-Contractual UnderpaymentsWHAT YOU DON’T KNOW COULD BE
HURTING YOU
Presented by: Marilyn Happold-Latham, MBA, FACMPE
Objectives:
Educate managers about contractual
underpayments
 Improve knowledge of health plan contracts
 Share experience regarding payment audits
 Provide tools to perform payment audits
 Use audit information in contracting process

Contractual Underpayments –
What are they???
Medical group contracts with a health plan to
pay a specific amount for a specific service
 Payments usually based on a conversion factor
multiplied by a RBRVS Relative Value Unit
(RVU)
 Tracked by reviewing Allowables or Contractual
Adjustments when payments are received.
 When health plan pays LESS than what was
contractually agreed upon = contractual
underpayment

Understanding the Payers


Different types of payers
• Health plan that is a single payer
Providence Health Plan, Great West, Healthnet,
Lifewise
• PPOs, many with multiple payers (100+)
Providence Preferred, MHN, MultiPlan, First
Choice Health Network, Coventry, First Health
Set up practice management system to allow you to track
charges by payer contracts
• Insurance Groups = set up at contract level
• Insurance Carriers = set up at payer level
Understanding the Payers

Understand WHO PAYS THE CLAIM
• PPOs are the “middle man” and only price the
claim and don’t pay it
• Claims sent from PPO to the “Payer” who
sends the check and EOB to the provider
• Some PPO payers price their own claims
• Some payers contract with 3 or more different
PPOs in the Portland area
Need
to track these as separate carriers in the PM
system
Same Payer with Different PPOs
ASSURANT HEALTH / MULTIPLAN
ASSURANT HEALTH/ COVENTRY
ASSURANT HEALTH/ MHN
ASSURANT HEALTH/ FIRSTCHOICE
HEALTH
ASSURANT HEALTH/ PROV
PREFERRED
A & I BENEFIT PLAN/ FIRST CHOICE
HEALTH
BENEFIT PLANNERS/ FIRST CHOICE
HEALTH
BENEFIT PLANNERS INC/ MULTIPLAN
BENEFIT PLANNERS / MHN
BENEFIT PLANNERS/ PROV PREF
HEALTH COMP /COVENTRY
HEALTH COMP / PROV PREF
HEALTH COMP / MHN
A & I BENEFIT TRUST/ PROV PREF
A & I BENEFITS TRUST/ MHN
HEALTH COMP/ FIRST CHOICE
HEALTH
Contracts – Improve your Understanding



Inventory ALL of your contracts – keep copies
Important to READ your contracts
Look for information needed for operations:
• Type of Fee Schedule proposed and the amount
(request a Conversion Factor and RBRVS RVU year)
• Start date and end date of the contract
• Number of days to file a claim
• Re-coupment rights for overpayment by the Plan
(days/months to recoup payments)
• List of payers if it is a PPO
Contracts – Improve your Understanding



Look for payment based on “site of service”
• Facility versus Non-facility RVU
• Make sure contract does not note the “lower rate”
Payment for drugs and vaccines (codes without RVU)
• Use of AWP versus ASP
• Compare cost to reimbursement annually
Identify the insurance ID cards for each health plan
• Request samples of ID cards from the health plan or collect
copies at the front desk
• Be able to identify cards from plan “products” that the practice
does not participate with
 United Healthcare/Pacificare products
 Secure Horizon HMO versus Secure Horizon
Direct PFFS products
Contract negotiations



STAY ORGANIZED – develop a filing system for all contract
related information.
• Original contracts, amendments, Fee schedule
attachments, etc.
Document all communications with health plans
• Keep a record of email exchanges, letters, etc.
• Make notes from phone calls
Keep the negotiation process moving forward
• Use timelines to remind you when contracts are nearing
time for re-negotiation throughout the year
• Use a tickler file or task list to keep track of what
is needed next
Reimbursement Rates – How they Work

Most are based on RBRVS Relative Value Units (RVU)
• Originally developed for Medicare in early 1990s
• RVU change annually
• Be aware of “transitioned” vs “fully implemented” RVU (2007 – 2010)
• Published in Federal Register annually
http://www.gpoaccess.gov/fr/browse.html
• Available from CMS website
http://www.cms.hhs.gov/PhysicianFeeSched/PFSRVF/list.asp#TopOfPage


Conversion Factors
• Health plans make offers to providers
• Negotiable
Conversion Factor x RVU = Allowable $$$$$
Fee Schedule Language-BNWA

“2007 CMS Relative Value Scale of RBRVS, fully
implemented (available as of December 31, 2006). The
RVUs will be adjusted for budget neutrality by
applying the work adjustor. RVUs will be based on
place of service and will not be geographically adjusted.”
Medicare Payment for 99213-Unadjusted
UNADJUSTED FOR THE BUDGET NEUTRALITY WORK ADJUSTOR
Using the 2007 Transitioned Non-Facility RVU in Portland Oregon
Work
Practice Expense
Malpractice Total
99213
0.92
0.71
0.03
GPCI
1.002
1.059
0.434
GPCI Adj 0.9218
+
0.7519
+
0.0130 =1.6867
[(wRVU *wGPCI)+(peRVU *peGPCI) +(mRVU*mGPCI)] * CF =
1.6867 * $37.8975 = $63.92
Medicare Payment for 99213-Adjusted
Using the 2007 Transitioned Non-Facility RVU in Portland Oregon
Work
Practice Expense
Malpractice Total
99213
0.92x0.8994*
0.71
0.03
GPCI
1.002
1.059
0.434
GPCI Adj 0.83166
+
0.7519
+
0.0130 =1.59657
[(wRVU *wGPCI)+(peRVU *peGPCI) +(mRVU*mGPCI)] * CF =
1.59657 * $37.8975 = $60.51
•
•
2007 Budget Neutrality Work Adjustor. When applying to the RVU, you must round the product to two
decimal places before continuing the calculations!
$3.41 or 5.6% less than the unadjusted fee
BNWA Effect on Reimbursement




Sample health plan conversion factor increased from $63
to $65 (3%) from 2006 to 2007.
Reimbursement increased only 1% from 2006 to 2007
when the BNWA was used to decrease the value of the
work component of the RVU.
The practice’s volume of each CPT code determined
gains or losses for the practice.
Use of the BNWA by (commercial) health plans
reduced the value of every RVU by 5% to 6%.
Budget Neutrality Adjustor


The Good News
• As of 2009 RVU year Medicare no longer used the
Budget Neutrality WORK Adjustor.
• Commercial plans no longer could use a BNWA
The Bad News
• As of 2009 RVU year Medicare used the Budget
Neutrality Adjustor to adjust the CONVERSION
FACTOR and not the work component of the RVU.
[(wRVU *wGPCI)+(peRVU *peGPCI) +(mRVU*mGPCI)] *
(CF * BNA) = Fee
Contract Negotiations

Don’t hesitate to ASK for contract changes and/or
clarification
• Type of fee schedule AND reimbursement rate
• Elimination of the BNWA or a GPCI
• Days to file a claim
 Consider
using the “date when the patient provides the correct
insurance information” rather than the “date of service”
• Contract start date
• Specific list of codes that will be bundled
• Wording of specific contract clauses

Utilize information from payment audit in negotiations
Allowables and
Contractual Adjustments


Allowables = what the health plan agrees to pay for a
specific service.
• e.g. 99213 = $100 allowable
Contractual Adjustment = the difference between your
fee and the allowable.
• Fee =
$120
• Allowable =
$100
• Contractual adjustment =
$ 20
( aka a write-off)
How to know if Health Plans are Paying
according to Contract???
AUDIT
YOUR
PAYMENTS
Payment Audit Methods
Specialized payment audit software
 Special functions/features within a practice
management system
 Manual audit process

Payment Audit Software



Different software packages designed for different sized
medical groups
• Medical Present Value (MPV) 50+ doctors
• Premier Data Plus – 50 or fewer doctors
• Others
Software for larger practices may take a percent of
dollars recovered.
Software may pay for itself in 1-2 years in dollars
recovered
Payment Audit Software


Advantages
• Allows a practice to audit virtually 100% of payments
• Shows patterns of underpayment
• Generates correspondence to send to payer
• Can pay for itself in 1-2 years with revenue recovered
• Often includes other capabilities – e.g. data mining
and reporting, contract management
Disadvantages
• Have to pay up-front for the software or service
• Requires considerable amount of initial set up time to
make it work with the PM system
Practice Management System

Many practice management systems allow loading of
contract allowables.
• Allowable must be posted when payment is posted
• System identifies an underpayment by comparing
allowable posted to expected allowable.
• Monthly reports show expected allowed versus
allowed per the EOB payment.
Practice Management System


Advantages
• Current PMS may already have the capability
• Gives good idea of extent of the problem
Disadvantages
• Takes considerable set-up time in PM System
• Provides no correspondence for health plans
• Reporting capabilities may be very minimal
Manual Payment Audit


Advantages
• If done with a random sample of payments, allows
extrapolation to a larger sample of all claims
• Provides excellent opportunity to learn more about
payers, contracts and the process of reimbursement
• Helps determine if underpayments are a problem
Disadvantages
• Very labor intensive and time consuming
• Requires knowledge of use of spreadsheets
• May only provide anecdotal information about
underpayments if random sample is not used
• Have to develop correspondence to health plans
Tools for a Manual Payment Audit





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Organized contract information
• Contract Names
• Contract start and end dates
• Reimbursement rate (CF x RVU year)
Table of Allowables by Health plan Contract
• Use the 80/20 Rule for most frequently performed CPTs
• RVU for each CPT code by RVU year
Select a sample to audit (random sample can be used)
Copies of patient insurance ID card for each sample
Spreadsheet to keep track of audit data
EOBs that show the allowables and adjustments
Table of Allowables by Health Plan
Start
Date
Conversion factor
RVU year
6/1/07
5/1/08
6/1/08
5/1/09
7/1/09
$60.00
$65.00
$62.00
$59.00
$60.00
2007
2008
2008
2009
2009
2007
Tran
2008
Tran
2009
Tran
Description
RVU
RVU
RVU
Plan 1
Plan 2
Plan 3
Plan 4
99202
New Pt II
1.73
1.74
1.76
$104
$113
$108
$104
$106
99203
New Pt III
2.56
2.55
2.55
$154
$166
$158
$150
$153
99204
New Pt IV
3.92
3.91
3.93
$235
$254
$242
$232
$236
99212
Est Pt II
1.02
1.03
1.03
$61
$67
$64
$61
$122
99213
Est Pt III
1.66
1.67
1.70
$100
$109
$104
$100
$102
99214
Est Pt IV
2.52
2.53
2.56
$151
$164
$157
$151
$154
CPT
Plan5
Audit Data Spreadsheet
Contract
Ins
Ins
Carrier
Group
Earheart
MHN
Method One
Start
CPT
Date
Allowable
Method Two
Contractual Adj
Total
Fee
Exp
EOB
Diff
Exp
Act
Diff
Diff
99213
$150
$120
$0
$0
$30
$40
$10
$10
81000
$25
$10
$0
$0
$15
$15
$0
$0
$0
$20
$25
$25
$0
$10
Cigna
Prov Pref
99395
$300
$200
$180
$20
PPP
Regence
99243
$250
$175
$0
$0
EBMS
Coventry
99232
$175
$160
$150
$10
$75
$100
Portland’s Payment Audit Project

Grew from medical group managers’ concerns about
contractual underpayments
• Results from one office’s implementation of payment
audit software (Premier DataPlus)
 Chronic underpayment



by most payers was discovered
• OMA’s attention to the problem
Managers volunteered to perform manual audits
OMA provided statistician for data analysis
Objective was to determine the “scope” of
the problem in the area
Summary of What Was Found




Auditing payments pays off!
• Vancouver Clinic recovered $260,000 in two years (160
doctors)
• Metropolitan Pediatrics (20 doctors) estimated $77,000
in underpayments in one year (extrapolated from
sample)
• Women’s Clinic recovered $30,000 in two years (7
doctors)
• Bend Memorial Clinic recovered $50,000 a month
Many underpayments are $10 or less
Rarely saw instances of payment MORE than contract rate
Same codes are often underpaid repeatedly
Summary of What We Found




Manual payment audits are extremely time consuming
Medicare is the least likely to pay incorrectly
• Don’t waste time auditing Medicare payments
Specialty practices with small percent of Medicare
business (OB or Peds) may experience higher frequency
of underpayment
Underpayments occur across the board, but PPOs are
the worst offenders
• PPOs do not audit their member payers for correct
payment – they “rely on the providers to identify
incorrect payments.”
Summary of What We Found




Underpayments most likely to occur immediately after a
new contract start date occurs
• Plans forget to “load the new rates” for all providers in
a group practice
• PPO Payers don’t update rates in a timely manner
• Poor communication between PPO and the payer
Geographic areas that rely on an IPA to negotiate all
contracts may experience fewer incorrect payments.
Rate of incorrect payment – as high as 12% of claims
Payment audit software can pay for itself in 1-2 years
with revenue recovered
Reaction from the Health Plans






Initial reaction from most was denial of the problem
• Many ignored requests for reprocessing and correcting the
payment
• Some tried to deny using argument of “past timely filing”
Plans requested EOB and 1500 form to reprocess each
underpaid claim– takes substantial staff time
• Try to negotiate list of claims on a spreadsheet
After four+ years of finding errors – payment errors still occurred
Plans were very slow to reprocess and pay correct amount
Required constant follow up with the payer
PPOs made no offers to audit payers
Next Steps







Take time to learn more about your contracts
Gain a good understanding of your payers
Develop your tools to perform a manual payment audit
Select your sample to audit
Perform the audit
Determine the extent of the problem
Follow up with health plans
Contact Information
Marilyn Happold-Latham, MBA, FACMPE
Marilyn.latham@comcast.net
503-284-6453