Fair payment issues in healthcare

2008-04-01T10:28:00.000-07:00

Which AWP did you mean exactly?

In 2005, Congress enacted legislation that changed the way Medicare priced Part B drugs. Average Wholesale Price (AWP) payment methodology was replaced with the Average Sales Price (ASP). The legislation dictated that the roughly 40 or so drugs covered by Part B (mainly physician-administered drugs) be reimbursed at a rate of ASP plus 6 percent. Unlike AWP, ASP uses manufacturer sales information that includes all manner of discounts (i.e. rebates, volume discounts, prompt payment, cash pament, etc.) In 2005 the Office of the Inspector General (OIG) compared ASP and AWP for over 2,000 NDC drug codes. There were some notable differences. For instance median ASP was 26 percent below AWP for sole source brand drugs and a whopping 68 percent less than AWP for generic drugs (See Department of Health and Human Services, Office of Inspector General, Medicaid Drug Price Comparison, Average Sales Price to Average Wholesale Price, Daniel R. Levinson Inspector General, June 2005, OEI-03-05-00200, http://oig.hhs.gov )

Now that ASP is into its third year as a method for pricing Medicare Part B drugs, below is a graph showing the relative difference between Red Book AWP and Medicare ASP for the first quarter of 2008. Consistent with the OIG report in 2005, ASP remains significantly lower (with a few notable exceptions for ‘Low AWP’) overall.

A review of hundreds of payor contracts for the largest commercial payors in almost 30 states revealed several sources commonly used to determine physician administered drug fee schedules. These included 1) Medicare’s ASP rate, 2) Thompson’s Micromedix (Red Book) , 3) First Data Bank (National Drug Data File), 4) Wolter Kluwer Medi-Span Electronic Drug File , and 5) Argus Health Systems (found only with Humana contracts).

In keeping with our interest in reducing fee schedule ambiguity and improving payment accuracy, we’ll explore the benefits of using ASP as a basis for contracting with payors. The first observation is that AWP databases provided by the above vendors provide a range of AWP values for each drug. There is no such thing as a single AWP rate. The typical categories for AWP are ‘Brand’ and ‘Generic’. Within the ‘Brand’ category there will be a further demarcation into ‘Sole Source Brand’ and ‘Multi-source Brand’. In addition, these data bases will add discrete pricing within the category such as ‘Low’, ‘Mean’, and ‘High’. So the typical range of AWP options could grow to; Low Generic, Mean Generic, High Generic, Low Band, Mean Brand, High Brand, Low All, Mean All, High All. Add to this the fact that generic options do not exist for all drugs and you can see that all drug fee schedules are derivatives based on the source database used.

The typical payor contract will use language such as; “Drugs and injectables are allowed at 100% of AWP. AWP is determined using Micromedix and updated quarterly.” Almost never do we see specifics as to which of the various AWP categories is to be used. Given that the range between ‘Low Generic’ AWP and ‘High Sole Source Brand’ could be as much as 1,000%, the financial impact could be significant. Further, if predicting revenue and margin on drugs is important in addition to contract compliance, then specificity is important. As we have said before, ambiguity is expensive.

More common than not the different government and commercial payors with whom the provider has contracted are using different reference data to price drugs. This leaves the provider with two options for policing payment. The first is to subscribe to the data base used by each payor to determine AWP. The alternative is to request the drug rates from the payor each time they are updated. Alternatively, the quarterly updates to ASP are free and easily downloaded from the CMS website. A subscription to one of the common data bases like Micromedix can easily exceed $10,000 annually for just ‘J’ codes. Add another several thousand dollars if you want ‘90xxx’ codes in addition. Another benefit of the ASP data is that it includes more HCPC codes than the AWP data bases. This helps to reduce pricing ambiguity.

There are notable exceptions to drug pricing methods used by payors. For instance BCBS of TX posts quarterly updates to its drug fee schedule. These are ‘off the shelf’ rates based on a proprietary method but are easily obtained. Additionally, their drug fee schedule is more comprehensive than even CMS’s ASP file.

According to the March 2006 issue of SPECIALTY PHARMACY NEWS, commercial payors have certainly taken notice of the price advantage of using ASP vs. AWP. No doubt providers will need to have a strategy to manage arbitrage to a lower ‘authoritative’ price point in the market.

In summary, we believe fee schedule maintenance for drug pricing is best done using Medicare’s ASP fee schedule as a base for negotiation. The advantage of is ease of access, availability prior to effective date, range of HCPC codes covered, and best of all the cost. Determining the appropriate multiple of the ASP rate to make it equivalent to your current plan fee schedule should be a fairly straightforward affair.

There is no such thing as RBRVS…

2008-02-20T15:47:00.000-08:00

Yes, the title is an incomplete sentence. The rest of this discussion will complete the thought. Chances are that if you're a physician or work on behalf of a physician's revenue cycle, one of your managed care contracts has language in it that references RBRVS. The most common use of 'RBRVS' in contracting language is for the payor and physician to agree on a % of RBRVS as a fee schedule. Additionally, the parties probably understand this % of RBRVS to mean the payment method used by Medicare. Well, there is no such thing as an 'RBRVS' fee schedule in the Medicare program.

Sure, we all know the history of the Resource Based Relative Value Scale (RBRVS). Passed into law by Congress in 1989 it has been the payment method for professional services. But it is NOT the payment method used for all services paid to physicians under the Medicare program.

If you search the CMS website you won't find 'RBRVS' associated to any fee schedule used to pay physician services. What you will find are terms like:

MPFS - Medicare Physician Fee Schedule
PFS - Physician Fee Schedule
PFS Relative Value Files
PFS National Payment Amount File
National Physician Fee Schedule Relative Value File

All of these descriptions are for payment information that has its basis in the RBRVS methodology. But RBRVS should not be used as a contracting term.

The source that is probably understood to mean RBRVS is really the 'National Physician Fee Schedule Relative Value File'. So, out of the 5 letters in the RBRVS acronym, only 2 really match the actual payment file used to calculate the fee schedule. In fact, most physician practices will bill for services from the four (4) main Medicare fee schedules used to pay physician groups. They are:

National Physician Fee Schedule Relative Value File

ASP Drug Pricing

Clinical Laboratory Fee Schedule

Durable Medical Equipment, Prosthetics/Orthotics, and Supplies Fee Schedule

Why does this semantic discussion matter? Well here are some reasons based on our implementation of contract language.

One of the most common codes billed for in office lab work is 36415 (Routine venipuncture). The MPFS fee schedule has 0 RVU's for this service and using the MPFS fee schedule you will get $0 as the fee. However, the Medicare Clinical Laboratory Fee Schedule does have a flat dollar payment amount for 36415 (@ $3.00).

So, if you have a rate of 150% of RBRVS, what is the payment amount for 36415? Ask the payor, the person who negotiated the contract for the physician, and the reimbursement analyst for the physician and you're likely to get as many answers. Taken literally, the only RBRVS fee schedule that I know of is 'Ingenix Essential RBRVS'. Interestingly, the Ingenix Essential RBRVS file shows 0.7 work RVU's and using the Ingenix file you can calculate a rate greater than $0. (but Medicare does not follow Ingenix). Now we all understand that Ingenix Essential RBRVS is almost never the RBRVS that the payor and the physician had in mind. Add to this the fact that RBRVS is commonly mis-understood to mean ANY Medicare payment amount found in one of the four Medicare fee sources I mentioned above and you understand quickly why you should avoid the use of RBRVS.

The bottom line is that when it comes to negotiating a fee schedule, ambiguity is expensive. Don't use % of RBRVS in any fee schedule agreement. Be specific. We are fans of using the four Medicare fee schedules as a basis. (Public access to the 13,000 plus codes, easy to compare notes between payor and physician, physician's tend to know their primary Medicare rates well, etc.) Pick the year (preferably within one or two years of current to insure a current HCPC code set), and the locality (Medicare Drug schedules are not locality specific).

The language would look like this:

150% of Medicare National Physician Fee Schedule Relative Value File for 2007 California, Locality 99 effective 12/31/2007.
150% of Medicare ASP Drug Pricing effective 12/31/2007.
150% of Medicare Clinical Laboratory Fee Schedule for California effective 12/31/2007.
150% of Medicare Durable Medical Equipment, Prosthetics/Orthotics, and Supplies Fee Schedule for California effective 12/31/2007.

If a rate is found in more than one of the above schedules, the highest rate shall apply.
For any valid HCPC code billed that is not found in one of the above schedules, or does not have a rate > $0 in any of the above schedules, the fee shall be 80% of the billed charges.

Analysis of a health plan

2005-04-28T10:19:00.000-07:00

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.

Claim pricing complexity

2005-03-29T10:33:00.000-08:00

As was discussed previously (see ‘Making audits affordable’), physician practice management systems (PMS) are designed principally around accounts receivable architecture. More recently, integrated electronic medical records, eligibility, and claim ‘scrubber’ functions have been bolted on to the AR function to improve the physician’s business operations.

The system architecture used by health plans for claim adjudication, and more specifically repricing, is quite different than AR management. Repricing systems were developed by health plans to pay claims. When health plans were paying a percentage of billed charges, the physician’s PMS was capable of handling this simple contractual allowance calculation. As the payors introduced more complexity into pricing agreements, the PMS quickly fell behind in supporting these business requirements. After RBRVS was introduced in 1983, payors began investing millions of dollars in proprietary fee schedule development and clinical edit software. The growth of HMOs in the 90’s (and with them the aggressive payment review practices developed by payors to control costs) gave rise to the pervasive use of software designed to systematically deny certain services when billed with other services. The number of edits used by health plans today has grown into the millions with nearly 50% of claims submitted by physicians subject to one or more of these edits.

A common edit used by most plans involves two E&M services billed for the same patient on the same day. The AMA position (i.e. CPT Guidelines) is that both services should be considered eligible if the physician appends a -25 modifier to one of the E&M services and the medical record supports “a significant separately identifiable service”. Per CPT 2005 Guidelines, there are 132 E&M codes (99201 – 99499). If you constructed a table with every E&M code billed with every other E&M code, except itself, you have 8,646 unique pairs. Of these, CPT guidelines would exempt 631 pairs from the modifier -25 rule. Meaning, the use of the -25 modifier will NOT result in payment of both services (i.e. 99217 is not allowed with 99218 even with a -25 modifier).

Nearly all payors including Medicare apply a ‘two E&M services’ edit. The 2005 Correct Coding Initiative (CCI) edits only include 1,080 (the 631 CPT edits and an additional 449 pairs that are eligible for payment with the -25 modifier) of the possible 8,646 pairs. The CCI edits are essentially a two column table wherein the code in column 2 is not paid when billed with the code in column 1 unless one of the pairs is appended with a payment enhancing modifier. Modifiers -25 (E&M codes) and modifier -59 (non E&M codes) are the most common type of payment enhancing modifier. That said, many of the CCI pairs are exempt from the payment enhancing modifier, including the 631 E&M pairs discussed above.

It’s not uncommon for health plans to state; “We follow Medicare payment guidelines”. This may only be true regarding the policy and not the repricing rule. For instance, Medicare pays the higher priced service when two covered E&M services are billed on the same day for the same patient. Most commercial health plans pay the lower priced service. However, these same plans may cover preventative medicine E&M services whereas Medicare does not.

It takes a significant investment to build and maintain these kinds of rules tables. The E&M codes discussed above represent a fraction of the rules used by most plans. Unless you build the tables with rules unique to each health plan it makes it nearly impossible to find errors in the application of these rules by the various plans. It’s easy to see why PMS vendors have steered clear of making the enormous capital investment necessary to build and maintain these rules engines.

In a candid moment all commercial payors would admit that the increased complexity in their claim adjudication systems created by maintaining millions of clinical edits contributes to payment errors. In fact, our audits consistently show overpayment and underpayment errors which would be expected in complex systems. Companies like ours and others are developing robust rules engines that can keep pace with payors complex repricing systems and efficiently identify the payment errors. The MGMA members consistently report that net collections are 5 – 8% below the contracted rate. Closing this gap by even half represents a significant revenue opportunity for any physician. To do so requires a much higher level of sophistication in the claim audit process that must include the use of payor specific rules engines.

Making audits affordable

2005-03-17T08:03:00.000-08:00

This post continues a discussion (see Tipping Point) about using EDI standards, payment rule disclosure mandates, and batch audit technology to lower audit and appeal costs and improve revenue recovery for physicians. Ultimately, the goal of a physician’s dispute resolution process should be to improve the first time payment accuracy rate of the health plan. Higher payment accuracy rates lower the cost of doing business with that plan. This requires that the physician identify as many variances as possible and provide feedback to the plan in an organized, timely, and efficient manner.

All major health plans employ sophisticated claim processing logic to both reduce retail charges to the contracted fee schedule amount and apply clinical edits. The purpose of a clinical edit is to deny payment for a service when billed in combination with other services for the same patient either on the same day or within a defined number of days. The typical commercial health plan will use a database of 3 – 6 million clinical edits. Many of these edits are developed in the public domain (i.e. AMA CPT Guidelines, National Correct Coding Initiative (CCI), and CMS) and are considered generally acceptable. However, nearly all health plans develop and use proprietary edits as well. Most physician practices will be familiar with CCI edits which are a two column table wherein the procedure in column 2 would not be paid when billed with the procedure in column 1 (the presence of a payment enhancing modifier causes an exception to this rule for about 75% of the code pairs). There are more than 225,000 code pairs in the current CCI table.

About 50% of claims have 2 or more services billed. When 2 or more services are billed, there is nearly a 40% chance that at least one line on the claim will be denied based on application of a clinical edit. Re-pricing to the contracted fee schedule will typically reduce the billed charge by 50%. The application of clinical edits generates an additional 5 – 8% reduction from billed charges. About half of the clinical edits are based on CPT, CCI, and CMS guidelines with the balance based on products like McKesson’s ‘Claim Check’ software or a myriad of payor specific edits.

The development and application of millions of re-pricing rules by payors introduces a great deal of complexity into the claim adjudication process and with this comes an inherent error rate. Under the best of circumstances where a discrete set of rules applied by a common technology platform exits, the best performing claim adjudication systems will have a 2% error rate. This can balloon up to 10 – 20% where a payor is using multiple legacy systems and combinations of public and proprietary clinical edits. This error rate is then passed on to the physician. If the payor is sending multiple EOBs for the same claim for 10 – 20% of claims, both the physician and the payor have higher processing costs than for a payor sending multiple EOBs for only 2% of claims.

Ultimately, the burden of proof rests with the physician to identify sentinel or systematic errors in the payor’s adjudication system. It’s in the physician’s economic interest to improve the payor’s first time payment accuracy rate. The difficulty for the physician comes because they use practice management systems that are designed primarily for accounts receivable and medical records management. As opposed to the payor’s system which is designed for claim adjudication. The physician has a need in today’s complex payment environment to reprice claims for audit purposes. However, improving payment accuracy rates is difficult when payors and physicians are using systems designed for different purposes using different methods to determine the correct allowed amount on a claim.

All valid underpayments no matter how small need to be appealed to the payor. To accomplish this cost effectively the physician must apply the same economy of scale in batch audit that the payor’s have achieved in batch payment. Physicians should lease dedicated claim re-pricing software that can build and maintain the millions of valid payment rules used by the payor. Feeding this software with ANSI 837 claim and the matching ANSI 835 remittance files allows the appeal threshold to fall to 1¢.

In states such as California, regulations exist that mandate payment accuracy rates of 95% or better. This includes underpayment, overpayment, and late payment without interest errors. In every commercial payor audit that we have performed, the combination of these three variances has left no payor at better than about 90% first time payment accuracy rates.

Dispute resolution and revenue recovery for both the physician and the payor should always be viewed as a short term solution. To achieve 98% first time payment accuracy rates requires that the trading partners use a sophisticated and cost effective means to identify the variances and quickly make the necessary system changes. In the current landscape this requires that physicians take the first step to ‘get in the game’ by taking advantage of low cost dedicated repricing and audit systems. Additionally, physicians should recognize that it is in their collective best interest to use a standard means to identify and communicate errors to payors in order to make it cost effective for the payor to make the necessary system changes.

Continued...

Tipping Point

2005-02-09T08:40:00.000-08:00

Until recently, the economics of revenue recovery for most physician groups has not been favorable. High volume, low dollar transactions with small variances are difficult to systematically identify, aggregate, and dispute in a manner that justifies the cost. The good news is that a confluence of factors in the market has created a ‘tipping point’ towards more effective audit and appeal. These include 1) the availability of the ANSI 835 claim payment advice, 2) recent state statutes and class action settlements that require full disclosure to physicians of the pricing rules used by health plans, and 3) lower cost information technology solutions that take advantage of both 1&2.

The typical physician practice will establish an appeal threshold based on the best management methods they have at their disposal. The MGMA has reported that per claim appeal costs are about $12. Average underpayments are less than $10 essentially creating a negative ROI for audit and appeal for all but the most sophisticated practices.

If you’re a health plan, small dollar underpayments are essentially a windfall. Unfortunately, current state regulations do not include large enough per occurrence penalties to discourage small dollar ‘mistakes’ by the payor. Similarly, the accumulation of damages and documentation by physicians has been equally cumbersome. The net result is a pervasive angst by medical providers fueled by the realization that you can never quite collect what’s legitimately owed to you.

The good news is that it is possible now to turn this systematic disadvantage upside down. It starts with the first of the three factors, namely the ANSI claim and remittance standards. These EDI files dramatically lower processing costs and provide for the best audit practice by using the physician and payor’s source files. Practice management system ‘exports’ of manually keyed remittance data is problematic give the 1% data entry error rate. The appeal rate is about 8% of paid claims, thus the likelihood of a false positive or false negative appeal increases for manually keyed in remittance data.

Additionally, the ANSI 835 simply contains more information and must balance at the file and claim level - a standard not required of the paper EOB. The claim receive date is a required field in the 835 and makes the audit for late payment interest a simple affair. Not so with the paper EOB. More importantly, the 835 requires procedure code, modifier, and units at the line level and if bundling logic is applied the original code. Some or all of these could be missing on a paper EOB. Even if the physician’s practice management system is not 835 ready, the practice should enroll in the payor’s 835 service and use one of the low cost view/print solutions for the 835 currently available. The hard copies would be used for data entry and the EDI files could be used to perform the audit.

The second factor contributing to lower appeal thresholds are the disclosure statutes and recent class action settlements. The Texas regulation states that the health plan must disclose “all payment and reimbursement methodologies that will be used to pay claims submitted by the preferred provider.” This includes all claim edit logic along with the additional requirement that it be in an electronic format. California, Georgia and other states have similar requirements. These statues provide the opportunity to “get in the game” so to speak. With no less than 3 – 5 million edits used by the typical commercial payor, full disclosure is required in order to avoid both false positive and false negative appeals.

The third factor is the ability to batch process claims using the EDI standards and edit disclosures. The cost of technology today further reduces the appeal threshold. It is now practical to find and appeal an underpayment as low as 1¢. Whereas historically underpayments of less than $15 were not cost effective to appeal (except on the basis of principal), it is now possible to easily identify and appeal an underpayment of any amount. In fact the nature of dispute resolution with its tendency to ‘split the difference’ requires that the broadest criteria be used to aggregate the variance.

Continued..