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Health firm to take risk, spread the rewards: Company bets that simplified bills will get patients to pay faster
(Milwaukee Journal Sentinel, The (KRT) Via Thomson Dialog NewsEdge) Dec. 4--A few years ago, Bruce Lefco, a seasoned health care executive, and James Brindley, his neighbor of more than 20 years, were talking over a few drinks. Brindley, a lawyer, mentioned that he couldn't make sense of the medical bills he was getting after a serious illness.
There had to be a better way to do this, he said.
"I had a box of paper," Brindley recalled. "And the paper kept coming 12 months after my surgery."
That box of medical bills -- and maybe the scotch -- was the genesis of Health Payment Systems Inc.
The company, founded this year, is working on a system to give patients simple, straightforward medical bills while saving health plans money and lowering hospitals' bad debt expenses.
Health Payment Systems is still a start-up company. But Brindley, who is president of the new company, has filed for four patents, including three for its business model. And investors so far have put $3 million into the company.
Lefco, the company's chief executive officer, also knows the health care system: He previously was chief executive of HealthEOS by MultiPlan Inc., a network of hospitals, doctors and other health care providers used by 1.3 million of the state's residents.
Billing face lift
To understand what Health Payment Systems has set out to do, though, requires understanding a bit about the structure of the health care system.
But the underlying premise is hospitals and doctors would incur fewer bad debts if patients were given clear, concise bills for what they owe.
"The people who don't pay their portion of the bill," Lefco said, "are those who don't understand it."
If that were completely true, it's surprising that hospitals and doctors ever get paid.
But hospitals and doctors have seen a sharp increase in bad debts in recent years as employers shifted costs to employees through higher deductibles, co-payments and co-insurance.
That trend could increase as so-called consumer-directed health plans -- plans with high deductibles -- become more common.
It also could make Health Payment Systems' idea timely.
Here's how the current system works:
--Most large employers -- and some with as few as 50 employees -- self-insure. In other words, they pay most of the medical bills of their employees but hire an insurance company or so-called third-party administrator to oversee the health plan.
--A hospital sends its bill, or claim, to the insurance company or third-party administrator, which reviews the claim, collects what the employer owes and pays the bill.
¦ The hospital then bills -- often repeatedly -- the employee for the balance.
This is where Health Payment Systems comes in.
The hospital will send the bill to the company, which will collect what the employer owes and pay the entire bill. Health Payment Systems then bills the employee and collects the amount that he or she owes.
The hospital saves money through lower administrative costs because it no longer has to send out multiple bills. It also gets paid quickly. That, too, will lower costs given the time value of money -- admittedly a foreign concept in health care.
"We've created some efficiency where massive inefficiency exists," Lefco said.
Risk-and-reward system
Health Payment Systems basically assumes the risk that the employee won't pay his or her portion of the bill. But in exchange for guaranteeing that the hospital or doctor gets paid in full, they must agree to give the health plan their best price.
This gets into one of the quirks of the health care system.
Hospitals negotiate dozens and even hundreds of contracts with health plans and what the hospital charges can vary with each.
In other words, two people can have the same procedure done by the same doctor on the same day -- yet their bills can differ wildly depending on their health plans.
More than a few people contend this makes no economic sense. But, for now, the current system is well entrenched.
The hospitals' giving the health plan their best prices would save the plan money.
For its role, Health Payment Systems would deduct a fee from the bill for the prompt payment.
In short, the hospital saves money by getting paid promptly and in full. The health plan saves money by getting the best possible price. And Health Payment Systems makes money by getting some of those savings.
The employee also gets a simple bill that clearly states what he or she owes.
"It's an ingenious idea," said Joseph Holt, vice president of marketing for Auxiant, which administers health plans for about 220 employers.
He tells a story about one health plan in which employees had a $12.50 co-payment. One hospital found that 70% of them weren't paying the co-pay -- and the hospital was spending an average of $18 to collect the $12.50.
Playing percentages
Other companies are trying to provide simplified billing, Holt said. But, unlike Health Payment Systems, they don't assume the risk of collecting the employee's portion of the bill.
"That's what makes what they are doing different," Holt said.
The catch is that Health Payment Systems now has to collect the money owed by the employees for their portions of the bill.
That requires determining actuarially what percentage of those people won't pay no matter how easy the bill is to understand. There will be some. And that's a risk.
"Right," Lefco said. "But it's business."
The company is betting that it can lessen that risk by giving people medical bills they can understand.
That, in itself, would be a minor health care reform.
"This is something that we all experience at a personal level," said Tom Witter, president of Conservent, a company in Germantown that provides administrative services for health plans.
The norm is often months of baffling bills.
"People generally assume that the first one is not accurate," Witter said.
Large group practices targeted
Health Payment Systems plans to start with the health care systems and large group practices that account for 80% of medical bills in the state, and Lefco said it is close to signing several contracts.
The service will be sold to third-party administrators such as Auxiant. And here, too, the timing could work in Health Payment Systems' favor.
Third-party administrators have been losing market share to traditional insurance companies, UnitedHealthcare and Humana. Those companies now make a large share of their money administering health plans as opposed to selling insurance. And because of their size, they are able to negotiate the best contracts with health care systems.
Health Payment Systems -- provided it can negotiate better contracts with hospitals and doctors -- would help offset that advantage.
The company's service will require sophisticated software to track what was paid and by whom. That task is being overseen by Eric Butlein, the company's co-chairman and one of its founders.
Butlein worked for IBM Corp. and U.S. Bank before founding ComputerPeople Unlimited, a software consulting firm. He sold the company to Compuware in 1994 and was a regional vice president until 1999.
Health Payment Systems is working with a company to write the needed software and to provide information services.
All this is costly.
"We are spending money now and have no income," Butlein said. "And that will continue until next year."
Health Payment Systems has signed five health plans, with about 25,000 people, for a pilot project to start in the first quarter of next year.
That will be the real test. For now, the company is no more than a start-up -- albeit a well-capitalized one.
But, if it all comes together, hospitals will save money, health plans will save money and some people may find themselves getting medical bills that make sense.
"God forbid," Lefco said.
Copyright (c) 2006, Milwaukee Journal Sentinel
Distributed by McClatchy-Tribune Business News.
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