Harnessing the power of e-commerce to reduce denials

Healthcare Financial Management, Jan, 2005 by Pamela M. Waymack

How pervasive is the problem of healthcare claims denials? Very pervasive: One out of seven claims needs rework, resubmission, and possibly appeal by providers.

How expensive is this problem? Very expensive: A hospital with $100 million in annual revenue may lose as much as $3 million from poor management of claims denials.

A March 2003 study by the Health Insurance Association of America (now known as America's Health Insurance Plans) found that 14 percent of all claims submitted to payers are denied. Over a one-week period in May 2002, HIAA examined 900,000 claims processed by 14 payers covering more than 26 million insured individuals at the time of the study.

Based on the findings of that and other studies, automation is imperative for effectively reducing the magnitude of denials occurring today. Although successful back-end revenue recovery is important, long-term solutions to the denial epidemic require providers to reduce their occurrence on the front end. The use of standardized e-commerce technology can help with this effort.

E-Commerce and Claims Processing: What HIPAA Has to Say

E-commerce is the use of electronic IT to conduct business transactions among buyers, sellers, and trading partners without human intervention. Electronic data interchange is one form of e-commerce. With HIPAA, Congress mandated the first electronic data interchange standards for routine business processes between payers and providers. HIPAA established a common e-commerce channel for all provider and payer organizations to automate routine business transactions that had previously been conducted via phone, paper, or nonstandard electronic means.

The five key business processes that all payers must support in the HIPAA standard electronic format (see exhibit) at this time are:

* Eligibility inquiry and response

* Clinical referral request and authorization

* Claim submission

* Claim status inquiry and response

* Remittance advice

Through the power of HIPAA's electronic data interchange standards, each of those transactions has the potential to reduce claims denials based on best practices today.

Eligibility inquiry and response. The Health Insurance Association of America study found that of the 14 percent of claims denied, 25 percent of those denials resulted from eligibility issues-specifically, 22 percent resulted from coverage termination/premium lapses (see exhibit on page 42).

Eligibility denials not only create rework for research and rebilling, but also increase the risk of nonpayment as a result of two dependent downstream processes. Poor identification of eligibility increases the risk of failing to precertify with the correct payer, which may result in a clinical denial. In addition, the time required to bill, research, and then rebill the correct payer may result in providers' missing the correct payer's timely filing requirements. Even when corrected, eligibility denials can create a chain reaction of denials all from one service.

Use of the HIPAA eligibility transaction allows providers to automate processes, increasing the percentage of patients and extent of services whose eligibility is verified. The standard allows eligibility to be queried multiple times during the patient care process, from time of scheduling to point of billing, to ensure that any changes to eligibility are identified before the claim is submitted to the wrong payer.

Providers that have audited their denials have found extensive rework caused by incorrect eligibility identification on the front end. They need to plan now how they will move to fully automate the eligibility verification process.

Referral request and authorization. Medical management has its own unique problems that can result in denials. Services not authorized as required by the payer may be denied. Even when an authorization is made, it can be lost by the payer and denied as unauthorized until proof is submitted. Finally, in the case of an HMO, services may be provided outside the network and not covered.

The HIPAA referral request and authorization transaction allows providers to automate the request and logging of authorization for services such as inpatient admissions or outpatient surgery. With this electronic record of authorization, providers have documentation in case there is a question later about timeliness of requests or actual approval of services. In addition, the automated precertification process reduces staff time and allows this process to be extended beyond routine services currently certified telephonically or by fax. Areas such as radiology and other expensive tests can be added to the precertification process when using the HIPAA transaction standard.

The HIPAA referral request and authorization transaction also allows providers to reduce the number of precertifications not completed as a result of lack of time or the inability to reach the payer representative. In addition, it permits the upfront identification of out-of-network patients to allow for exception request before service delivery.