Claim pricing complexity

As was discussed previously (see ‘Making audits affordable’), physician practice management systems (PMS) are designed principally around accounts receivable architecture. More recently, integrated electronic medical records, eligibility, and claim ‘scrubber’ functions have been bolted on to the AR function to improve the physician’s business operations.

The system architecture used by health plans for claim adjudication, and more specifically repricing, is quite different than AR management. Repricing systems were developed by health plans to pay claims. When health plans were paying a percentage of billed charges, the physician’s PMS was capable of handling this simple contractual allowance calculation. As the payors introduced more complexity into pricing agreements, the PMS quickly fell behind in supporting these business requirements. After RBRVS was introduced in 1983, payors began investing millions of dollars in proprietary fee schedule development and clinical edit software. The growth of HMOs in the 90’s (and with them the aggressive payment review practices developed by payors to control costs) gave rise to the pervasive use of software designed to systematically deny certain services when billed with other services. The number of edits used by health plans today has grown into the millions with nearly 50% of claims submitted by physicians subject to one or more of these edits.

A common edit used by most plans involves two E&M services billed for the same patient on the same day. The AMA position (i.e. CPT Guidelines) is that both services should be considered eligible if the physician appends a -25 modifier to one of the E&M services and the medical record supports “a significant separately identifiable service”. Per CPT 2005 Guidelines, there are 132 E&M codes (99201 – 99499). If you constructed a table with every E&M code billed with every other E&M code, except itself, you have 8,646 unique pairs. Of these, CPT guidelines would exempt 631 pairs from the modifier -25 rule. Meaning, the use of the -25 modifier will NOT result in payment of both services (i.e. 99217 is not allowed with 99218 even with a -25 modifier).

Nearly all payors including Medicare apply a ‘two E&M services’ edit. The 2005 Correct Coding Initiative (CCI) edits only include 1,080 (the 631 CPT edits and an additional 449 pairs that are eligible for payment with the -25 modifier) of the possible 8,646 pairs. The CCI edits are essentially a two column table wherein the code in column 2 is not paid when billed with the code in column 1 unless one of the pairs is appended with a payment enhancing modifier. Modifiers -25 (E&M codes) and modifier -59 (non E&M codes) are the most common type of payment enhancing modifier. That said, many of the CCI pairs are exempt from the payment enhancing modifier, including the 631 E&M pairs discussed above.

It’s not uncommon for health plans to state; “We follow Medicare payment guidelines”. This may only be true regarding the policy and not the repricing rule. For instance, Medicare pays the higher priced service when two covered E&M services are billed on the same day for the same patient. Most commercial health plans pay the lower priced service. However, these same plans may cover preventative medicine E&M services whereas Medicare does not.

It takes a significant investment to build and maintain these kinds of rules tables. The E&M codes discussed above represent a fraction of the rules used by most plans. Unless you build the tables with rules unique to each health plan it makes it nearly impossible to find errors in the application of these rules by the various plans. It’s easy to see why PMS vendors have steered clear of making the enormous capital investment necessary to build and maintain these rules engines.

In a candid moment all commercial payors would admit that the increased complexity in their claim adjudication systems created by maintaining millions of clinical edits contributes to payment errors. In fact, our audits consistently show overpayment and underpayment errors which would be expected in complex systems. Companies like ours and others are developing robust rules engines that can keep pace with payors complex repricing systems and efficiently identify the payment errors. The MGMA members consistently report that net collections are 5 – 8% below the contracted rate. Closing this gap by even half represents a significant revenue opportunity for any physician. To do so requires a much higher level of sophistication in the claim audit process that must include the use of payor specific rules engines.

Making audits affordable

This post continues a discussion (see Tipping Point) about using EDI standards, payment rule disclosure mandates, and batch audit technology to lower audit and appeal costs and improve revenue recovery for physicians. Ultimately, the goal of a physician’s dispute resolution process should be to improve the first time payment accuracy rate of the health plan. Higher payment accuracy rates lower the cost of doing business with that plan. This requires that the physician identify as many variances as possible and provide feedback to the plan in an organized, timely, and efficient manner.

All major health plans employ sophisticated claim processing logic to both reduce retail charges to the contracted fee schedule amount and apply clinical edits. The purpose of a clinical edit is to deny payment for a service when billed in combination with other services for the same patient either on the same day or within a defined number of days. The typical commercial health plan will use a database of 3 – 6 million clinical edits. Many of these edits are developed in the public domain (i.e. AMA CPT Guidelines, National Correct Coding Initiative (CCI), and CMS) and are considered generally acceptable. However, nearly all health plans develop and use proprietary edits as well. Most physician practices will be familiar with CCI edits which are a two column table wherein the procedure in column 2 would not be paid when billed with the procedure in column 1 (the presence of a payment enhancing modifier causes an exception to this rule for about 75% of the code pairs). There are more than 225,000 code pairs in the current CCI table.

About 50% of claims have 2 or more services billed. When 2 or more services are billed, there is nearly a 40% chance that at least one line on the claim will be denied based on application of a clinical edit. Re-pricing to the contracted fee schedule will typically reduce the billed charge by 50%. The application of clinical edits generates an additional 5 – 8% reduction from billed charges. About half of the clinical edits are based on CPT, CCI, and CMS guidelines with the balance based on products like McKesson’s ‘Claim Check’ software or a myriad of payor specific edits.

The development and application of millions of re-pricing rules by payors introduces a great deal of complexity into the claim adjudication process and with this comes an inherent error rate. Under the best of circumstances where a discrete set of rules applied by a common technology platform exits, the best performing claim adjudication systems will have a 2% error rate. This can balloon up to 10 – 20% where a payor is using multiple legacy systems and combinations of public and proprietary clinical edits. This error rate is then passed on to the physician. If the payor is sending multiple EOBs for the same claim for 10 – 20% of claims, both the physician and the payor have higher processing costs than for a payor sending multiple EOBs for only 2% of claims.

Ultimately, the burden of proof rests with the physician to identify sentinel or systematic errors in the payor’s adjudication system. It’s in the physician’s economic interest to improve the payor’s first time payment accuracy rate. The difficulty for the physician comes because they use practice management systems that are designed primarily for accounts receivable and medical records management. As opposed to the payor’s system which is designed for claim adjudication. The physician has a need in today’s complex payment environment to reprice claims for audit purposes. However, improving payment accuracy rates is difficult when payors and physicians are using systems designed for different purposes using different methods to determine the correct allowed amount on a claim.

All valid underpayments no matter how small need to be appealed to the payor. To accomplish this cost effectively the physician must apply the same economy of scale in batch audit that the payor’s have achieved in batch payment. Physicians should lease dedicated claim re-pricing software that can build and maintain the millions of valid payment rules used by the payor. Feeding this software with ANSI 837 claim and the matching ANSI 835 remittance files allows the appeal threshold to fall to 1¢.

In states such as California, regulations exist that mandate payment accuracy rates of 95% or better. This includes underpayment, overpayment, and late payment without interest errors. In every commercial payor audit that we have performed, the combination of these three variances has left no payor at better than about 90% first time payment accuracy rates.

Dispute resolution and revenue recovery for both the physician and the payor should always be viewed as a short term solution. To achieve 98% first time payment accuracy rates requires that the trading partners use a sophisticated and cost effective means to identify the variances and quickly make the necessary system changes. In the current landscape this requires that physicians take the first step to ‘get in the game’ by taking advantage of low cost dedicated repricing and audit systems. Additionally, physicians should recognize that it is in their collective best interest to use a standard means to identify and communicate errors to payors in order to make it cost effective for the payor to make the necessary system changes.

Continued...