Improvements in Commercial Payer Contracts Rarely Bring Equivalent Gains in Collections

Great managed care contracts are much more complex than the average rate listed on the contract documents. Many times, these great contract rates are never realized due to several factors within the contract terms and outside the contract terms. How does this happen? 

Payer Rate Calculations 

Managed care contracts are generally based upon average rates per carrier’s proprietary incident rate expectation for 1,000 population. For example, how many tonsillectomies does a carrier or plan expect for 1,000 people that fit within the pricing model of the payer? How many heart attacks, diabetics, etc? Simply put, the price per procedure code is determined by the expected incidence rate of their population multiplied by the expected price to arrive at an annual budget or expected healthcare expense. By pricing the incidence rate by the procedure price, a carrier or plan calculates their average rate for a contract. Much like the Dow Jones Industrial average, the carrier publishes an average weight based upon their incidence rate. Unless you own the Dow Jones stock amounts as the index, the Dow Jones Industrial average gives you an indication of your portfolio's value direction, but not the actual value from day to day. Likewise, most managed care contracts provide an average rate or indication of direction of pricing but not the actual value per code. Only a payer pricing system can mimic or duplicate the pricing scheme of each insurance product under your managed care plan. If you are a heart surgeon, do you care what the price is for diabetic testing? 

Plan Identification Codes 

Managed care contracts generally cover several insurance products or plans. Each plan or product has a unique pricing scheme. For example, ABC Blue PPO will have a different pricing scheme from ABC Red POS plan. The actual pricing of each code may be different from each product or plan under a solitary contract or payer relationship. Accurate insurance product patient registration combined with a payer pricing system is the only means to determine the price or allowable for each procedure code under each contract. Despite the use of patient eligibility technology and 270/271 files, patient registration for each product or plan remains elusive and significant cause of under or overpayments. For example, the provider submits ABC Blue insurance and related expected contract amount. However, the patient is covered by ABC Red. The payer does not reject the claim as the patient is insured, but prices the claim on the ABC Red price which may be higher or lower than the ABC Blue plan. The 835-remittance file may or may not have the actual plan number or designation under which the claim has been priced. If the 835-remittance file includes the payer’s coverage information, most revenue cycle systems do not have a place to accept and document this information. Seeking this insurance product or plan identification number from the claims' clearinghouse is the only means to validate or invalidate the patient registration and actual procedure price. Without a direct reconciliation of patient registration to the payer’s plan/product eligibility system, accurate pricing cannot be determined. This challenge of patient registration to payer eligibility creates unnecessary claim appeals as well as inaccurate overpayments and higher costs for both payers and healthcare providers. 

Administrative Guidelines 

Managed care contracts have a wealth of information to assist a healthcare provider in determining the price of a procedure. However, the price of a procedure may be affected by the non-contractual administrative guidelines that are available somewhere on the payer’s provider portal. These administrative guidelines, outside the contract terms, may have a material impact upon the procedure price for a medical provider, leading to lower collections, higher unnecessary claims appeals and inaccurate overpayments. By duplicating the payer pricing system, a medical provider can identify contract pricing variances for each procedure code to review with the payer representative to resolve these guidelines. Unfortunately, these guidelines may change during the term of the managed care contract without notice. The provider’ contract loaded on a payer pricing system gives the provider with base level of contract pricing to identify, manage, and amend these non-contractual administrative guidelines. 

Deeming Letters 

Deeming letters are another means of altering the contract pricing integrity of a managed care contract with a healthcare provider. A deeming letter is a short-term notice of a change in the contract that does not require affirmation from the medical provider. By default, the contract will change upon the expiration of the given notice period. These changes may have a material impact upon the price of a medical provider’s prices with their payer. For example, Payer A sent a deeming letter in 2014 to a medical group stating that the Medicare index for all commercial plans will go from the current year Medicare basis to 2008 Medicare rate basis. This practice had thirty days to reject these changes or terminate the contract. If the payer does not receive a rejection from the provider, these changes are deemed to be a part of the contract. How does a mid-year change in pricing basis affect a particular healthcare provider?  

Unfortunately, for this practice, this change reduced their high-volume office codes by over $50 or 30% each, representing a commercial rate below Medicare rates. These “underpriced” claims were not successfully appealed as the contract was changed. To remedy this issue, the medical group had to terminate their agreement and renegotiate these rates from the beginning. Appealing these claims was not successful. Pricing these claims on a payer system would have highlighted the variance to resolve with the payer representative in near real time. 

Deductible Risk  

Increasing deductibles are a challenge faced by all medical providers due to the reluctance of patients to pay these important amounts. Self-pay collection is the most expensive and challenging part of the revenue cycle process due to the lack of credit information on the patient, inability to impact on the patient’s credit rating for non-payment, and high-cost strain of patient relationship through the process. While a medical provider’s managed care contract gives some information on procedure pricing, the eligibility/pre-registration process is the only means to attempt to determine what the deductible is, and the current amount already met by the patient. This lack of accurate information from the payer and the patient creates a challenge for great customer service and financial collections. The managed care contracts do not detail the deductible of the patient, only the estimate of the price in some general terms. Increasing deductibles are a real challenge for not only customer relationships but also financial stability of the practice. It is much easier to collect most of the contract price from the payer than from the patient at the time of service or after insurance has processed the claim. There is a growing trend to increase the contract price of codes that are subject to high deductibles versus lower prices on higher volume, lower price codes. This phenomenon makes our great managed care contract convert into poor collections even when the contract price is reconciled. For example, a health system has surgical prices of more than two hundred fifty percent of Medicare with office visits priced at one hundred five percent of Medicare. While most healthcare providers believe that this is a great contract as their higher dollar claims are priced higher, the impact of high deductibles reduces the collection by fifty percent or more. In some cases, the amount paid by the primary insurance company is twenty to thirty percent of the Medicare rates. The remaining amount must be collected from the patient. The contract price might be great, but the collection of the price or payment integrity is very low due to the high amount owed by the patient under this contract. Patient collections is the most difficult and most expensive part of he revenue cycle process. Correspondingly, the office visits are price low relative to expectation, but the payer is paying 80% or more of the claim with much less opportunity for claim review and claim denial. What is the expected percentage a healthcare provider should expect to receive from the payer on their claim volume? 

Post Payment Reviews 

Post payment review is a six month or more process where a payer reviews the coding, medical notes, and documentation on a previously paid claim. Upon post payment review, the previously paid claim may be rejected with a recoupment of the amount previously paid from current claims. High dollar drugs and procedures are the highest risk of these post payment reviews and recoupment. The recoupment process is a real accounting and financial challenge for healthcare providers. First, this recoupment process may be on a previously paid claim for six months or more. Second, most providers are generally paid on a collection basis, and compensation may be materially impacted for six months in the future. Third, the recoupment amount is debited from current claims under the tax identification number of the healthcare provider. Recoupment is not specified to the medical provider who received the previously paid amount, creating a real cash flow issue and compensation related to the entire practice. Lastly, recoupments create challenges in A/R calculations as a resolved claim with a zero-dollar balance due magically reappears as gross charge in the 180 days plus receivable bucket from month to month. 

Summary 

Having high real or perceived managed care contract rates does not necessarily translate into higher collections for several reasons. These reasons include payer incidence rates, plan identification codes, administrative guidelines, deeming letters, deductibles, and post-payment reviews. These reasons create significant challenges for attempting managed care contract integrity actions for all healthcare providers with increasing costs for both healthcare providers and payers alike. Accurate patient registrations and applying a payer pricing system is the best method for eliminating these challenges and providers receiving the contract payment amount for the contracts they have entered with managed care payers. 

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Shelby.Sessions@revelohealth.net