Use a stepwise approach for preventing waste

September 1, 2013

Payers must look at waste and abuse

Payer and provider organizations are under tremendous pressure to address the drastic cost reduction requirements that have accompanied healthcare reform. The need to stem financial losses due to waste, abuse and fraud has intensified as a result.

Unfortunately, the industry transition to ICD-10 and the emergence of advanced payment and care delivery models are combining to make it more challenging for payers to process claims correctly, let alone to detect fraud or overbilling, or to determine whether too much care has been provided. This is adding administrative stress to already overburdened organizations, and potentially exacerbating adversarial relations between payers and providers just when better collaboration has become so important.

Is there a way to leverage waste, abuse and fraud programs to enhance the overall system rather than merely patch its faults? A holistic, stepwise approach to solving the root causes of how claims become problematic will not only improve cost management but also increase efficiency in care delivery and payments while tightening coordination between payer and provider organizations.

When it comes to waste, abuse and fraud, fraud typically garners most of the attention. However that is not where efforts are best focused.

Even though the vast majority of people working in healthcare are highly ethical, fraud is clearly an expensive problem. The Centers for Medicare and Medicaid Services (CMS) will not hazard a guess as to how much fraud occurs in Medicare and Medicaid each year, but estimates by law enforcement officers range as high as $120 billion to $180 billion. Efforts to retrieve these lost dollars do pay off. According to U.S. Attorney General Eric Holder, for every $1 spent on uncovering fraud, $8 are recovered.

However, health plans have a misdirected financial incentive to address fraud retrospectively rather than prevent it. Money spent on recovery actually helps elevate medical loss ratio but money spent to stop fraud makes the health plan more efficient-and medical loss ratio drops, increasing the likelihood that the health plan has to pay rebates. This situation perpetuates inefficiency rather than improving the system as a whole.

Broadening the scope of your prevention efforts to include waste and abuse helps address the systemic problems impeding the delivery of better, less costly care and genuinely increases medical loss ratio. Putting fraud aside, then, payers must look more closely at how to address waste and abuse.

The Challenge of ICD-10

The implementation of ICD-10 represents a major disruption to healthcare and will shine a brighter spotlight on abuse. The change in coding systems under ICD-10 means that the vast majority of facility contracts will need to be revised. In addition to this “system” disruption, ICD-10 also involves an “interpretation” disruption. How procedures should be coded for claims processing will become more uncertain and subject to interpretation.

Interpretation invites abuse, on both sides of the payer-provider divide. Providers, under pressure to increase revenue, may be tempted to be creative in billing. Payers, under pressure to reduce costs, may be incented to clamp down on reimbursement, sometimes inappropriately.

Abuse can be hard to detect under the best of circumstances. Claims can vary widely from case to case, system to system, and region to region. Mistakes or big changes in billing don’t pop out readily, especially in manual systems. It can take six to nine months to process data, analyze trends and figure out where abuse may be taking place. This “pay and chase” approach may recover lost dollars but still do nothing to improve collaboration between payers and providers.

What if major coding and billing changes could be noticed or caught in real time?

This would prompt conversations between payers and providers to determine why discrepancies in normal billing exists, and what those changes mean. Transparency and open dialogue help surface problems and bring greater understanding about root causes. This can lead to solutions that improve the quality and reduce the cost of care delivery.

New Payment Models

Waste is endemic in the fee-for-service (FFS) system. The root cause of this form of cost leakage is inefficiency and lack of coordination. The economics of FFS encourages overcapacity and oversupply.

Since every procedure is billed, more care is provided. A patient with a traumatic injury may receive an MRI in the emergency department, another MRI in the specialist unit, and a third from physical therapy, even though one test or procedure might suffice if the care were provided in a continuous, coordinated way. Maximizing revenue means billing for as many services as possible. This is the core problem of a system that costs too much and delivers suboptimal outcomes.

Certain reform provisions were implemented to overcome this challenge. In various bundled payment models, accountable care organizations (ACOs) and patient-centered medical homes (PCMHs), for example, it’s in the best financial interests of all parties to be vigilant about the waste that arises from overcapacity and overutilization. These models are also built to improve care quality by increasing coordination.

The majority of complex payment models being rolled out today aren’t actually designed to address overcapacity and overutilization. Moreover, the bigger and more complex the model, the harder it is to process claims correctly or understand whether services are necessary or being duplicated.

Once again, the answer is to promote more transparency and sharing of data between payers and providers, and to encourage better collaboration. How will we reach a new level of transparency and collaboration? By breaking down the barriers within health plans and between payers and providers.

If we think about waste and abuse broadly as “dollars we shouldn’t be spending,” then their occurrence falls roughly into six root causes.

  • Services that shouldn’t have been rendered because they were not medically appropriate-a medical policy problem.

  • Services that shouldn’t have been rendered but were because of a lack of care coordination-a utilization management problem.

  • Services that were overpaid-a payment policy problem.

  • Services that were overpaid because the provider was out of network-a network management problem.

  • Services that were billed inappropriately because of system manipulation-an abuse problem.

  • Services that should have been managed or bundled differently-a claims operations problem.

These six root causes report out through different parts of the health plan, which are traditionally siloed. On the provider side, there are corresponding silos. Most plans process payment claims separately from the systems in which they manage provider connections and utilization, separate still from divisions that investigate fraud and abuse. To date, there hasn’t been a viewpoint or source to drive them to work together because each function is operating off independent, disparate data. This means they are viewing different facets of the same problem, without seeing the big picture.

In effect, the occurrence of waste and abuse is pointing out holes in the system that exist because functions are not collaborating internally and across the payer-provider divide.

Optimizing the System

If we could enable those functions to work together, what systemic problems would a health plan discover, and what solutions might it see fit to implement? A payer might realize that it has major claims operations issues, or that it is spending IT dollars inappropriately. It might learn that utilization management solutions are not appropriately directing care or guiding the provider to the best setting to deliver care.

Without this level of understanding into root causes, the programmed response is to deny the claim or deny care. If we truly want to improve care quality and reduce overall costs, this won’t help, and it could potentially hurt the patient or plan member. It would be much better for the system to work in such a way that the patient or provider is directed to apply the appropriate care in the right setting at the right cost, according to the design of a clear benefit plan.

The kind of silo-busting and collaboration that gets at root causes and improves the system for all stakeholders can be greatly aided by a sophisticated waste and abuse management toolset. The comprehensive, real-time analytics needed to support such a toolset can create a unifying platform and dataset that drives conversations in a fundamentally different way.

Take for example, high-level Evaluation and Management (E&M) services. If the provider billing office consistently misinterprets E&M services to be high-level when they shouldn’t be, this billing could go on for months or years before being caught during random audits or data mining. The plan contacts the provider for reimbursement of the overpayments, and conflict ensues. With real-time predictive analytics in the picture, a pattern is identified in the provider’s billing after just a month. The plan contacts the provider to understand the aberrant billing, and uncovers the billing office mistake. The provider is not penalized, the billing office is educated, and the plan avoids significant overpayments.

Health plans have an urgent need to stem the loss of revenue from waste and abuse immediately. They can do so and tackle the larger need to increase collaboration and solve systemic problems by thinking of the process in four phases.

  • Discover-assess losses from waste, abuse and fraud by auditing existing data feeds

  • Triage-analyze the results of those analytics to identify claim-level and provider-level aberrancies

  • Optimize-address patterns found through the analytics

  • Review-examine policies and contracts to determine better approaches

Waste, abuse and fraud may represent one more challenge in an overwhelming list of challenges confronting providers and payers today. However, the adage that every crisis creates opportunity holds true in this case. Addressing waste and abuse in a systemic way can help solve immediate needs and larger, long-term concerns at the same time.

 

Amy Larsson is Associate Vice President of Emerging Solutions for McKesson