If you are an insurance agent or broker involved at all in any part of the U.S. health insurance market, one thing you need to know is that the basic information technology architecture underlying the claims transactions has weaknesses.
Effective financial management is critical in the health care world, just as it is in every industry. While most industries in the economy have a level of maturity and seamlessness in their basic buy-sell transactions, health care is still playing catch up. Claims transactions are the foundation of our health care delivery system, yet payers and providers continue to struggle with getting their claims systems configured right.
Claims leakage due to configuration inaccuracy and its associated collateral costs coming from appeals, reprocessing, etc. regularly account for between 0.5% and 2% of overall payer and provider margins, sometimes spiking as high as 3%.
Considering the industry is running on thin margins overall and every dollar of leakage increases the strain on our economy as a whole, one can see the value of getting claims configuration right. Indeed, the right approach and solution to fixing claims configuration can be expected to yield four to eight times return on every dollar invested.
Dynamic — and Opaque
There are many variables involved in determining the exact amount paid to a provider for care, and these elements are in a constant state of change. Regular updates to federal and state regulations, constantly changing and complicated fee schedules and pricers, changes to benefits plan design, ongoing renewals and amendments to payer-provider contracts across multiple lines of business, hundreds of payer organizations and hundreds of thousands of provider organizations, multiple claims adjudication systems on the payer side and an even greater number of claims billing systems on the provider side — all make it difficult to achieve configuration accuracy and prevent leakage.
Challenges from these constantly changing variables are further compounded by elements unique to our health care industry:
1. The consumer isn’t the one directly paying for the product/service;
2. There is a lack of transparency, interoperability and standardization across the basic claims processing systems on both the payer and provider side; and
3. There are millions of transactions (claims) being processed every day.
Even as we move away from fee-for-service toward value-based contracts and accountable care organizations, the criticality of accurately configuring the fundamental underlying medical claim is far from diminishing.
A payer had multiple contracts with an ancillary provider that included payments based on a fee schedule that updates each year. Due to changes with many elements of IT support, the payer failed to update the fee schedule when the appointed time came around. This resulted in a million-dollar overpayment for just one single procedure.
This basic and easily corrected discrepancy was eventually rectified through recoupment and configuration updates, but only after it was identified. A proactive and laser-focused analytical approach would have helped address and potentially resolve this situation significantly earlier, not to mention the collateral costs associated with provider appeals, claims reprocessing, penalties, etc. Knowing where to look, what questions to ask, and what kind of analysis will uncover the problem can make a real difference here.
In another situation, a state changed its rules related to the procedures covered under Medicaid, removing coverage for a given procedure at a particular place of service. The associated procedure code was rendered invalid, and the configuration payment hierarchy for this new code on the payer side defaulted to cost percentage-based payment as opposed to fee schedule-based payment – this resulted in an almost six fold increase in the cost over a 12-month period. Misapplied updates are common, as many payers operate across multiple states and lines of business, and companies must manage a variety of industry changes on a regular basis.
In a different type of configuration error, a payer entered the commercial line of business in a market where it originally operated only in government sponsored lines of business. Contracts with thousands of providers within the state were amended to include a new set of reimbursement rates and methodologies for this new commercial line of business. A few months later, the payer’s provider relations team started hearing multiple complaints and appeals about underpaid claims from physicians who were part of a large provider group in the market. Eventually a focused claims and root cause analysis effort (at significant cost) by the payer revealed that the addendum for the commercial line of business for that provider group hadn’t been updated in the system configuration — correctly resulting in the significant underpayments.
The basic framework outlined in these examples, when extrapolated to significantly more complex real-life operations (across multiple states and lines of business and involving various providers), exemplifies the scale of impact configuration errors can have. In the near to medium term, payers and providers need a targeted, analytics-heavy and root cause-driven approach for managing billing and payments to ensure they are transacting the right amount for every claim.
The long-term systemic answer to this challenge is clearly around bringing standardization and transparency (while ensuring security and privacy) to health care claims transactions. The recent buzz about the adoption of blockchain technology in health care, for example, may have the potential to be the answer the industry is looking for. However, blockchain and other similar concepts aren’t close to full development, much less deployment. Payers and providers need to work within the current constraints to address this issue in the here and now to minimize leakage from configuration errors.
Fixing the Leaks
A rigorous, focused, and prioritized approach to addressing payment issues is vital to realizing a leaner and more effective payment process. Incorporating analytics, complex modeling, and manual procedures can help companies identify and fix leakages to create sustainable benefits.
While paying and chasing the excess amounts paid is a common approach and preferable to unrecovered losses, a proactive approach that systematically resolves configuration issues in order to prevent incorrect payments on future claims is preferable. Subsequent monthly or quarterly reviews to identify previously unidentified configuration issues ensure improved payment accuracy and enhanced process efficiencies on an ongoing basis.
Whether an organization is a payer or provider, the last thing it wants is financial volatility. Underpayments and overpayments create complications for both payers and providers. Delays in rectifying incorrect payments further complicate the issue, causing risk to cash flow from the resulting accumulation of substantial financial errors and accrued liabilities.
A powerful line of attack needs to have the payer experience, specialization requirements, and technical knowledge to implement robust and highly customizable analytical solutions that focus on the unique nature of the constantly changing health care market. Most importantly, such an approach must have the ability to look for needles (that matter) in a haystack ten stories high, pinpoint the root cause of claim leakage and provide recommendations to remedy individual leaks.
Ultimately, if health care businesses focus on identifying the leaks and anomalies that are currently falling through the cracks, and fixing them at their root cause (people, processes and/or technology), medical loss ratios can be meaningfully impacted, resulting from accurate payments and minimization of financial volatilities on processed claims — past and future.
—Read 70,000 Ways to Die or Get Sick (and Then Bill Insurance) on ThinkAdvisor.
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