When Dollars Don’t Make $ense

An interview with Patty Velasco, Managing Partner, Exchange EDI, LLC

Since 2008, the American Medical Association has conducted an annual survey, the National Health Insurer Report Card of Commercial Payers. The survey informs the healthcare community on operational performance levels of the leading insurers and on performance improvement trends.

Since 2008, the survey results have shed light on where the real performance challenges can be found and the progress payers are making in addressing them. They also provide empirical data highlighting where the billions of dollars of inefficiencies and operational waste are and how pervasive these inefficiencies are throughout the claim adjudication life cycle.

No one knows the exact amount, but the MGMA-ACMPE estimates that providers are leaving between 4 -11 percent of their contracted payer revenues on the table every year due to contractual underpayments. Assuming MGMA-ACMPE is correct, these contractual underpayments are costing provider tens of billions of dollars a year.    

For a “real world” prospective on this issue, the Business Edge interviewed Patti Velasco, managing partner of Exchange EDI, LLC, a firm specializing healthcare cash flow management processes.

The Edge: Patti, in your work you see healthcare provider organizations of all sizes and specialties.  How prevalent is the incidence of contractual underpayments?
Patti:  Contractual underpayments are an issue for every size and type of provider.  However, it does vary, somewhat, based on payer mix and specialty.

The Edge: Why would payer mix or specialty type make a difference?
Patti: The surveys and studies conducted by the AMA, MGMA-ACMPE and other independent industry groups have clearly shown some payers have a higher payment error rate than others.  The individual payer error rates fall into a fairly broad range of 8- 21 percent with the average at 15 percent (including underpayments and zero-pay).   Medicare has the lowest error rate of any reporting payer with an error rate less than 1 percent.
There seems to be a distinct pattern of underpayments, based on types of codes used within certain specialty types.  For instance, medical- and surgical procedure- related codes seem to have a higher incidence rate of errors.  Evaluation & management (E&M)- and lab- related codes seem to have lower error rates.  However, it would not be accurate to say that providers who use larger numbers of the E&M and lab codes do not have a serious problem. 

For instance, if a primary care practice is underpaid $3 per procedure on just two procedure codes, and these codes are billed 10,000 per year, $30,000 remains on the table.

The Edge:  So, what can a provider do to avoid or recoup these underpayments?
Patti:  It is not reasonable to assume payers are going to be proactive in correcting underpayments, unless they are brought to their attention.  It is somewhat curious that payers seem to have more interest in identifying and collecting overpayments.

The three primary types of underpayments are:

  1. Accuracy of payments found at the procedure code level compared to the contracted rates from each payer.
  2. “Zero Dollar” payments are found most commonly in multiple procedure claims, where one or more procedures may be paid at zero (zero payment), if the payer pays at least one of the multiple procedures and bundles unpaid procedures with paid procedures.
  3. “Procedure Sorting” is where the payer may change the order of payment for procedure codes in a multiple-procedure claim.  This can result in a less expensive procedure being paid at 100 percent of the contract rate, the second expensive at 50 percent and the most expensive procedure at 25 percent.

It is incumbent upon the providers to make sure they have properly trained and knowledgeable staff who can monitor payer payments at this granular level.  Most importantly, be sure to set up internal procedures and controls that assure an aggressive payer underpayment process is in place and is producing results on a consistent basis.

Alternatively, this process can be outsourced to a company with the tools and knowledge to produce results.  There may be a modest set-up fee, but all other fees should be performance based.  Remember, both parties must have “skin” in the game and share in both the risks and rewards.

Does it make “$ense” that providers have to assume the responsibility of making sure they are being paid in compliance with the payers contract?  Maybe not, but the “DOLLARS” make it absolutely mandatory. 

Patti Velasco is managing partner of Exchange EDI, LLC. Velasco has over 22 years of experience in the healthcare industry in both the private and government sectors with more than 20 years in electronic data interchange, providing a unique combination of claims processing and EDI experience. Velasco is active in numerous healthcare professional organizations that promote a variety of healthcare and EDI initiatives and idea exchanges.