A method for detecting errors in discounted fee-for-service payments by insurance companies - Brief Article - Statistical Data Included

Ear, Nose & Throat Journal, March, 2000 by Faiza Mujtaba, Elizabeth Sullivan, K.J. Lee

Abstract

In order to discover and correct inaccurate payments received from insurance companies, a practice requires a plan for the systematic, efficient, and prompt monitoring of receipts. When any such discrepancies are detected, the physician can query the insurance company and correct the problem. Once the system is in place, it behooves each physician to look at the results at least weekly. Monitoring receipts requires interest, know-how, and persistence in the face of ever-confusing payment methodologies. This paper explains one such plan for detecting and correcting inaccurate insurance company payments.

Introduction

In order to ensure accurate insurance company payments for common procedures in the discounted fee-for-service model, it is necessary for physicians to perform an analysis of payments made by each company.

Fee schedules

To conduct such an analysis, the physician and/or staff should first make a list of the practice's most common procedures, their respective CPT codes, and the standard undiscounted fee for each--that is, the amount the practice charges to indemnity plans and to self-paying patients (office fee). These are the fees that are generated internally by the physician, as opposed to the fees that are actually paid by insurance companies.

Next, determine each insurance company's fee schedule for each common procedure (agreed-to-pay amount). These figures should be obtained from an official company document or contract other than the Explanation of Benefits (EOB) form. These agreed-to-pay amounts vary from plan to plan and from year to year. Sometimes physicians can negotiate their own contracts with insurance companies to arrive at these agreed-to-pay amounts. A large group might he able to negotiate a deal that is better than that offered to smaller practices. Negotiating such an agreement can narrow the gap between a physician's office fee and the amount that is ultimately paid by insurance companies.

The next step involves compiling data on the amount of money each insurance company actually pays for each common procedure. This information can be found on the EOB form. The physician should compare the agreed-to-pay amount stipulated in the official contract with the amount on the EOB form to make sure they are identical. EOBs list all procedures by their CPT codes, sometimes accompanied by the name of the procedure. Granted, locating an BOB for each procedure for each insurance company can be tedious and time-consuming in view of the plethora of procedures and companies. But once the system is established, the process of updating it will be easier and worth the effort.

BOB formats vary among companies, but all EOBs should list the agreed-to-pay fee, the amount of the patient's copayment (copay), the amount of money the physician pays to the risk pool, and the amount of money the company actually pays the physician (amount paid). It is important to ascertain that the agreed-to-pay amount on the EOB is the same as that on the fee schedule or contract and that the amount ultimately paid is equal to the amount owed.

Copayments

The amount of the patient's copayment varies from plan to plan. For example, copayments for office visits usually range between $5 and $25, while copayments for surgery are usually based on a percentage of the fee. Under some plans, the physician receives the copayment in addition to the insurance company's agreed-to-pay fee; in other plans, copayments are deducted from the insurance company's agreed-to-pay amount (figure 1). These arrangements vary according to the physician's agreement with the insurance company, the specific plan, and the type of service rendered. There is no single reliable guideline that covers all the variations among companies or even the different plans within one particular company.

Risk pools

For many procedures, the physician must contribute to the risk pool. The amount of the physician's contribution to the risk pool is usually 10 to 20% of the agreed-to-pay amount for that particular procedure. This contribution is deducted from the company's final payment. When the risk pool agreement is in force, the insurance company promises to return risk pool funds to the physician if the company experiences a profitable year. But despite various degrees of financial success, companies seldom return all risk pool funds. Risk pool agreements do not apply to all procedures and are not required by all plans and companies.

Keeping track of risk pool contributions according to each insurance company, patient, procedure, and date of service is time-consuming, but it is vital to maintaining accurate records. At year's end, most physicians do not have the means to know exactly how much money they are owed from risk pools. Instead, physicians tend to be satisfied with any payment at all, even when they are entitled to a greater amount than they receive.

In theory, the size of the risk pool deduction for a particular procedure should not vary among the different plans of any one company but, unfortunately, it sometimes does. For example, for a $120 office visit (office fee), an insurance company's agreed-to-pay amount might be $100, minus a $10 copay. The company might then deduct a $10 risk pool fee from the payment for one office visit but not another. As a result, the physician will receive $90 (75% of his office fee) for one visit and $80 (67% of the office fee) for the other (figure 2). This kind of inequitable variation deprives physicians of their due payment when the risk pool is not returned in its entirety.