Overpayment Detection in Health Care Claims
By James Rose

(Originally written as an internal white paper written for iHealth Technologies, Inc.)

Introduction

    As managed care penetrated the United States during the 1980s and 90s, physicians began to demand faster payment from health plans as they absorbed the decreased payments that resulted from the managed car industry. Health plans responded to this general demand for improved claims processing by focusing on efficiency – getting claim data into the system and then producing payments and EOBs. 

    Despite improvements in the speed and efficiency of claims processing, 48 states now have timeliness mandates, requiring payment or denial notification within a prescribed time frame[1]. These mandates range from 15 to 60 days (from receipt of the claim), depending on the state. Add this to the other 1,400 mandates[2] created by state legislatures, and we quickly see that health plans operate in a compliance nightmare. 

    Because of the attention given to timely payment, health plans generally do not possess the time to focus on payment accuracy. Rather, much of this has been outsourced to software vendors who supply a claim editing package that promises to divert claims with incorrect codes and other obvious problems.

   Over the years, claim editing software proliferated – and so have regulations, guidelines, and policies. Although claims are being paid quickly (assuming “paid” may also mean timely notification of denial or pending for further action), they are not being processed with a high degree of accuracy. The Center for Medicare and Medicaid Services (CMS) estimates that as much as $100 billion is lost each year to fraud and abuse[3]. Their own internal study revealed that 6.8% of the claims were improperly paid in 2000, worth nearly $12 billion[4]. Some of this can be recovered, some cannot. However, any recovery of improperly paid claims must be offset by the expense and time needed for investigation and collection.

   There is a very simple conclusion here: By focusing on payment accuracy health plans can save a substantial amount of money. To achieve these savings, health plans must have access to the right tools and expertise for the job.   

    In this paper we explain why a comprehensive medical payment policy is a prerequisite to achieving consistent and lasting savings. We will look at the failings of traditional claim editors and how this technology must evolve to improve payment accuracy. Finally, we explain how a new solution in claim adjudication meets the fundamental requirements and offers superior benefits.

Benefits of increasing pre-payment accuracy: 

• Reduce medical loss ratio by decreasing the number of improperly or over-paid claims

• Reduce recovery expenses by avoiding the need to investigate and recover

• Improve provider relations by reducing claim investigations and strengthening appeal defense

• Encourage correct coding through publishing distinct and well-documented medical payment policies

 Medical Payment Policy – the best defense…and offense

    Simply stated, medical payment policy is the logic behind a health plan’s adjudication of claims. Everything that is in the medical payment policy  – and everything that is not – determines if a claim will be paid correctly.

    Health care claims are created using a very complex system of codes. Together these codes explain the patient’s diagnosis at the visit with the health care provider and the procedures, treatments, or evaluations that were performed. The claim should represent an accurate picture of the patient encounter. However, the coding system is so multifaceted that millions of code combinations are possible. It takes a very well trained eye to identify miscoded claims.

   This complexity makes claim adjudication an ideal candidate for computer-based review. A computer can perform these code-by-code comparisons tirelessly and consistently, editing the claim data into a payable state. If something arises that cannot be handled by the computer, a human claim reviewer can take over.

    Automation of the claim review process has saved untold hours and dollars. However, there is continued pressure to increase accuracy, shape provider billing behaviors, and find savings. Fine-tuning one’s medical payment policy drives progress on these three objectives.

   Increasing accuracy. Auto-adjudication is not 100% accurate when it relies on software that is not always current. Regulations, policies and guidelines affecting payment of claims change regularly. This data must make its way into an adjudication system in order for claims to be processed accurately. For example, the official procedural coding system, CPT-4, is updated annually by the American Medical Association. The additions, deletions and revisions to the system become active every January. Similarly, CMS publishes updates to their Correct Coding Initiative (CCI) every quarter. A recent update contained over 8,000 additions, deletions and revisions. To be assured of accurate processing, the adjudication system must be updated regularly to remain in step with the frequently changing coding policies.

    Shaping provider billing behaviors. Health care providers must submit their claims according to a standard format. However, each health plan has its own myriad of requirements for claim submission and coding. The more the provider knows about how a plan will adjudicate his/her claims, the more he/she will work to submit claims correctly. Correct submissions should yield faster turnaround times, fewer denials, and fewer charge-backs or recoveries. Additionally, if providers know that health plans are adjudicating claims with greater scrutiny, they are less likely to engage in questionable practices (i.e. “gaming”) that take advantage of weaknesses in the general coding system or in a specific health plan’s processing capability. The U.S. Government Accounting Office released an alert detailing the significance of this problem and calling attention to seminars and workshops designed to produce “coding commandos.”[5]  

 Finding savings. The development of medical payment policy depends upon an in-depth knowledge for all specialties and types of claims processed by the health plan. As the strength of each policy develops for individual specialties, the power of the entire policy is improved.

     Further, a strong medical payment policy  must rely on information from a number of national authorities. Medicare carriers, specialty academies and societies, and other organizations produce a wealth of guidelines and analysis on the correct coding of claims. The entire universe of coding information must be evaluated to create the strongest, most defensible medical payment policy. 

 Failures in Traditional Claim Editing

    A claim editor is simply an automated means of applying medical policies to claim data. Claim editors are used to bring individual claims into alignment with a health plan’s medical payment policy so that the claim may be paid appropriately. Theoretically, claim editors adjudicate high volumes of claims precisely, accurately, and consistently; but this is often not the case.

   Automation. Most claim editors are only partially automated. Rather, they depend upon human intervention to work a queue of suspended, or “flagged,” claims. The editor cannot provide a final decision on these claims for one reason or another. Undoubtedly, there are situations where human intervention is necessary and appropriate. However, such intervention should be the exception rather than the rule.

   An individual claim reviewer cannot, over a long period of time, apply complex adjudication decisions consistently and accurately to a large volume of claims, nor can a consistent application of adjudication decisions be expected from one claim reviewer to another. It simply is not possible, especially when one considers that number of necessary changes to medical payment policy occurring on a regular basis. An adjudication solution that is less than 100% automated invites error, increases appeal rates, and provider dissatisfaction.

    Flexibility. Typically, health plans have chosen to purchase claim editors from outside vendors in addition to using their own resources. Such editors are often called a “black box” because the adjudication mechanisms and some of the logic are hidden. Raw claims enter and adjudicated claims exit. The health plan may not have the ability to change some of the pre-programmed policies; therefore, its adjudication process is as mysterious as the contents of a black box.

   Essentially, this means that the software vendor is controlling parts of the medical payment policy rather than the health plan applying its own. This is a potentially dangerous situation because the health plan has relinquished elements of its control to an outside entity that may not have the same interests, aims, or responsibilities as the health plan.

   Dependence. The heart of the editing software is its list of edits that comprise its medical payment policy . This information must be updated on a regular basis or the adjudication of claims becomes out-of-date quickly. Typically, the claim editing software vendor sends an update that must be installed by staff at the health plan. There are two dependencies here that may cause concern. First, the health plan is dependent upon the vendor to properly maintain the software by sending timely updates. It is highly unlikely that all of the vendor’s updates will be on time and will match the effective dates of policy changes from all of the various authorities. Second, the health plan depends upon the vendor to research its updates thoroughly and accurately. This is also unlikely because software companies are in the business of producing software, and typically they purchase their medical payment policy from readily available sources and accept it as accurate, precise and thorough. This creates another link an already long chain of trust.

     Depth. There are a multitude of sources and authorities that produce information useful in claims adjudication. It would take the effort of a separate and dedicated research staff to keep abreast with such voluminous data. Typical claim editing solutions do not devote this level of resource to increasing the depth and breadth of medical payment policy  research. The result is a superficial medical policy that does not cover the complexity of each medical specialty.

    Context. Most claim editors simply review the information present on the claim being reviewed. By doing only this, the editor cannot take into account a patient’s medical history. It cannot deny procedures based upon annual or lifetime maximums (e.g. one physical exam per year), nor can it evaluate a claim based on frequencies or global surgical periods. These are areas of potential savings that should not be ignored. Furthermore, processing in the context of total history is vital to basic fraud and abuse detection.

LIMITATIONS OF TRADITIONAL CLAIM EDITORS

 Comprehensive Claim Adjudication

    Envisioning the evolution of the traditional claim editor requires a more mature vocabulary. “Editing” conjures the image of someone with a red pen marking up a claim. In truth, many claim editors do little more than this, diverting a large number of claims for repair to a human reviewer. Rather, replace the idea of editing with that of adjudication – a true evaluation of the information on the claim. Also replace the term “edit” with rule – an unambiguous directive.

    There are three key factors that separate mature claim adjudication from traditional claim editors: 

• True auto-adjudication

• Rule development, maintenance and application

• Contextual processing

   True auto-adjudication requires that 100% of the claims entering the system be rendered a payment (or non-payment) decision. No claims or claim lines are diverted for human review. There is a speed advantage to this method (reacting to timeliness requirements) as well as a resource advantage (fewer staff). Confidence in 100% auto-adjudication must rest in a thorough medical payment policy and the translation of that policy into rules.

     Rule development and maintenance is key to providing a truly auto-adjudicating system. Medical payment policy  must be transformed from written documents into discrete, unambiguous statements that cover the range of medical decision-making for all specialties. Furthermore, regular maintenance of existing rules is crucial to their ongoing efficacy and relevance. New rules must be developed, as well, to keep pace with the constantly changing regulations and standards of practice. The ultimate rule library is in a constant state of renewal and validation. New material is added as information becomes available (or as health plans require customization), and existing rules find further defense and update.

     Rule application refers to the escape from the black box. In the black box paradigm, a software vendor controls the health plan’s medical payment policy. In the evolved system, the health plan maintains total control over every rule used in auto-adjudication. Each rule is evaluated by the health plan for its relevance to their market. Imagine that the rules have an “on/off” switch allowing them to be applied selectively to claim data. Depending on the health plan’s need, the selection should extend to market areas, lines of business, and particular providers.

     Contextual processing is the fulcrum for truly adjudicating a claim rather than simply editing it based on the information provided. A patient’s health care claim is not a discrete event but rather a new data point in an existing history. This history is crucial to correctly evaluating a claim for payment. Without reference to historical data, a health plan pays for follow-up care already reimbursed under payment for a surgery. In cases of abuse, it might allow multiple payments for the amputation of the same limb. Without referring to the patient’s history, how is the claim editor to evaluate monthly or lifetime maximums, frequency of care, or time-sensitive data? How can it identify split claims or claims billed out of sequence? It cannot. Only a mature adjudication system can do this.

 Integrated Claims Management Services

     iHealth Technologies, Inc. has developed a health care adjudication solution that meets the criteria for a mature auto-adjudicator.

   True auto-adjudication. Every claim that is processed by the Integrated Claims Management Service (ICMS) is rendered a final decision – no change, deny, adjust modifier (either add or delete), or change base CPT code (typically related to an age/gender restriction). No claim data is diverted to a processing queue for a claim reviewer to evaluate. ICMS confidently renders a decision on every claim due to the strength of its rule library.

     Rule development and maintenance. The centerpiece of ICMS is its rule engine. This is a vast warehouse of rules built on the regulations, policies, and guidelines of national authorities, specialty societies and academies, Medicare carriers, and the consultation of expert specialty physicians. Every rule is evaluated regularly to ensure that it is up-to-date and relevant to current coding and reimbursement practices. Furthermore, a full-time research team develops new rules constantly and prepares them for use by clients. Clients review updates on new, deleted, and revised rules on a regular basis.

    Rules may be customized to fit the needs of the client. Typically, this takes the form of adding or deleting CPT codes from a given rule. This feature is important because it allows the health plan to maintain control of its medical payment policy  and accommodate special considerations created by the local market or by unique provider contracts.

   Rule application. During the initial implementation of ICMS, clients hand pick which rules will be used in the processing of their claims. Each ICMS client uses a library of rules that is unique to them, including rules specially customized to meet market and policy needs. Moreover, the client chooses at what level each rule will be applied – by line of business, by specialty, by geography, by Tax ID, or by individual providers. This customization and flexibility makes ICMS highly individualized for each client.

     Contextual processing. ICMS processes claims within the context of the patient’s medical history. That history is updated on a regular basis to ensure that the most current data is available for claim adjudication.

    Why is ICMS a service and not a product?  If ICMS were to be offered as an off-the-shelf software product, the customized value of the system would be diminished. The fact that iHT continually updates and maintains the rule library – not annually or quarterly, but daily – makes ICMS unique among claim adjudication systems. It is the ongoing relationship between iHT and its clients that allows ICMS to operate at a high level of success: ICMS helps our clients identify anywhere from 3% to 8% of savings over and above the result of claim editing products already in use by the health plan.

 Conclusion

    Profit margins in the health care industry are thin, 3% to 4%[6]. Approximately 88 cents out of every dollar spent on health care goes to the cost of providing care[7]. In the face of consolidation, government mandates, and a customer base that is increasingly hostile to cost control measures (HMOs are losing significant market share), health plans must take control of cost. One very decisive and productive move should be deliberate focus on overpayment of claims. With the appropriate tools, over payments are easily identified and can be stopped before they turn into a costly recovery operation. 

The best tool for over payment detection is an automated adjudication system, one that has evolved beyond mere claim editing. The opportunities are significant: 

•  Reduced medical loss ratio

• Improved provider relations

• Diminished costs for investigations and recovery

• Enhanced billing behaviors

 About iHealth Technologies, Inc.

 iHealth Technologies (iHT) is the national leader in comprehensive claim adjudication services. Our track record includes: 

• Producing significant and sustainable economic benefit over and above traditional claim editing capabilities available today.
  
  

• Providing clients with an ability to have clinical depth in the area of payment policy through iHT’s comprehensive library of professional claim adjudication rules and experienced team.
  
  

• Adding value through comprehensive support of medical management in nationally and locally recognized claim payment policy.
  
  

• Producing significant administrative savings for clients by automating manual processes, reducing claim pend queues and streamlining processing.
  
  

• Enhancing each client's ability to respond to its physician constituents.
  
  

• Delivering a solution that is highly customized to each client's specific needs.
  
  

• Interfacing the iHT Integrated Claims Management Service (ICMS) successfully to a variety of primary claims processing systems on various platforms.
  
  

• Delivering financial performance and customer service that exceeds each client’s expectations.

 iHT delivers a comprehensive auto-adjudication solution which includes focused clinical, technical and customer services teams, industry-leading, clinically valid, defensible adjudication rules, state-of-the-art hardware and software solutions, and an unparalleled track record of success with our health plan clients.

Copyright (c) 2003 by iHealth Technologies, Inc.