“A podiatrist in New York City elected to use an assistant surgeon for a bunionectomy and two hammertoe procedures, both common surgeries. That assistant alone billed $169,410. Fair compensation as determined by our classification, edits, and review process was $632, or 0.37% of the assistant’s bill.”
The Crisis Of Medical Overbilling – How to protect your group and members
MyHealthGuide Source: Kevin Renner, MBA, Executive Vice President and Ira Weintraub, MD, Chief Medical Officer, WellRithms
A 47-year-old woman was diagnosed with cancer in one breast. She underwent surgery to remove both breasts and lymph nodes in her left armpit to lower the risk of recurrence. The surgeon billed for three mastectomies and charged $99,380. WellRithms’ clinical bill review and repricing determined that fair pricing was $3,072.
A podiatrist in New York City elected to use an assistant surgeon for a bunionectomy and two hammertoe procedures, both common surgeries. That assistant alone billed $169,410. Fair compensation as determined by our classification, edits, and review process was $632, or 0.37% of the assistant’s bill.
Neither case was an anomaly. As medical bill review experts we frequently see bills running into the hundreds of thousands of dollars, if not millions, when legitimate charges are only a fraction of that.
The business of medicine is replete with systemic billing errors, abuses, and fraud that goes undetected by plan sponsors. JAMA Network Open estimated in 2019 that medical pricing irregularities, fraud, and abuse cost between $289 billion and $324 billion.
Surgeons and hospitals that engage in deliberate over billing are leveling a phantom tax that chokes business investment, incomes, business growth, industrial competitiveness, and family budgets. On a personal level medical bills are the single greatest cause (about 59% of the time) of personal bankruptcies in America. (American Journal of Public Health)
Meanwhile, overbilling continues to skyrocket and inflate health benefit costs at an unsustainable rate. Recent findings highlighting this crisis include:
- Million-dollar-plus claims per million covered employees rose 45% from 2019 to 2022. (Sun Life)
- A survey of employer health plans reports that 64% of respondents experienced a claim above $500,000. (Aegis Risk)
- 20% of self-insured employers had at least one member with over $1 million in claims from 2018 through 2021. (Sun Life)
- Nearly 8 in 10 employers consider high-cost claims a significant threat to employer-sponsored healthcare. (National Alliance Health)
The Root Causes of Overbilling
Misaligned incentives, systemic financial irresponsibility, and private equity funded provider consolidation contribute to the overcharges. For example, hospital mergers drive hospital price increases by 6% to 18%, despite those mergers reducing operating costs by 15% to 30%. (NCCI)
So what is behind hospital and surgeon billing abuses? Systemic gaming of the system includes the following cost drivers, among others:
- Upcoding. This is a common practice of reporting a higher level of service than was actually provided.
- Unbundling. Under this practice providers charge for separate parts of a procedure that are included in the primary procedure, such as billing separately for the closure after surgery, as if it were independent of the surgery. Unbundling is analogous to an auto shop charging for an oil change and billing additionally to open the car’s hood.
- Gaming stop-loss outliers for workers’ compensation claims. Within most states, workers’ compensation claims are paid according to predetermined fee schedules. If billed charges exceed a specified threshold, fee schedules are replaced by a percentage of charges for the entire bill. So providers are financially motivated to inflate charges by upcoding and unbundling. Providers also pump up charges by billing for services, materials, and medications not provided.
- Exclusion lists (“skip lists”). These are secretly negotiated contracts between hospital systems and third-party administrators (TPAs). The hospital systems offer what they claim to be their lowest rate for agreements from the TPAs that charges will be excluded from rigorous review.
- Egregious physician overbilling. We see surgical and other bills exceeding justifiable charges by a factor of ten, and occasionally by more than 100 times. For example, a spine surgeon, coded as a co-surgeon, recently charged $445,000 for a two-level fusion and decompression in a case we reviewed.
One could assume that their group’s plan administrator is working hard to stop provider overbilling. However, plan administrators lack the incentive to challenge providers when the dollars at stake belong to the self-funded plan.
Purchasers Respond: Enough is Enough
Major purchasing organizations such as the National Alliance of Healthcare Purchasers Coalition, union groups, and major employers are taking action with research efforts, political initiatives, and litigation. Gag clauses between providers and insurers are being targeted, among other practices.
Several recent lawsuits have charged that major insurers are complicit with providers and failing in their fiduciary responsibility to their self-funded employer and union groups.
- In Kraft Heinz Company Employee Administration Board, et al. v. Aetna Life Insurance Company, Kraft Heinz alleges Aetna paid millions of dollars in provider claims that never should have been paid and wrongfully retained millions of dollars in undisclosed fees. (District Court Ruling compliments of Miller Chevalier)
Kraft Heinz also alleges Aetna applied less rigorous claims adjudication standards to self-funded plan claims than it applied when adjudicating claims for its fully funded plans. Furthermore, the suit alleges that Aetna induced providers to join Aetna’s network by agreeing to place providers on exclusion (“skip”) lists that commit Aetna to providing limited or no scrutiny of provider claims. - In Trustees of International Union of Bricklayers and Allied Craftworkers Local 1 Connecticut Health Fund et al. v. Elevance, Inc., et al., plaintiffs allege that Elevance (formerly Anthem) repriced claims for reduced payments, charged the union the higher price, then kept the savings due back to the plan. (Davis Wright Tremaine)
- The appeal in Massachusetts Laborers’ Health and Welfare Fund, et al. v. Blue Cross Blue Shield of Massachusetts alleges that Blue Cross failed to accurately price claims, which caused millions of dollars in plan overpayments. The fund alleges Blue Cross calculated some claim payments exceeding what providers billed, processed erroneous pricing for hospital stays and procedures, and retained recovery fees where overpayments stemmed from its own errors.
The appeal also alleges that Blue Cross retained inflated recovery fees by applying the recovery percentage to the higher original claim amounts instead of the lower recovered amount. (Davis Wright Tremaine)
When your organization is fighting talent wars, economic headwinds, and global competition it shouldn’t have to fight its health care partners over the integrity of their business practices. Yet if a plan administrator does not advocate on your plan’s behalf, what can your organization do to protect itself?
Defending Your Plan
Without your plan administrator diligently protecting your plan’s resources, how can your organization protect itself? Here are some first steps.
- Recognize that PPO network discounts are not the solution. PPO discount percentages have been in place for decades, yet overbilling has worsened while health care costs have skyrocketed. PPO discounts that are a percentage of billed charges are phantom savings, as charges are inflated to egregious levels. If a hospital charges five times its underlying cost, a 40% PPO discount still results in payment that is three times the service cost.
- If PPO discounts are not the solution, neither is reference-based claims repricing (RBP), i.e. a multiple of Medicare reimbursement. Used alone, reference-based pricing is a blunt instrument. Medicare underpays hospitals for some services and overpays for others. It defies logic to pay a hospital a flat multiple of Medicare reimbursement. Moreover, complex, high dollar claims frequently do not have a Medicare reimbursement allowance, so RBP is an ineffective method to reprice these.
- Negotiated settlements are little more than a one-off, band-aid solution. Negotiations typically leave purchasers overpaying compared with a fundamentally sound, cost-based approach. Hospital charges have no relationship to the cost of care and cost data is not readily available to payers. Providers know this, which gives them important leverage over payers when negotiating.
In short, plan administrators lack the incentive to dig deep for plan savings for fear of alienating hospital networks that offer fierce resistance, particularly when those hospital networks are essential to a plan administrator’s provider coverage in a region. As a result, the current system is structurally broken, leaving groups and members fending for themselves.
A new paradigm of medical billing and reimbursement is essential to breaking the cycle of overbilling that increasingly chokes payers. A new mindset and toolset are needed to protect groups and members.
The Medical Billing Transformation
The elements of a transformed medical billing and payment integrity model are clear. Such a system is built upon the following principles and practices:
- Bills are reviewed prior to payment and the application of network discounts, not after the fact.
- Reference-based pricing is augmented or replaced with much more precise provider costs as the basis for repricing.
- Proven data analytics and algorithms are harnessed to evaluate provider bills line-by-line. These are based on hospital cost reports, as well as cost-to-charge ratios, by cost centers and revenue codes.
- Advanced rules look for coding compliance with the National Correct Coding Initiative, medically unlikely edits, bill type classification, outpatient code edits, and duplicate entries. Billing anomalies and abuses are flagged and then reviewed by physicians with relevant expertise.
- Multiple validation points are used to confirm that repricing is consistent with geographic differences, other payer sources, regional market indicators, and usual provider reimbursement.
- A repricing service will accept legal and financial responsibility for the proposed reimbursement, to protect plans and members from balance billing and other risks.
Conclusion
The U.S. spends about twice as much on health care per capita as other industrialized nations. Inflated billings play a significant role in the growing cost crisis.
The business of medical billing and reimbursement requires a complete overhaul. It will not be transformed by the entrenched beneficiaries of its dysfunctions. Fortunately, that transformation is now in its early stages on the frontier of principled medical payment. Payers and members deserve health care partners willing to truly advocate on their behalf as fiduciaries and patients.
About WellRithms
WellRithms provides medical bill review, repricing, and indemnification services to reduce healthcare claims costs and Level the Paying Field™ for purchasers and providers of health care. The company serves group health, workers’ compensation, and auto insurance payers who rely upon its unparalleled technical, medical, and legal expertise. Visit wellrithms.com.
