True Cost Series: Part 1
Despite national efforts and billions in funding to automate the healthcare industry, more than 50% of all lab tests are still processed on paper. While health systems and large national laboratories typically have software that enables electronic transfer of lab requisitions, small to mid-sized labs still overwhelmingly rely on paper and fax machines thinking that automation is too expensive.
But do they know the real cost of all that paper?
Beyond the explicit cost of paper, printing, shipping, data entry, staffing, and staffing turnover, is the hidden cost of human error. A study on the impact of automating lab request forms found that out of 228 forms reviewed, 25% were incomplete compared to 0% incomplete for electronic forms. Moreover, only 45.2% were considered “understandable” or “readable” while the rest were deemed “unclear.” The result of this high level of human error is insurance claim denials, endless appeals, or worse misdiagnosis, false-negative and false-positive test results.
This essay analyzes the true cost of paper order forms, from explicit printing and shipping to the hidden cost of insurance denials and appeals.
We estimate the range of cost to be $25-33 per order. For a lab processing 10,000 orders a month, the cost of paper can be $250,000 – 330,000 per month. Shadowbox offers affordable integration and automation technology that only costs 1-2% of the monthly cost of paper. This cost excludes losses from unpaid claims.
Step 1: The paper itself: $5.00 – 7.50/paper order received
Printing and shipping triplicate paper order forms is expensive:
- $1.25/order form when you consider the cost of design, shipping to the lab, and subsequent mailings to clinics and sales reps for trunk stock. Labs revise test forms at least once a year, often twice, with two, three or more order form types provided to each clinic to prepare and send orders to the lab.
- $1.25/order for revisions and reprints. Labs shipping directly to a clinic have no visibility to the number of order forms required, so they tend to ship 2-5x the actual number of forms.
- $2.50/order for paper lost to trunk stock. Sales Reps drive around with 100’s of unused forms in their trunk and Sales Rep turnover for labs is a known factor. We estimate these variables to essentially double the number of orders printed and shipped vs. those that make it back to the lab with a specimen, adding another $2.50 to our estimate.
- $0.75/order for excessive courier fees. Because paper order volume is unknown, labs either have clinics arrange for shipping pick-ups, or schedule regular courier or shipper pick-ups frequently at a cost of $20 per pick-up (or $0.75 per order) even if there are no specimens to ship.
- $0.50/order for storage. Because HIPAA requires secure storage of order forms for 5 years, old forms take up space and eventually must be professionally disposed of at additional cost.
Step 2: Receiving and entering the paper form at the lab – $5.00 – $7.50/paper order processed
Each paper order must be keyed into the lab information system.
- $0.50/order for data entry. A data entry person can enter up to 30 forms an hour at an estimated cost of $15.00/hour, bringing the starting cost to $0.50/order.
- $4.50 – 7.00/order chasing missing information. Unfortunately, paper orders regularly come into the lab missing information. Forms may be illegible, soiled, ripped, or lacking in key test requests. As we shared earlier, data entry is highly prone to keystroke error, leading to testing errors, diagnostic mistakes, claim denials, and poor care.
Step 3: Denials and appeals related to paper – $12.50 – $15.00/paper order denied & appealed
Insurance denials more than double the cost per order. As many as 35% of all paper orders are subject to initial denial by payors. The US Department of Labor says that 7% of all claims remain denied for a variety of reasons. To appeal the initial insurance claim denial and avoid a write-off, labs must track down missing information, often physically calling on their clinician customers to fill in the gaps and find and fix the errors. According to CAQH, appealing denials costs between $20-40/claim. Because paper orders represent most denials, we estimate paper orders to sit on the high end of the scale.
Here is the simple math:
- Cost to appeal a denial is $20-40/claim, with paper likely trending toward the high-end ($40)
- Percent of paper claims initially denied is 35%.
- If 35% of your orders are initially denied, then you are paying roughly $14.00/order chasing payors.
Step 4: Write offs for unpaid claims – Unknown. Range can be $2.00 – $2,000.00+/order
Despite efforts to appeal every denial, there are still claims that are never paid. The appeals window closes after a certain period. Ordering clinics may be unwilling (or unable) to fill in the blanks on missing information, nor provide additional documentation or description regarding medical necessity. The lab and/or the clinic may fail to identify a patient’s correct insurance information. The lost revenue per test ranges from a few dollars to several thousand depending on the tests offered by each lab. Suffice it to say that whether a lab is a start-up with just a few hundred specimens a month or a mature lab with tens of thousands, every test is a life potentially saved, and every claim for services rendered should have the best opportunity to be paid.
Bottom line, the true cost of paper is much higher than most labs realize. Heretofore, automation software was simply too expensive for a small lab to migrate from paper to electronic ordering. Enter Shadowbox, a new, fast, and cost-effective way to automate healthcare workflow for a fraction of the typical integration cost. If you want a better way, contact Shadowbox to learn how our technology is disrupting the industry and enabling even the smallest of start-up labs as well as the big conglomerates to eliminate paper orders wherever possible, and with at least a 10X+ return on that investment.