Analysis of a health plan

We previously discussed the development and use of clinical edits by government and commercial health plans (see ‘Claim pricing complexity’). The table below shows an analysis of a major US health plan’s re-pricing rules. Re-pricing is a combination of fee schedule adjustments and clinical edits that reduces the billed charges to the fee maximum described in the fee schedule or to ‘zero’ in the case of a clinical edit. The purpose of a clinical edit is to set the allowed amount to zero. It is important to distinguish between clinical edits and non-covered services. Both result in $0.00 payment by the health plan. However, in the case of a non-covered service, the physician can bill the patient their usual and customary charge. Re-pricing does not include adjustments for patient co-pay and deductible amounts.

Period	2004
Claim Count	32,492
Line Count	71,021
Total Billed Charges	$ 8,763,469.65
Charge Per Claim	$ 269.71

Contract Allowance by Type	Amount		%	Amount per
Fee Schedule	$ 4,396,384.42		50.2%		$ 135.29
Charges Below Fee Schedule	$ 8,483.40		0.1%		$ 0.26
Pricing adjustments	$ 102,978.94		1.2%		$ 3.16
CPT	$ 20,756.69		0.2%		$ 0.62
CCI	$ 34,115.02		0.4%		$ 1.02
CMS	$ 179,119.30		2.0%		$ 5.50
ASA	$ 941.07		0.0%		$ 0.03
Payor Specific	$ 87,358.07		1.0%		$ 2.67
Total Contractual Allowance	$ 4,833,135.07		55.2%		$ 148.55
Net Allowed to Physician	$ 3,930,334.88		44.8%		$ 121.16

This analysis is from a large multi-specialty medical group billing for professional services. An average of 2.2 services were billed on each claim. This is slightly higher than the industry average of 1.8 services per claim. The valid reductions to billed charges are shown in detail beginning with reductions to fee schedule. Clearly the lion’s share of savings (50.2%) for this and all health plans is derived from fee schedule reductions.

Charges below fee schedule…All health plans have ‘lesser of’ language in their contracts that cap the allowed amount at charges. Thus if the fee schedule amount is $50 and the physician bills $45, the maximum reimbursement is $45. Approximately 0.5% of claims had charges below the fee schedule amount. The top five procedure codes with charges below fee schedule were 99000, 99058, A4550, 90782, and 76083. The average charge below fee schedule was $5.15.

Pricing adjustments….The fee schedule amount may be further reduced under certain circumstances such as; multiple procedures, bilateral procedures, assistant surgeon, supervised anesthesia, discontinued procedure, automated vs. manual lab tests, etc. The presence of one or more of these scenarios will generally result in reducing the fee schedule amount between 50% and 84%. In this analysis, slightly less than 1% of claims were eligible for an additional pricing reduction. The average reduction was $45.12.

Clinical edits…Plan savings created by clinical edits from various sources are also shown. The CPT (AMA CPT Guidelines) , CCI (National Correct Coding Initiative), CMS (Centers for Medicare and Medicaid Services), and ASA (American Society of Anesthesia) edits all cause the allowed amount for a particular line item to be re-priced to $0.00. In the case of this health plan, about 2/3 of the savings from clinical edits are based on nationally recognized standards organizations. Taken together CPT, CCI, and CMS accounted for $7.14 of saving on each claim. In addition, this plan employs a significant number of proprietary edits which generated another $2.67 per claim of savings.

The ASA edits represented a very small portion of the payor savings. This is because ASA edits are limited to anesthesia codes, which in this analysis represented less than 5% of the total claims.

The application of pricing and clinical edit adjustments reduced the net allowed to the physicians by an additional 5% below the fee schedule. Close monitoring of these edits is essential. An increase in the fee schedule amount can be completely offset by the use of pricing and clinical edits and any contract performance report should consider these together.