Addressing Prior Authorization with Blockchain, the First Step in Revenue Cycle Transformation

Doctor with patient in an MRI machine

The Problem

As leaders and stakeholders in the United States’ healthcare system, most of us agree that managing the system has become cumbersome, frustrating and wasteful.

Complex rules and regulations, multiple parties coordinating care, antiquated systems, manual processes and more have contributed to as much as $400 billion per year in unnecessary spending and write-offs, according to a recent McKinsey publication.

Much of the hospital system administration is centered on revenue cycle management—which encompasses all the back-office processes that begin when a patient seeks medical care and conclude when payments for that care are settled. Revenue cycle management is ground zero in the effort to streamline healthcare administration, and its transformation enables better patient experiences in addition to operational efficiency.

Focusing on one function within revenue cycle management, prior authorizations, gives insight into the problem and a potential solution.

How It Works Today

Prior authorization occurs when care providers seek the authorization of an insurance provider to cover a prescribed service, procedure, or medication before treatment.

For many outside the healthcare industry, it’s difficult to appreciate the degree to which “low tech” systems and processes dominate the landscape. While we sometimes joke uncomfortably about people sitting on hold for hours, faxing documents, or manually using “cut and paste” to move information from system to system, it should not be funny to us. It should be alarming.

To demonstrate, here is an example of a generalized and simplified prior authorization workflow for scheduled, in-patient procedures from a provider perspective:

  1. Pulling from an EHR work queue, a user will confirm a patient’s insurance coverage details.
  2. The user will check a set of Current Procedural Terminology codes (also referred to as CPT codes) against a payer-specific policy.
  3. The user will check for and retrieve (when available) an authorization from the payer (this check may happen multiple times while the authorization is processed).
  4. Once available, the user will copy the authorization details from the payer’s system to the provider’s EHR.
  5. And, the user will document their actions along the way, including screen shots, for productivity and audit purposes.

The process above is manual, time consuming, falls short of the interoperability goals of both payers and providers, and does not result in better patient outcomes.

To make matters worse, much of the process is followed even when a prior authorization is unnecessary, with requisite screenshots and timestamps to prove it. Scale this inefficiency to include all prior authorization processes (outpatient, diagnostic imaging, etc.) on both sides of the payer-provider relationship, add in the payer processes, and the problem and inefficiencies become abundantly clear.

Prior authorizations have become controversial in recent years, pitting payers and providers against one another while contributing billions per year to our annual administration tab.

What is not controversial, however, is the need to improve the process. When it comes down to it, we have a problem of trust and it is one worth solving.

How Blockchain Technology Could Address Today’s Pain Points

Blockchains, and distributed ledgers in general, are powerful new tools to establish trust and improve collaboration between parties for a number of reasons:

  1. They are deterministic. As computer code, they will execute the same way every time. If we don’t like the way they are executing, we change the programming, and we trust them to be consistent.
  2. They are immutable. The ledger itself cannot be modified, which ensures we have complete transactional history and confidence in provenance. Have a question about a transaction? Go audit the history and determine if a change in contract terms is necessary.
  3. They are transparent. Every party to a transaction has the same access to the ledger and its data. There aren’t any “haves and have nots” on the network and members are treated fairly.
  4. They are secure. Blockchains and distributed ledgers were designed to be secure in environments of malicious counter parties. Leveraging modern cryptography, public-key infrastructure (PKI), decentralization and consensus protocols, they are secure against both accessing and tampering with the ledger.

RELATED: Blockchain: Unlocking Healthcare Data to Empower Patients and Improve Care

Crucially, when these characteristics are manifested as smart contracts (digital representations of legal agreements), we can build automated authoritative systems.

A blockchain, or distributed ledger, can accomplish in seconds what current revenue cycle management systems do in hours or days—without any manual, error-prone and expensive execution.

Where Do We Go From Here?

One possible future involves payers and providers collaborating on prior authorizations via a private, permissioned distributed ledger.

Payers would follow their existing processes to create billing documents, member lists, etc. But instead of publishing static files or exposing information via websites or application programming interfaces, they populate the ledger or network with the same information. Those relatively simple steps would completely remake the prior authorization process and drastically reduce the cost for everyone.

When the ledger contains the billing policy information, prior authorization checks are simple, automated lookups that a computer can complete in seconds. And, when a prior authorization code is required, the smart contract initiates workflow to obtain the code from the payer system and record the transaction on the ledger. Smart contracts are great at waiting for a state change (i.e., a code is not yet available), so the minute the code is available, the process will continue. Once the code is obtained, providers are free to move forward with scheduling or treatment to ensure patients are cared for as quickly as possible. No more copy and paste, no more screen scraping, no more phone calls and long wait times to simply check the status of a prior authorization.

Compared with the existing workflow, leveraging distributed ledger technology should reduce each validation down to seconds versus days, eliminate all manual processing for both payers and providers, and provide a built-in audit trail for all stakeholders to track.

Improved Patient Experience

The patient experience, which is made up of a clinical encounter and a financial transaction, starts with scheduling and ends with payment. A streamlined prior authorization function provides value to patients in both clinical and financial experiences by:

  1. Improving health outcomes. According to a recent survey by the American Medical Association, prior authorization delays result in poor patient outcomes.
  2. Lowering costs. While reducing the billions of dollars per year we spend on prior authorization alone may not drastically reduce a patient’s bill, it is an important step in the right direction. And, because distributed ledger technology represents a new and powerful way to automate trustful collaboration, the entire revenue cycle could be transformed by the technology in the years ahead, further automating collaboration and lowering administrative costs.

Improving prior authorization is an example of an obtainable win-win scenario that’s good for business, good for patients and sets the stage for larger, transformational changes to revenue cycle management that will improve accessibility and affordability for American healthcare.

The views and opinions expressed in this blog or by commenters are those of the author and do not necessarily reflect the official policy or position of HIMSS or its affiliates.

Blockchain in Healthcare Guide

Blockchain and distributed ledger technology are taking hold in healthcare as the industry learns more about the potential to improve patient care and reduce costs. Better understand the basics and the potential application of blockchain in healthcare with our Blockchain in Healthcare Guide.

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Originally published June 5, 2019

Tags: Finance, Business