Putting a price on underpaid claims: an Atlanta-based medical group recovers $1.8 million in contractually underpaid claims 15 months after implementing a Web-based claims auditing software application

Health Management Technology, August, 2005

The onset of managed care has made it increasingly difficult for physicians, hospitals and patients to completely understand the reimbursement process, specifically the contract and payment policies that drive it.

HIPAA rules and new state requirements are standardizing service definitions, payment rules and appeals with the goal of reducing contract ambiguity. However, these contract terms remain staggeringly complex and change constantly. As a result, the average healthcare organization loses up to 5 percent of its annual revenue because claims are paid at less than the contract rate.

Problem

Emory Clinic, part of Emory Healthcare, is a multispecialty Atlanta-based practice. Affiliated with the Emory University School of Medicine, the clinic employs more than 900 specialists, subspecialists and primary care physicians. Each year, the clinic submits more than one million outpatient claims worth nearly $200 million.

When a new contract management process for identifying, appealing and recovering underpaid claims resulted in major recoveries for Emory's inpatient business in 1997, Emory Clinic management saw a significant opportunity to recover contractual underpayments for the outpatient side of the business as well. In early 2000, we began looking for a solution that would help improve overall contract performance with the goal of increasing overall revenue.

We first opted to hire outside consultants to help us audit and recover contractual underpayments, but the approach soon proved costly. Although our initial recovery efforts were successful--mostly transplant and underpaid cancer drugs--ultimately, this approach was ineffective at identifying the smaller but consistent payment variances that continued to be a drain on practice finances. We eventually agreed that we were dissatisfied with the overall return on investment we were experiencing and decided to take the job in-house in 2002.

While we did succeed with our manual, in-house method, our contracting staff quickly became overburdened and overwhelmed with the sheer volume of claims, devoting countless hours of manual labor to mining the database for just a fraction of our potential appeal opportunities. This "scavenger hunt" method enabled us to successfully identify more sizable underpayments with our major payer partners, but it did not allow us to track underpayments for the nearly 200 payers participating in networks. The amount of training and effort required to identify underpayments with these payers, such as errors by smaller IPAs and contracts, was prohibitive.

We also faced a great degree of difficulty in finding staff members qualified to handle this task. To succeed in this role, employees needed a unique combination of technology savvy and healthcare expertise, and most job candidates excelled in one area or the other, but not both. We quickly realized that we needed an automated solution to keep up with our growing claims volume and to ensure we were being paid what we were owed.

Solution

We began our search for an automated contract management and claims valuation solution in 2003. A five-person search committee was formed comprised of representatives from the contracting department, IS department, management team and me. After narrowing the field to a handful of vendors, we invited the finalists to conduct an on-site product demonstration.

Our two main selection criteria were ease of use and depth of functionality. In addition, we hoped to find a solution that would:

* Speed the process of identifying and appealing underpayments to facilitate faster revenue recovery;

* Identify appeal opportunities with all of our payers, including those that participated in networks;

* Convert more of our appeals to cash.

After thoroughly reviewing all of our options, we selected MPV Phynance from Medical Present Value Inc (MPV), San Antonio. We felt the system was the best in terms of functionality, and we could clearly see that it would be easy to use, even for employees with minimal technical or contracting expertise. The system's extra features, like the contract analysis tool, would help to prevent future underpayments and strengthen our negotiating position with payers, which we felt was a major competitive advantage.

Implementation

Late in 2003, our contracting staff met with MPV to establish an implementation timeline and conduct hands-on training sessions. Because MPV Phynance utilizes an ASP model, preimplementation preparations were minimal and consisted primarily of building an interface between our IDX practice management system and MPV Phynance.

The interface allows MPV Phynance to extract EOB (explanation of benefits) data from our practice management system on a nightly basis. Once the claims data is extracted, it is transmitted to MPV's data center via a secure Internet connection so it can be compared to the expected allowed amounts designated in each individual payer contract. Claims and allowables are verified at the line-item level using our contract data along with continually updated public and private sector payer rules, fee schedules and formulas.