Locate overpayments in complex claims adjudication processes

December 1, 2010

A decade ago, health plans barely raised an eyebrow at specialty pharmaceuticals, however, this under-the-radar segment began to explode

Key Points

ADECADE AGO health plans barely raised an eyebrow at specialty pharmaceuticals. Sure, they were pricey, but their numbers were so slight-only a dozen or so approved drugs-that insurers often dismissed their significance in order to address bigger cost concerns.

Over time, however, researchers made advancements in development, transportation, storage and administration of these biotech wonders that are successfully treating complex illnesses or conditions such as rheumatoid arthritis, multiple sclerosis and cancer. Soon this under-the-radar segment began to explode, as did the cost to cover treatments, some of which approach $400,000 annually.

Today, the 200 or so specialty drugs generate approximately $90 billion in annual revenue. And while the cost to treat patients with specialty pharmaceuticals has managed care executives taking notice, it's the anticipated growth of this industry that is prompting heart palpitations: There are more than 1,000 specialty drugs in development.

Industry estimates place claim overpayments on specialty pharmaceuticals at 3% to 10% or more. The average claim for specialty drug treatment tops $2,000-25 times more than a traditional drug claim. Health plans are already squeezed by high care delivery costs, increased competition and greater regulation, including new rules surrounding medical loss ratio (MLR).

Processing of lower-cost, high-volume drug claims facilitated through a pharmacy benefits manager (PBM) has been automated and perfected over time. Many claims for specialty pharmaceuticals, on the other hand, flow through a different processing pipeline with completely different methodologies and controls.

Antiquated claims management systems that were not designed to handle the nuances of specialty pharmaceuticals introduce the likelihood of systematic adjudication problems, as do the disparate billing methodologies employed by provider organizations.

Complexity is added by healthcare payment rules that are continually evolving. Even the most attentive payers sometimes fail to account for a new drug or treatment in their adjudication software as quickly or accurately as they should, exposing the plan to habitual overpayments.

In one specific example, a health plan did not update its fee schedule for a code change affecting a certain specialty drug used in radiology procedures. The code change involved a shift from per-event to per-milliliter billing methodology, and the drug was used in several hundred milliliters per episode. The result was the plan paying provider charges, which were substantially above its intended reimbursement, in virtually every case over an extended period of time. Not only must health plans diligently monitor all activities related to specialty drugs, but they also must have the ability to adjust their contracts and fee schedules to match price updates in a timely manner.

Considering that filing and adjudicating a specialty pharmaceutical claim also can be a highly manual process, human error is a significant threat. A simple error such as transposed digits or a skipped decimal could trigger thousands of dollars in overpayments. Likewise, typical quantity limits in claims systems cannot always be applied without detailed knowledge of dosing guidelines and regimens.

And while payers often include adjudication rules to flag high-dollar claims for manual review, this is a resource-consuming process. Further, the assigned staff member must be well versed in treatment indications for the drug in question to determine where the error occurred, a rare set of specialized skills that comes at a price.

There is also the continual threat of outright fraud by individuals aware of the intricate nature of specialty pharmaceutical claims and that good fraud detection systems are lacking. In one high-profile situation, phantom clinics were established in Florida with the sole purpose of filing high-dollar HIV drug claims. After some time, regulators noticed a huge discrepancy in spending on these drugs when compared with other regions throughout the United States-up to 10 times more than even the most densely populated areas such as New York City.

Finally, healthcare reform is sure to affect healthcare payer's ability to accurately adjudicate specialty pharmaceutical claims. With many more lives entering the healthcare system-many potentially in need of specialty drugs-payers' adjudication systems will be stretched to the limit.

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