Focus on Transactions, Not Fees

Processing transactions is the key to Health Savings Accounts.

BY AAMER BAIG

Banks that commit to a long-term role in the healthcare value chain can realize substantial opportunities from both asset management fees and processing transactions.

With all the activity among banks to capture Health Savings Account (HSA) asset management fees (projected at $3 billion over the next five years) it's easy to lose sight of an even larger opportunity: processing healthcare transactions.

The $1.9 trillion U.S. healthcare industry is undergoing a major transition, sparked by the redistribution of tens of billions of dollars as consumer-directed health plans take hold. Goldman Sachs estimates that the number of people covered by such plans will grow from under four million in 2005 to 49 million by 2010. Healthcare spending in 2005 was 16% of U.S. Gross Domestic Product, or $6,280 per American. That percentage will only increase as baby boomers age.

Furthermore, healthcare cost increases have hit employers hard, rising at a 10% compound annual growth rate between 2001 and 2005. Consumer-directed plans offer a means to at least slow that growth.

Such a time of transition offers financial services firms a unique opportunity to create enormous value for themselves, health plans and even physicians and other healthcare providers. How? By creating a new model for transaction processing that reduces provider bad debt, lowers administrative costs and improves decision making across the healthcare value chain.

Historically, consumers and employers have been forced to integrate information from disparate health plan and financial services sources to make sound decisions about financing health care. However, rising costs and new consumer-directed products are increasing the need for service providers to tightly link capabilities that were traditionally handled separately among health plans, banks, payment processors and asset managers.

While the cost of processing claims can be up to 17 % of the value of the claim, those costs will be driven down as financial services firms enter the arena and facilitate portions of claims processing for a fraction of the current costs. In fact, Diamond predicts that processing health care claims and payments more efficiently can generate more than $5 billion over the next five years.

Why are banks so well positioned? Because they are experienced in real-time, point-of-service payments. They have the infrastructure to clear and settle transactions quickly. However, unlike health plans, they lack experience with the complicated adjudication rules required to process medical claims, a deficit they will need to remedy either by building capabilities in-house or partnering with other players in the healthcare arena.

Banks and other competitors in a new healthcare value chain must decide how committed they are to owning customer relationships that can lead to long-term value. Relationships in the future may be driven by assets, such as an HSA account; efficiency of transactions, such as through a debit card linked to a medical savings account; integrated health care and financial advice from a health plan or investment advisory firm; or trusted physician/patient interactions.

This is not a perspective that physicians and hospital administrators want to hear. But the fact remains that the provider network may not be the most powerful differentiator in a consumer-directed world. The leverage in competing for customer loyalty may just as well be based on the transaction.