Mistaken payments add up to an estimated $200 billion, exceeding 10% of national healthcare costs. Other Party Liability (OPL) alone, i.e., claims that should be paid by somebody else, make up $68 billion or 3.6% of national healthcare cost. The enormous size of potential savings due to improved claims processing continues to attract attention and resource focus. Insurance profitability experts believe that a payment scrutiny program can be as successful a profit-building strategy for insurance companies as raising premiums or adding members. A growing industry of outsourced technology and services to avoid mistaken payments is also symptomatic of a growing demand for such services. Some vendors cite cumulative payment savings as high as $3 billion.
However, avoiding mistaken payments is hard because of four-pronged constraints, namely, the volume of claims, the disparate and disconnected sources of relevant information, the resource-intensive manual processes needed to identify and investigate recovery opportunities, and regulatory requirements for timely payments.
To manage these difficulties, many payers adopted a two-phase-based “pay-and-refund” approach for payment minimization. The second phase of this approach is designed to correct any mistakes made during the first phase. Each of the phases can be further divided into two stages. Specifically, the initial phase splits into prepayment review and timely payment of valid items, while the final phase includes post-payment audits and refunds of items proven invalid during the audit.
Prepayment review typically proceeds in two stages, identification and confirmation. Potential overpayment identification requires cross-referencing multiple systems that manage provider enrollment, authorizations, recovery case management, and call centers for both insured and providers.
Overpayment confirmation uses Correct Coding Initiative (CCI), Local Medical Review Policies (LMRP), and other rules to categorize the potential overpayments into Contractual/Clinical, Eligibility, Coordination of Benefits, or Duplicate Payments.
Overpayment confirmation typically includes tests for inter-claim, intra-claim, or cross claim inconsistencies, lifetime duplicates, date range duplicates, re-bundling, inappropriate modifier codes, wrong E&M crosswalk, upcoded or undercoded visit level, etc.
Prepayment review requires powerful database technology. Most of prepayment claim review process can be automated along with subsequent denial notice or explanation of benefits (EOB).
In contrast, post-payment audits tend to consume more resources during each one of the audit stages:
- Target identification Audit identification report shows total annual revenue and the degree of variance between the audit target and peers in the same specialty and geography. The product of the two numbers is proportional to the expected gain from the audit, essentially providing a natural audit ranking.
- Audit preparation A higher return to the payer is the key advantage of a carefully designed and executed post-payment audit. Audit preparation starts with a review of audit target selection, which is the result of provider profiling and variance reporting. This stage includes a list of claims paid in the past that are most likely to fall outside of standard distribution of the peer group.
- Audit execution The auditor requests and analyzes medical notes supporting the data reflected in the sample of paid claims produced at the audit preparation stage. The auditor’s objective is to establish the proportion of claims found unsupported by reviewed medical notes within the set of audited sample (percent of overpayment).
- Refund (and penalty) extrapolation The auditor extrapolates refund as the product of percent of overpayment and the total payments by the auditing insurance carrier for the past six years.
Some stages, such as audit execution, negotiation, and settlement must be entirely manual, and may require highly skilled and experienced personnel. Other stages, such as verification of overpayment amount and currency, identification of overpayment reason, and audit prioritization, may be partially automated, using rule-based technology to identify procedure repetition, high payments per day, surge analysis, unusual modifiers, unusual procedure rates, geographic improbabilities, or 5/50 patterns. External resources might be added at this stage to consult provider watch lists, OIG sanctions databases, or high-risk address databases.
A full-scale implementation of payment scrutiny requires sophisticated processes to handle prepayment claim review and post-payment audits and uses advanced fraud detection technology. Prepayment claim reviews are less expensive than post-payment audits and therefore can be applied to every claim, while post-payment audits must be carefully targeted. A system to manage overpayment recovery process must include claim identification, its history, provider and insured information, medical notes, insured services call center notes, authorizations, etc. Without the ability to efficiently manage a large volume of recovery cases, the risk for errors or missed payment deadlines is high, resulting in missed recovery opportunities.