Dr. HSA

News & Views on the Rise of Medical Consumerism

Banks Are Now Creating 'Healthcare Czars'

November 2005 - Vol. 5

President Bush created much more focus on streamlining and automating clinical information via electronic health records by naming ‘healthcare czar’ David Brailer, MD, PhD, to spearhead the effort. It may not be surprising that today, large banks are following his lead. Specifically, banks that serve the healthcare industry, or want to, are copying Washington by naming their own ‘czars’ to optimize healthcare assets and deliver a targeted strategy. This development marks a sea change in how banks are approaching healthcare, and is also portentous of what healthcare stakeholders, both businesses and consumers, can expect from their neighborhood banks.

"Dr. HSA": David Harris, National Healthcare Revenue Cycle Partner, PricewaterhouseCoopers LLP, NY, NY © 2005 All rights reserved.

Historically, banks have mapped healthcare to the Corporate Financial Services division because insurance companies constitute significant assets. Absent a large provider lockbox arrangement with a national health system like the Veterans Hospital Administration, healthcare has been traditionally lumped into the insurance area.

With the introduction of consumer-directed healthcare (i.e., like Health Savings Accounts or HSAs), however, banks are rethinking strategy, and this only make sense. Healthcare spans retail, wholesale and investment banking. Thus some banks are recruiting senior level talent to lead their healthcare initiatives, similar to how they’ve approached their payment services area over the last decade.

Thinking of healthcare as a horizontal versus vertical business opportunity can lead to a successful strategy. Healthcare spans multiple areas of a bank. Integrating service delivery can attract and retain highly desirable customer segments. Moreover, as adoption of consumer directed healthcare (CDH) takes off in 2006, providers will be looking to banks to assist them on several fronts:

Wealth Management. Wealth management is often viewed as a retail banking function until an individual’s assets reach a certain threshold. Physicians and/or hospital CEOs fit the wealth management profile and have long been targeted in private banking operations.

Some group practices (more than five physicians) may fall into middle markets or corporate banking from a revenue perspective—depending on the number of physicians they have in their practice. Some group practices employ more than 100 physicians and have in excess of 500 employees. If your bank wants to be a “player” in healthcare, it should consider catering to physicians or at least profiling them within the wealth management group.

In addition, it's really time to break down the walls between private banking and treasury management. New medical banking models are reaching into both areas to support a targeted product portfolio.

Treasury Management. Hospitals are typically segmented within small business or middle markets unless they’re part of a large health system. Many health systems are surpassing $1.0 billion in annual revenues and fit nicely within Corporate Banking. Yet this view of healthcare can work against a strategy for this segment. Medical banking models force a horizontal view of banking assets and in so doing, have the potential to push ‘Corporate Banking’ services lines far deeper into the marketplace. It's important to have cross-segment/cross-service dialogue among banking officials to understand how to weave together a powerful healthcare strategy.

Financing. Urgy centers are on the rise (physician-owned ambulatory surgery centers). As we move into a “consumer-driven” healthcare model, these types of small to medium size businesses that offer “elective surgery” will grow. In fact, some large corporations and/or franchises have evolved from stand-alone laser surgery centers. As people begin to spend their own money on “routine and preventative” care from their Health Savings Account—or checking account should they want to save those pre-tax dollars for retirement—they will begin to focus on price.

Physicians have been competing with one another on price on elective surgeries for decades, so physician owned ancillary (i.e., radiology, imaging and rehabilitation) and surgery centers will begin to flourish—possibly taking away patients from hospitals. Why go to a hospital Emergency Room and spend $1,000 after hours or on weekends when your child requires minor stitches or has a high fever that can be treated at a physician-owned and operated urgy center for $250 or less? Granted, some states still require that Certificates of Need (CONs) must be approved by the Department of Health before building sub-specialty centers such as Magnetic Resonance Imaging (MRI). This type of regulation will help keep a level playing field for the hospitals but look for consumer-driven healthcare to create another pressure to rationalize community healthcare services and impact policy.

As we move away from a third-party reimbursement system to a first-party payments model where the first dollars spent on healthcare—up the deductible and/or out-of-pocket maximum—are made by the consumer, physicians will continue building ambulatory care centers with low overhead structures to win business in an open market healthcare system. Banks positioned on the wealth management side for these physicians can capitalize on the lending side as this build out occurs. Look for trends like this that affect treatment modalities and give rise to new financing opportunities.

Retirement. There’s an old saying among bankers: “if you own health, chances are you own retirement”. This may be the reason why many of the early banks entering HSAs used their Individual Retirement Account (IRA) account structures as a starting point. However, IRAs are usually sold through retail distribution channels and HSAs are sold through a combination of retail (through the branches) and wholesale (through corporate accounts).

Most insurance companies, payers and third-party administrators (TPAs) have a banking relationship to service their HSA-qualified High Deductible Health Plans (HDHPs). A bank trading partner is usually listed along with the HDHP carrier in the employee benefits cafeteria plan. In fact, United Healthcare Group (UHG) has its own bank and others are talking about it. In either example, the employee selects the bank offered through their cafeteria plan or opts out and uses their own bank. Consider that some informal studies found that up to a third of the employees signing up for HSA / HRA qualified High Deductible Health Plans use their own bank—not the bank listed in their cafeteria plan.

This latest trend reinforces the point that some day all banks will have to offer HSAs along with their IRAs. It also signals to the payer community that they will need more than one banking partner to offer alongside their HSA-qualified HDHPs. Investment firms like Merrill Lynch now offer HSAs to their individual and corporate investors because they agree with the notion that if you “own the health, you own the retirement.”

Depository Accounts. The front page of Wall Street Journal’s October 24th issue quotes consumers saving between $10 and $26 billion in Health Savings Accounts by 2010. Even if the low side of this range is realized, there will be plenty of new found money for financial organizations to manage. It may be the only new revenue stream for banks saddled with a low-growth outlook according to many industry pundits.

Cards. Most HSAs and Flexible Spending Accounts (FSAs) offer a debit card to be used for qualified healthcare expenditures. Even though banks desire “savers” over “spenders” they still have an opportunity to go beyond their traditional lockbox arrangements and make money in the healthcare transactions business. Healthcare is where banking was twenty-five years ago with respect to standards. The Healthcare Insurance Portability and Accountability Act (HIPAA) of 1996 was designed to simplify the administration of health insurance through improvements in privacy, security and transaction processing. As long as banks are willing to become “covered entities” under HIPAA, they can begin to perform billing, collection and claims adjudication functions historically performed by medical providers and payers. Today’s healthcare revenue cycle will be tomorrow’s medical banking and payments industry.

From a consumer’s perspective, why have two cards? Is it really necessary to have one to process insurance eligibility and another to process medical payments associated with a FSA and/or HSAs? Why not have one card that does both? As banks become more involved with healthcare, the industry will take HIPAA to the next level and true administrative simplification is inevitable.

One day you will go to a hospital and/or physician owned ambulatory care center, walk up to a medical kiosk that looks a lot like an ATM and swipe one card. Scheduling and registration (access), insurance eligibility and benefits verification, payments and remittance processing will all occur at point-of-service.

Airlines provide a similar experience for their customers. For example, you can schedule a flight, select your seat, pay for your trip, print your boarding pass and receipt at point-of-service for the Delta Shuttle between New York and Boston. If you go into Delta’s website and link your frequent flyer card to your credit card, you only have to swipe your charge card and the system automatically links eligibility with your payment.

Unlike the airline industry, however, we can’t have a kiosk for every insurance company. In order not to confuse the consumer, we need a network behind the kiosk that links all the payers together similar to ATMs—hence the fundamental notion behind “medical banking”.

New Product or New Strategy? A key question banks must ask relative to the advent of HSAs is whether this is an opportunity to develop a new product or launch a new cross line-of-business strategy around healthcare? Those banks looking at healthcare from a holistic perspective are hiring senior level persons to coordinate and direct the bank. Banks like PNC Bank and Lasalle Bank | ABN AMRO, both members of MBProject, understand the importance of having their own “healthcare czar” to guide a paradigm shift in how they approach medical markets, and others are following suit.

>> What's your point of view? Email Dr. HSA. We look forward to hearing from you!

Related:

David J. Brailer, M.D., Ph.D. Bio - click here

Lasalle Bank | ABN AMRO - click here

PNC Bank - click here

About the author...

David Harris is a Partner with the Healthcare Advisory Practice in PricewaterhouseCoopers' New York office. He has over twenty years industry experience in the health care and information systems field. David is the National Partner for PwC's revenue cycle practice that specializes in, payer, hospital and physician revenue cycle operations improvement, operation turnarounds/workouts, process redesign and business office integration, as well as denial management. He is responsible for the thought leadership, products and methodologies used by PwC's more than 100 revenue cycle professionals with in-depth knowledge of patient access, clinical documentation, health information management, inpatient and ambulatory coding, billing, claim adjudication, collections, A/R management and information systems. David also leads the Medical Banking Project's HSA Workgroup as part of a new consumer-focused effort being developed at the Project.