittances is less, because
many payors mail both payment checks and remittances together. Therefore, to realize the full
savings, both the remittance and payment need to become electronic, thereby coupling an electronic
remittance with an EFT payment.
Federal policy initiatives that will eventually require physicians to accept EFT payments for Medicare
would appear to offer significant hope in encouraging physician offices to accept EFTs for all
payments.
Internet-based Patient Responsibility Estimators and Accumulators for Providers
Obtaining patient responsibility estimations and accumulated deductibles and spending over the
Internet permits providers to receive real-time information on patient eligibility and an estimate of
financial obligations. This capability allows providers to determine patient copayment and deductible
obligations and collect these revenues at the time of service. Patient responsibility estimation
improves on the copayment information that insurers may include on a patient’s insurance card by
providing more specific coverage detail by procedure, and tracking the level of a patient’s remaining
deductible—especially critical for patients who are paying for care through a Health Savings
Account. It does not provide adjudication results for a specific claim but considers the patient’s
benefit design to provide an estimate with reasonable likelihood the amount of patient responsibility
for coinsurance and deductibles. It is also a relatively low-cost service that healthcare payors can
offer network providers.
Providers benefit from real-time patient responsibility estimators and accumulators that enable
accurate collection of patient responsibility amounts (copayments, coinsurance, deductible amounts,
etc.) at the time of service, reducing expenses associated with attempting to collect from the patient
after the fact, and reducing uncollectible amounts.
For healthcare payors, benefits may include reductions in call volumes to determine patient
responsibility, although there is a lack of data currently available to clearly determine this impact.
Other, less tangible benefits involve reduced levels of claim appeals and improved provider and
potentially health plan participant relationships as a result of higher and more immediate settlement
of patient financial obligations and an improved position in negotiating provider rates because
patient responsibility estimation should reduce provider need for allowances for uncollected debt in
provider payment rate determination.
Real-time Claim Adjudication
Real-time claim adjudication allows a provider to submit a claim for a service and receive a fully
adjudicated response to that claim before the patient leaves the office or facility. The technology
permits a provider to receive a payment response that displays total and allowable charges, as well as
the patient's responsibility, including coinsurance, deductible, and copayment. Real-time claim
adjudication is already in widespread use for prescription drug claims.

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In real-time adjudication, provider claim information is entered either through a Web portal or
uploaded through the provider’s practice management system to the payor’s adjudication system.
Actual reimbursement for the adjudicated amount occurs through normal payment process such as
checks or electronic fund transfers.
Real-time adjudication is an improvement from a provider perspective over Web-based claim
estimation because the provider can have relative certainty over the amount that the healthcare
payor will reimburse and may receive the reimbursement itself more quickly. Real-time claim
adjudication would make the process of payment for healthcare services comparable to retail
purchase in which payment is resolved at the point of service. From the patient and provider
perspective it would mean transparency in service pricing and it would reduce disputes on patient
out-of-pocket responsibilities.
While the technical capabilities exist for real-time adjudication, a number of barriers exist that
impede rapid growth. These include:
 Provider delays in assembling all the information necessary for claim submission. This is
especially true for claims that may involve charges from multiple sources, such as with an
inpatient stay in which charges from more than one department may be part of a claim, or in
which payment levels depend on a patient diagnosis.
 Healthcare payor reimbursement practices that bundle payments for more than one service
into a single payment, for example a surgical procedure and post-operative care. Therefore
payors need information on all these components before determining a payment amount.
 Provider management systems that lack the capability for processing a single claim in real
time.
 Lack of clearinghouse capabilities for transmission and management of real-time claims.
 Provider ambivalence toward technology investments to provide real-time claim submission
capabilities, especially because real-time adjudication may require a change in work flow
from current batch processing to claim-by-claim transactions.
 Need for improvements in coding and common claim formats, including implementing the
X12 version of the 5010 claim transactions with ICD-10 coding.
Thus, while real-time electronic claim adjudication may in many ways represent the Holy Grail for
healthcare electronic transactions, bringing healthcare in line with retail services, the barriers for
widespread adoption in the near future are significant.
Clinical Messaging
Clinical messaging involves healthcare payors delivering clinical information on patient healthcare
needs to providers along with other electronic patient information such as eligibility status. This
information is then immediately available to physicians while providing patient care. An example of
a clinical message would be notification of a patient’s need for a routine mammogram, or providing

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a physician with comparative effectiveness guidelines supporting physical therapy over surgery for
treatment of back pain.
As a result of the healthcare payor’s claim processing role, a healthcare payor can maintain a
relatively comprehensive picture of a patient’s health, especially as it relates to the combination of
information from multiple providers. Healthcare payors can use clinical messaging to take advantage
of this information to improve the quality of care available through provider networks and to
minimize potential conflicts arising from utilization and quality management guidelines. The federal
government is also looking at the potential of linking clinical messages to electronic medical record
content. These messages could support implementation of comparative effectiveness guidelines as
part of implementing national healthcare reform.
While some healthcare payors are beginning to experiment with clinical messaging, issues that need
to be addressed include:
 Healthcare payor capabilities to communicate directly with providers through secure
channels, such as through secure e-mail or as part of other transactions such as eligibility
look-up
 Healthcare payor capabilities to effectively assess patient medical needs through the
application of clinical guidelines
 Provider acceptance of clinical direction from healthcare payors
Strategies for Change
Both economic and clinical needs support greater use of electronic transactions and
communications among healthcare payors and providers. Healthcare payor practices and
government policies can take additional steps to reinforce efforts among the nation’s hundreds of
thousands of healthcare service providers to speed implementation. Potential actions include:
 Establishing additional financial incentives for providers to use electronic transactions, such
as higher payment levels for providers that submit electronic claims and accept EFT
payments.
 Identifying and taking advantage of vendor programs that support electronic transactions
and communications, such as multi-payor portals, clearinghouses and other electronic
networks that improve on transaction capabilities or that improve on real-time claim
adjudication.
 Promulgating improved transaction standards though both private and public venues. More
work needs to done to improve on the transaction standards originally promulgated through
HIPAA in such areas as claim formats, coding of certain key elements (for example denial
codes), interfaces for eligibility look-ups, and so on.
 Seeking more creative solutions for payor and provider communications that support
efficient electronic communications where there is a need for transactional information in

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which it is difficult to establish a single standard or in which the standard is still evolving.
Payor portals, for example, are evolving to meet these more cutting edge transaction needs.
 Establishing electronic medical record standards that will support long-term provider
implementation of electronic offices and interoperability of electronic standards.
 Contractual and government mandates for providers to use electronic transactions. For
example, Medicare has moved aggressively in this direction with mandates and some payors
that are dominant in certain geographic regions have insisted that network providers use
electronic claim submission in provider contract provisions
The goal of achieving near universal adoption of electronic transaction format appears achievable
but not likely to happen quickly given the diverse provider priorities and resource capabilities. It will
require continued and focused efforts on behalf of healthcare payors and government to keep
implementation on track.
About Milliman
Milliman, Inc (formerly Milliman and Robertson, Inc) is a leading international consulting and
actuarial firm serving healthcare payors, service providers, and consumer organizations for over half
a century. The firm is especially well-known and trusted for its quantitative analyses. It has
established substantial practice expertise in healthcare technology applications and in evaluating the
benefits of those applications.
For more information about the study, or about Milliman, please contact the study authors, John
Phelan at john.phelan@milliman.com or Andrew Naugle at andrew.naugle@milliman.com.

Milliman Payor E Savings Report Final

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