Health Check Incorporated
Client Whitepaper

The information contained in this document represents the current view of Health Check Incorporated on the issues discussed as of the date of publication. Because Health Check Incorporated (HCI) must respond to changing market conditions, HCI cannot guarantee the accuracy of any information presented after the date of publication. This white paper is for informational purposes only. HCI makes no warranties, expressed or implied in this document.

Payment Calculators vs. Manual Auditing

"We don't need to audit our managed care accounts — we just bought a software system that does that." This is the response of many hospitals that Health Check speaks to about zero-balanced managed care audits. While we strongly believe that hospitals should utilize available software applications to help avoid and identify underpayments from managed care payors, our counsel to hospital leaders is to not wager their hospital's financial performance solely on the software's ability to capture all of the revenue due to the hospital.

The various types of software programs available- coding scrubbers, contract management systems, and payment calculators can very effectively capture lost revenue that is contractually due to hospitals. They can also be very expensive and difficult to administer, and more importantly, they can also miss a significant number of underpayments. For example, issues such as Silent PPOs can be very difficult, if not impossible, for the software to identify. Typically, even the best software applications will miss 3-5% of the underpaid accounts. While this doesn't sound like much, it can add up to millions of dollars per year at larger facilities. The most effective solution is to utilize software applications, but to also manually audit all managed care and commercial accounts.

Software
Many of the leading patient accounting systems in use at hospitals today include modules designed to identify underpayments. Other standalone applications are designed to interface with most hospital systems. Both types of systems can be very effective, however, like any software application these tools are only as good as their implementation and the data that is entered into them.

Installations of new software systems of this scale are difficult, and therefore they can often be delayed and run over budget. Once installed, these systems must be continuously updated and maintained. For example, a system designed to monitor for Silent PPO activity must be routinely updated, often monthly, with the latest affiliate lists for each applicable contract.

Despite significant progress in software development, no application is capable of analyzing information quite like a human being. Software can very effectively and efficiently compare Rate A to Rate B and return any differential, but no system can effectively interpret the nuances of a managed care contract. Frequently, the largest underpayment issues are the result of subtle contract language or its interpretation. Without manual auditing, most of these issues will never be identified.

The primary advantages of software systems are their efficiency and their value over time. A properly installed application can review thousands of claims at a time and return simple discrepancies from expected reimbursement. Although these systems can be very expensive, their useful life can be measured in years which helps distribute the cost. Also, when compared to the expense of creating a recovery unit within the hospital's patient financial services department, the expense may be easily justified.

Internal Auditing/Recovery Units
As previously stated, manual auditing is necessary to capture all of the managed care underpayments at a hospital. In today's world of HIPAA concerns and the frequency of outsourced vendors, many hospitals would prefer to develop internal managed care auditing capabilities. Presuming that your hospital has qualified staff and management on staff, or access to such individuals in the community, the development and operation of an internal auditing team can be fairly easy to implement. Qualified individuals should have experience in medical billing, procedural coding, medical appeals, denial management, or medical collections.

Working within your hospital's patient accounting software, the internal auditing unit can select specific types of accounts for manual review. To avoid overlap with normal collection efforts, the unit should only review accounts that have reached a zero balance or that have been repeatedly denied for additional payment. Auditing staff should review accounts for frequent underpayment types- such as a payor's failure to pay for contractual carve outs such as implants, or their failure to pay an account per the stoploss provision in the hospital's contract. To facilitate the auditing process, the staff should develop and utilize contract matrices that summarize the covered services and corresponding rates for each contract.

Once underpayments have been identified, the accounts in question can either be returned to the regular billing staff, or if the internal unit includes recovery staff then they can begin their collection efforts. Managed care payors are not typically eager to make additional payments on accounts that they determined to be paid correctly. They usually take convincing. The recovery unit should call payors frequently regarding underpaid claims- at least every two weeks. Who you call is often more important than how often you call. Most plans' customer service departments are ill-equipped to respond to requests for reprocessing or to questions regarding contract terms. Increasingly, these departments are outsourced, often overseas, and lack the authority to effectively respond to demands for additional payment. Such requests should be taken to customer service supervisors, or to your facility's provider relations representatives.

Telephone calls are often not enough to generate a corrected payment, or even to begin the payor's official appeal process. Therefore, the recovery unit must also file written appeals on underpaid accounts. These appeals offer an opportunity for the recovery unit to outline the terms and provisions of the agreement that allows for additional payment, as well as to provide language from applicable state laws and statutes that support the request for additional payment or reprocessing.

Occasionally, accounts will be underpaid or denied for medical reasons. These may include denials for medical necessity, trauma denials, the denial of selected days during a stay, or other clinical reasons. These claims will require a medical appeal to be written by a nurse or even a physician. While the costs associated with this process may be high, these accounts frequently represent some of the larger underpayments identified by a hospital.

The costs associated with developing an internal auditing and recovery unit are fixed in that regardless of what is identified or recovered by the unit, the hospital's expenses will remain unchanged. Staff salaries, benefits, rent, computers, office equipment, and supplies will cost the same amount, whether the unit recovers $1,000,000 or $25,000 per year. It is impossible for the facility to determine their return on investment until after the fact.

Outsourced Managed Care Auditing Firms
If the effort and costs associated with the development of an internal unit are more than your hospital is willing to invest, at least initially, then consideration should be given to an outside auditing firm such as Health Check. Specifically, firms that exclusively provide managed care auditing services can effectively operate as an extension of the hospital's business office to identify and recover underpayments. These firms are structured and staffed specifically for the functions associated with managed care auditing and all of the associated complexities. Larger national firms, such as Health Check, are also able to monitor and identify trends in managed care reimbursement that may be adversely affecting your hospital. As a result, they will be able to identify and recover a higher volume of underpayments than even the best internal departments.

In addition to auditing and recovery, outside managed care auditing firms should be able (and willing) to provide your hospital with observations regarding potential loopholes in your managed care contracts, as well as recommendations for closing those loopholes. National firms in particular should be able to provide insights into national trends in contracting and payor activity. Over time, this focus on contract terms, combined with the diligent auditing and collection of underpayments, may actually modify the behavior of some managed care plans and reduce the volume of underpayments to your facility. Although, one should never underestimate the creativity of a managed care payor when it comes to methods of underpaying hospitals.

Most managed care auditing firms charge hospitals a monthly fee, plus a portion of what they successfully recover. There are some, however, that are strictly contingency fee based. These arrangements can be very attractive to a hospital, as they essentially eliminate the risk of spending money only to find that the hospital is being paid correctly, or is successfully recovering underpayments on its own. Even if your hospital has purchased expensive software (and maybe especially if it has) or developed an internal recovery unit, this form of secondary review can be a great risk-free method of generating a significant amount of additional revenue that your hospital has contracted to receive from managed care plans. In today's healthcare industry filled with razor-thin operating margins, 3-5% of your hospital's managed care revenue can mean the difference between a year in the red, and a year in the black. Our advice is to absolutely utilize software for identifying underpayments- just don't bet your hospital's financial performance on it without seeking a second opinion.