B2B Standards and the US Health Care System

In President Obama’s prime time press conference this evening, he addressed the need to reform health care.  Obama stated “If we do not control these costs, we will not be able to control our deficit.  If we do not reform health care, your premiums and out-of-pocket costs will continue to skyrocket."  Experts have numerous theories as to what do about escalating health care costs in the US.  However, one topic that there is little debate about is the inefficiencies in administrative activities such as supply chain and claims processing.  A study from the Center for Information Technology Leadership found that better interoperability has the potential to save the US over $78B annually in health care costs.  Success in reforms depends upon the widespread adoption of standards for exchanging medical records, claims data and statistics related to quality and disease trends.

In this post, I will expand outline some of the most popular B2B standards utilized in the US health care industry today.  Much like in other industry segments there is a long tail of B2B standards in health care.  A few dominant standards such as HIPAA EDI, NCPDP and HL7 comprise the short head.  And a number of emerging or more specialized standard comprise the long tail.

HIPAA EDI

Title II of the Health Information Portability and Accountability Act (HIPAA) aims to improve the efficiency of the health care system by creating standards for the use and dissemination of health care information.  Title II includes the well-known privacy and security regulations, but it also provides specific guidelines on EDI Transaction and Code Set Rules.  

The EDI transactions referred to in HIPAA are utilized between health care providers and payers to reduce the administrative costs associated with claims processing and billing.  When a patient arrives at a hospital or physician’s office, the registration staff may perform eligibility verification (EDI 270/271) with the insurer to confirm that the patient’s coverage is current and valid.   After the patient’s appointment, the provider will submit a claim (EDI 837) to the insurer requesting reimbursement for services rendered.   Attachments (EDI 275) such as Lab Test results are typically forwarded along with the claim.  If the patient needs to see a specialist, the provider’s office may also send an electronic referral authorization (EDI 278) to the patient’s insurer.  And when the insurer pays the claim they will send an explanation of benefits or remittance advice (EDI 835) with details about the payment.

Source: Based upon McKinsey Quarterly - Overhauling the US Health Care Payments System - June 2007. 

 

Unregulated EDI

Not all uses of EDI in the health care segment fall under the HIPAA regulations.  Transactions in the medical supply chain which do not carry Protected Health Information (PHI) can utilize plain old, unregulated EDI.  The health care supply chain is multi-tiered consisting of Group Purchasing Organizations, distributors, providers and manufacturers.  Each of these value chain participants use EDI to exchange information such as sales forecasts, inventory positions, purchase orders, ship notices, commercial invoices and remittance advices with their suppliers and customers.

NCPDP for E-Prescriptions

The National Council for Prescription Drug Programs (NCPDP) creates and promotes the transfer of data related to medications, supplies and services within the healthcare system through development of standards and industry guidance.  One of their primary functions is to develop e-commerce standards for providers, pharmacies and Pharmacy Benefits Managers (PBMs) to use for the prescription of drugs and the associated financial settlement processes.  A physician can use the NCPDP standards at the point of care to request medical history and drug formulary information from a PBM.  The physician can then make a more informed recommendation for a prescription factoring in costs, adverse side effects and other medical history data.   The physician can then electronically submits a prescription request (or refill request) to the patient's preferred retail pharmacy location.  Digitization provided through the standards reduces the need for calls from pharmacies to clarify questions about illegible or incomplete prescription requests.  E-prescription requests typically occur over specialized networks such as SureScripts and RxHub.   Upon fulfillment of the prescription, the retail pharmacy submits a claim to the PBM, which then responds with a remittance advice and payment.

HL7

Health Level Seven (HL7) is used in the clinical delivery of care.  The 7 in the name refers to the application layer (seventh layer) of the OSI stack.  Of all the B2B standards I have worked with, HL7 wins the award for the worst documentation.  The web site could not be more useless.  But here is some of the information I have learned about the standards.

Much like any B2B standard, HL7's objective is to simplify information exchange between heterogeneous applications.  In this case, these applications support the delivery of clinical care at a provider's location such as a hospital, laboratory, imaging center, outpatient surgery center.  Examples of business processes supported by HL7 include administrative processes such as patient admissions, registrations and discharges or appointment scheduling requests, changes and cancellations.  There are also messages to support care delivery such as requests for patient demographic, clinical or insurance information and laboratory, imaging or blood product orders.

There are several different versions of HL7 such 2.6 and 3.0 in utilization throughout the industry, including XML versions of the messages.  Unlike many of the other health care B2B standards which focus on a particular country such as the US or even one individual state such as California, HL7 has an international influence with many countries in Western Europe, Latin America and Asia. 

Standards – Just the Beginning…

These are just a few of the more popular B2B standards utilized in health care that fall into the “Short Head.”  There are numerous other “Long Tail” standards.  But the challenges in health care extend far beyond the document standards.  I will describe in future posts some of the integration challenges that B2B standards have not been able to resolve.

Comments

[Roy Hayward]

Steve,

Interesting observations. I have never personally had to work with HL7, and after reading your estimation I have no regrets about this.

I have, however, worked on the Vendor to Provider healthcare supply chain. There are lots of areas of potential improvement and savings here. Most of the time, the Vendor and Provider are not motivated in the same way. Providers want to reduce spend, and Vendors want to reduce cost. Because they are not approaching the problem together, there are some odd outcomes and strange alignments.

While I think that the savings and improvements in the supply chain will lower healthcare costs, I don't think this amount will be the largest issue. But it is the one that we are in a position to effect.