What hospitalists need to know about health care reimbursement and denial prevention

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Under a fee-for-service payment model, health care providers get paid by private and public payers for patient services such as physician visits, hospital stays, procedures, and tests. In an ideal world, providers would receive accurate, complete, and timely reimbursements. Unfortunately, the reality is far from ideal, where payment denials and delays are a common occurrence.

According to one study, out of $3 trillion in total claims submitted by health care organizations, an estimated 9% of charges ($262 billion), were initially denied.¹ The good news is that 90% of all denials are preventable, and two-thirds of those preventable denials can be successfully appealed.²

Hospitalists are essential in preventing denials for hospital services and should be familiar with the basics of health care reimbursement and common reasons for denials. In this article we will provide an overview of the U.S. health care payment system, revenue cycle management and types of denials, and focus on the role of physician advisors and hospitalists in preventing and combating denials.

Overview of the U.S. health care payment system

In 2018 alone, the U.S. spent $3.6 trillion on health care. Of those dollars, 33% went to payments for hospital care and 20% went to physician and clinical services.³ So where do the nation’s health care dollars come from?

The United States has a complex multiple-payer system that includes private insurance companies and public payers funded by the federal and state governments, such as Medicare and Medicaid. Per the National Association of Insurance Commissioners’ 2018 Market Share Reports, there are 125 private accident and health insurance companies in the U.S., with the top five – UnitedHealth, Kaiser, Anthem, Humana, and CVS – holding a cumulative market share of almost 40%.⁴

Medicare accounts for 15% of federal budget spending and provides insurance coverage to almost 60 million people who are 65 and older, have end-stage renal disease, or have been approved for Social Security disability insurance benefits.⁵ Medicare Part A covers hospital, skilled nursing facility, home health, and hospice care. For example, for inpatient stays, Medicare Part A pays hospitals a predetermined rate per discharge according to the Medicare Severity Diagnosis Related Groups (MS-DRGs), which are based on the principal and secondary diagnoses, and performed procedures.⁶

Medicare Part B covers physician services and outpatient services and supplies, including labs and durable medical equipment, which are paid based on submitted Healthcare Common Procedure Coding System (HCPCS) codes.⁷ It is important to know that hospital observation stays are considered outpatient services, and are paid by Medicare Part B. Outpatient stays often are reimbursed at a lower rate than inpatient admissions, even in cases with similar utilization of hospital resources.

Medicaid is jointly funded by the states and the federal government and offers insurance coverage to more than 75 million eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities. Over 10 million people are dually eligible for both Medicare and Medicaid.⁵ Increasingly, government payers, both state and federal, are contracting with private insurance companies to deliver Medicare and Medicaid services, also known as Medicare Advantage and Managed Medicaid Plans.

According to the U.S. Department of Treasury, in the 2019 fiscal year (October 2018 to September 2019), 33% of the nation’s health care dollars came from private insurance, 21% from Medicare, 16% from Medicaid, 15% from other government programs (for example, Veteran Affairs), 10% from out-of-pocket, and 4% from other private sources.⁵

Understanding revenue cycle management and denials

Providers, such as physicians or hospitals, submit claims to insurance companies that include, among other information, patient demographics and insurance, diagnoses, MS-DRGs and/or HCPCS codes, and charges. Revenue cycle management’s goal is to receive accurate, complete, and timely reimbursement for provided patient services, which is a complex and resource-intensive process.

According to the Healthcare Financial Management Association (HFMA), revenue cycle management includes “all administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue.” These functions could be broken down into four main categories:

Claims preparation (for example, patient registration, insurance eligibility, benefit verifications, and preauthorization).
Claims submission (for example, charge capture, medical coding based on medical record documentation and claims transmission).
Claims management (for example, payment posting, denial management, and patient collections).
Reporting and analysis.

Claim denial is “the refusal of an insurance company or carrier to honor a request by an individual (or his or her provider) to pay for health care services obtained from a health care professional.”⁸ Payers can deny an entire claim or provide only a partial payment. Initial denial rate is tracked at the claim level (number of claims denied/number of claims submitted) and at the dollar level (total dollar amount of claims denied/total dollar amount of claims submitted).

Denials are classified as hard versus soft, and clinical versus technical or administrative:

Hard denials result in lost revenue unless successfully appealed (for example, lack of medical necessity).
Soft denials do not require appeal and may be paid if a provider corrects the claim or submits additional information (for example, missing or inaccurate patient information, and missing medical records).
Clinical denials are based on medical necessity, including level of care determination (for example, inpatient versus outpatient) and length of stay. They can be concurrent and retrospective and typically start as soft denials.
Technical or administrative denials are based on reasons other than clinical (for example, failure to preauthorize care or lack of benefits).

According to the Advisory Board’s 2017 survey of hospitals and health care systems, 50% of initial denials were technical/demographic errors, 20% medical necessity, 16% eligibility, and 14% authorization. Forty seven percent of those denials came from commercial payers, 33% from Medicare/Medicare Advantage, 17% from Medicaid, and 3% from other payers.⁹

Determination of medical necessity may vary by payer. As an example, let’s look at inpatient admissions. According to the Medicare Two-Midnight Rule, inpatient admission is appropriate “if the admitting practitioner expects the beneficiary to require medically necessary hospital care spanning two or more midnights, and such reasonable expectation is supported by the medical record documentation.”¹⁰

Medicare guidelines acknowledge that a physician’s decision to admit a patient is based on complex medical factors including, but not limited to:

The beneficiary history and comorbidities, and the severity of signs and symptoms (also known as Severity of Illness or SI).
Current medical needs (also known as Intensity of Service or IS).
The risk of an adverse event.

Generally, private payers do not follow the Two-Midnight Rule, and instead utilize evidence-based MCG guidelines,¹¹ InterQual® criteria¹² or internal criteria to determine if an inpatient admission is “medically necessary.” Hospital utilization review nurses often use MCG and/or InterQual® to aid admission status decisions and may request secondary review by a physician if medical necessity for an inpatient admission is not clear-cut.

The role of physician advisors

Considering the rising financial pressure and growing complexity of private and public payers’ rules and regulations, many hospitals turned to physician advisors to help prevent and reduce denials. Typically, physician advisors perform concurrent secondary reviews to help determine the most appropriate level of care, participate in peer-to-peer discussions with payers, and write formal appeals to overturn clinical denials.

“Physician advisors are generally not in the business of critiquing clinical practice, instead they review whether the chart documentation supports initial and continued hospitalization,” said Charles Locke, MD, senior physician advisor at the Johns Hopkins Hospital and president of the American College of Physician Advisors (ACPA). “However, physician advisors should seek additional information and provide feedback in those cases where the documentation does not support medical necessity for hospitalization.”

Many physician advisors are current or former hospitalists. Chris Shearer, MD, chief medical officer for remote advisory at Sound Physicians Advisory Services, says that “hospitalists are the natural physician advisors as they have a working knowledge of what patients need to be inpatients and which are less sick and likely to be discharged quickly.”

The role of physician advisors extends beyond reviews to include physician engagement and education. Physician advisors are a critical link between physicians, utilization review nurses, case managers, and clinical documentation integrity (CDI) and revenue cycle teams, and are increasingly involved in hospital-wide denial prevention efforts.

Physician advisors are invaluable in identifying and validating root causes for clinical denials and generating potential solutions, as they bring to the table:

Clinical expertise.
Understanding of clinical workflows.
Knowledge of the most current public and private payers’ regulations.
Insight into hospital-specific clinical documentation opportunities (for example, by diagnosis, procedure, service line, and provider).
Understanding of payers’ reasons for clinical denials through peer-to-peer discussions

The role of hospitalists in preventing clinical denials

I asked three experienced physician advisors – Dr. Locke, Dr. Shearer, and Deepak Pahuja, MD, chief medical officer at Aerolib Healthcare Solutions – what hospitalists can do to prevent clinical denials. The experts had the following five recommendations:

1. “THINK IN INK.”

The best tool in combating denials is well-documented clinical judgment that outlines:

WHY the patient requires hospitalization, based on severity of presenting signs and symptoms, comorbidities, and risk of complications.
WHAT the plan of care is, including diagnostic tests and/or interventions.
HOW LONG you anticipate the patient will be in the hospital, including potential implications of social determinants (for example homelessness, active drug use) on discharge planning.

2. MASTER THE TWO-MIDNIGHT RULE.

If you expect that a Medicare Part A patient will require two or more midnights in the hospital, document it in the history and physical along with supporting clinical reasoning and sign an inpatient order. If the patient is discharged prior to the second midnight, document the reason in the progress notes and the discharge summary (for example, death, transfer to another hospital, departure against medical advice, faster than expected clinical improvement, or election of hospice in lieu of continued treatment in the hospital). Remember that Medicare Advantage plans may not follow the Two-Midnight rule and instead may use MCG guidelines, InterQual®, or internal criteria.

3. KNOW “SLAM DUNK” MCG CRITERIA FOR TOP DIAGNOSES.

Most large private payers utilize MCG guidelines to determine medical necessity for hospital admissions. Those guidelines are complex and change every year, and it is not required for hospitalists to know them all. However, it might help to remember a few key inpatient admission criteria for the top 5 to 10 diagnoses, such as:

First episode of heart failure without prior history.
Upper gastrointestinal bleeding with liver cirrhosis, syncope, or orthostatic hypotension.
Pneumonia with documented hypoxia, outpatient treatment failure, pneumonia severity index (PSI) class 4 or 5, or CURB-65 score of 3 or greater.
Cellulitis with outpatient treatment failure or high-risk comorbid conditions (cirrhosis, symptomatic heart failure, immunosuppression, or HbA1c greater than 10%).

4. EACH DAY, DEFEND WHY THE PATIENT NEEDS TO BE IN THE HOSPITAL.

Don’t let your progress notes be swallowed by a “copy-forward” monster and instead provide daily updates, such as:

Up-to-date clinical status and response to interventions (for example, oxygenation or pain level).
Updated plan of care: current interventions, additional diagnostic workup, or changes to the intensity of care (for example, increased intravenous pain medication dose or frequency).
Why the patient cannot be safely discharged to a lower level of care (for example, a skilled nursing facility or home).

5. WORK WITH YOUR UTILIZATION REVIEW NURSES AND PHYSICIAN ADVISORS.

In the end, the two most powerful tools in combating clinical denials for hospital services are good medicine and clear documentation. Armed with an understanding of health care reimbursement and denial prevention, hospitalists can help their hospitals prevent unnecessary clinical denials and receive the reimbursements they deserve.”

Dr. Farah is a hospitalist, physician advisor, and Lean Six Sigma Black Belt. She is a performance improvement consultant based in Corvallis, Ore., and a member of The Hospitalist’s editorial advisory board.

References

1. LaPointe J. $262B of Total Hospital Charges in 2016 Initially Claim Denials. RevCycle Intelligence. 2017 June 26.

2. The Advisory Board. An ounce of prevention pays off: 90% of denials are preventable. 2014 Dec 11. [www.advisory.com/research/revenue-cycle-advancement-center/at-the-margins/2014/12/denials-management]

3. Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group. The Nation’s Health Dollar: Where It Came From, Where It Went. [www.cms.gov/files/document/nations-health-dollar-where-it-came-where-it-went.pdf]

4. National Association of Insurance Commissioners. 2018 Market Share Reports. [www.naic.org/prod_serv/MSR-HB-19.pdf]

5. Centers for Medicare & Medicaid Services. Transforming the Healthcare System through Competition and Innovation. 2019 Nov. [www.cms.gov/files/document/cms-financial-report-fiscal-year-2019.pdf]

6. Centers for Medicare & Medicaid Services. MS-DRG Classifications and Software. 2020 Oct. [www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software]

7. Centers for Medicare & Medicaid Services. HCPCS Coding Questions. 2020 Feb. [www.cms.gov/Medicare/Coding/MedHCPCSGenInfo/HCPCS_Coding_Questions]

8. Healthinsurance.org. Health insurance and Obamacare terms. [www.healthinsurance.org/glossary/denial-of-claim/]

9. The Advisory Board. Latest Trends in Hospital Revenue Cycle Performance. 2017. [mahamweb.org/images/meeting/112817/maham_2017__latest_trends_in_hospital_rev_cycle_performance_abc.pdf]

10. Centers for Medicare & Medicaid Services. Medicare Program Integrity Manual. Chapter 6: Medicare Contractor Medical Review Guidelines for Specific Services. 2020 July. [www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/pim83c06.pdf]

11. MCG Health. Industry-Leading Evidence-Based Care Guidelines. [www.mcg.com/care-guidelines/care-guidelines/]

12. Change Healthcare. What Is InterQual? [www.changehealthcare.com/solutions/clinical-decision-support/interqual]

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Overview of the U.S. health care payment system

In 2018 alone, the U.S. spent $3.6 trillion on health care. Of those dollars, 33% went to payments for hospital care and 20% went to physician and clinical services.³ So where do the nation’s health care dollars come from?

The United States has a complex multiple-payer system that includes private insurance companies and public payers funded by the federal and state governments, such as Medicare and Medicaid. Per the National Association of Insurance Commissioners’ 2018 Market Share Reports, there are 125 private accident and health insurance companies in the U.S., with the top five – UnitedHealth, Kaiser, Anthem, Humana, and CVS – holding a cumulative market share of almost 40%.⁴

Medicare accounts for 15% of federal budget spending and provides insurance coverage to almost 60 million people who are 65 and older, have end-stage renal disease, or have been approved for Social Security disability insurance benefits.⁵ Medicare Part A covers hospital, skilled nursing facility, home health, and hospice care. For example, for inpatient stays, Medicare Part A pays hospitals a predetermined rate per discharge according to the Medicare Severity Diagnosis Related Groups (MS-DRGs), which are based on the principal and secondary diagnoses, and performed procedures.⁶

Medicare Part B covers physician services and outpatient services and supplies, including labs and durable medical equipment, which are paid based on submitted Healthcare Common Procedure Coding System (HCPCS) codes.⁷ It is important to know that hospital observation stays are considered outpatient services, and are paid by Medicare Part B. Outpatient stays often are reimbursed at a lower rate than inpatient admissions, even in cases with similar utilization of hospital resources.

Medicaid is jointly funded by the states and the federal government and offers insurance coverage to more than 75 million eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities. Over 10 million people are dually eligible for both Medicare and Medicaid.⁵ Increasingly, government payers, both state and federal, are contracting with private insurance companies to deliver Medicare and Medicaid services, also known as Medicare Advantage and Managed Medicaid Plans.

According to the U.S. Department of Treasury, in the 2019 fiscal year (October 2018 to September 2019), 33% of the nation’s health care dollars came from private insurance, 21% from Medicare, 16% from Medicaid, 15% from other government programs (for example, Veteran Affairs), 10% from out-of-pocket, and 4% from other private sources.⁵

Understanding revenue cycle management and denials

Providers, such as physicians or hospitals, submit claims to insurance companies that include, among other information, patient demographics and insurance, diagnoses, MS-DRGs and/or HCPCS codes, and charges. Revenue cycle management’s goal is to receive accurate, complete, and timely reimbursement for provided patient services, which is a complex and resource-intensive process.

According to the Healthcare Financial Management Association (HFMA), revenue cycle management includes “all administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue.” These functions could be broken down into four main categories:

Claims preparation (for example, patient registration, insurance eligibility, benefit verifications, and preauthorization).
Claims submission (for example, charge capture, medical coding based on medical record documentation and claims transmission).
Claims management (for example, payment posting, denial management, and patient collections).
Reporting and analysis.

Claim denial is “the refusal of an insurance company or carrier to honor a request by an individual (or his or her provider) to pay for health care services obtained from a health care professional.”⁸ Payers can deny an entire claim or provide only a partial payment. Initial denial rate is tracked at the claim level (number of claims denied/number of claims submitted) and at the dollar level (total dollar amount of claims denied/total dollar amount of claims submitted).

Denials are classified as hard versus soft, and clinical versus technical or administrative:

Hard denials result in lost revenue unless successfully appealed (for example, lack of medical necessity).
Soft denials do not require appeal and may be paid if a provider corrects the claim or submits additional information (for example, missing or inaccurate patient information, and missing medical records).
Clinical denials are based on medical necessity, including level of care determination (for example, inpatient versus outpatient) and length of stay. They can be concurrent and retrospective and typically start as soft denials.
Technical or administrative denials are based on reasons other than clinical (for example, failure to preauthorize care or lack of benefits).

According to the Advisory Board’s 2017 survey of hospitals and health care systems, 50% of initial denials were technical/demographic errors, 20% medical necessity, 16% eligibility, and 14% authorization. Forty seven percent of those denials came from commercial payers, 33% from Medicare/Medicare Advantage, 17% from Medicaid, and 3% from other payers.⁹

Determination of medical necessity may vary by payer. As an example, let’s look at inpatient admissions. According to the Medicare Two-Midnight Rule, inpatient admission is appropriate “if the admitting practitioner expects the beneficiary to require medically necessary hospital care spanning two or more midnights, and such reasonable expectation is supported by the medical record documentation.”¹⁰

Medicare guidelines acknowledge that a physician’s decision to admit a patient is based on complex medical factors including, but not limited to:

The beneficiary history and comorbidities, and the severity of signs and symptoms (also known as Severity of Illness or SI).
Current medical needs (also known as Intensity of Service or IS).
The risk of an adverse event.

Generally, private payers do not follow the Two-Midnight Rule, and instead utilize evidence-based MCG guidelines,¹¹ InterQual® criteria¹² or internal criteria to determine if an inpatient admission is “medically necessary.” Hospital utilization review nurses often use MCG and/or InterQual® to aid admission status decisions and may request secondary review by a physician if medical necessity for an inpatient admission is not clear-cut.

The role of physician advisors

Considering the rising financial pressure and growing complexity of private and public payers’ rules and regulations, many hospitals turned to physician advisors to help prevent and reduce denials. Typically, physician advisors perform concurrent secondary reviews to help determine the most appropriate level of care, participate in peer-to-peer discussions with payers, and write formal appeals to overturn clinical denials.

“Physician advisors are generally not in the business of critiquing clinical practice, instead they review whether the chart documentation supports initial and continued hospitalization,” said Charles Locke, MD, senior physician advisor at the Johns Hopkins Hospital and president of the American College of Physician Advisors (ACPA). “However, physician advisors should seek additional information and provide feedback in those cases where the documentation does not support medical necessity for hospitalization.”

Many physician advisors are current or former hospitalists. Chris Shearer, MD, chief medical officer for remote advisory at Sound Physicians Advisory Services, says that “hospitalists are the natural physician advisors as they have a working knowledge of what patients need to be inpatients and which are less sick and likely to be discharged quickly.”

The role of physician advisors extends beyond reviews to include physician engagement and education. Physician advisors are a critical link between physicians, utilization review nurses, case managers, and clinical documentation integrity (CDI) and revenue cycle teams, and are increasingly involved in hospital-wide denial prevention efforts.

Physician advisors are invaluable in identifying and validating root causes for clinical denials and generating potential solutions, as they bring to the table:

Clinical expertise.
Understanding of clinical workflows.
Knowledge of the most current public and private payers’ regulations.
Insight into hospital-specific clinical documentation opportunities (for example, by diagnosis, procedure, service line, and provider).
Understanding of payers’ reasons for clinical denials through peer-to-peer discussions

The role of hospitalists in preventing clinical denials

I asked three experienced physician advisors – Dr. Locke, Dr. Shearer, and Deepak Pahuja, MD, chief medical officer at Aerolib Healthcare Solutions – what hospitalists can do to prevent clinical denials. The experts had the following five recommendations:

1. “THINK IN INK.”

The best tool in combating denials is well-documented clinical judgment that outlines:

WHY the patient requires hospitalization, based on severity of presenting signs and symptoms, comorbidities, and risk of complications.
WHAT the plan of care is, including diagnostic tests and/or interventions.
HOW LONG you anticipate the patient will be in the hospital, including potential implications of social determinants (for example homelessness, active drug use) on discharge planning.

2. MASTER THE TWO-MIDNIGHT RULE.

If you expect that a Medicare Part A patient will require two or more midnights in the hospital, document it in the history and physical along with supporting clinical reasoning and sign an inpatient order. If the patient is discharged prior to the second midnight, document the reason in the progress notes and the discharge summary (for example, death, transfer to another hospital, departure against medical advice, faster than expected clinical improvement, or election of hospice in lieu of continued treatment in the hospital). Remember that Medicare Advantage plans may not follow the Two-Midnight rule and instead may use MCG guidelines, InterQual®, or internal criteria.

3. KNOW “SLAM DUNK” MCG CRITERIA FOR TOP DIAGNOSES.

Most large private payers utilize MCG guidelines to determine medical necessity for hospital admissions. Those guidelines are complex and change every year, and it is not required for hospitalists to know them all. However, it might help to remember a few key inpatient admission criteria for the top 5 to 10 diagnoses, such as:

First episode of heart failure without prior history.
Upper gastrointestinal bleeding with liver cirrhosis, syncope, or orthostatic hypotension.
Pneumonia with documented hypoxia, outpatient treatment failure, pneumonia severity index (PSI) class 4 or 5, or CURB-65 score of 3 or greater.
Cellulitis with outpatient treatment failure or high-risk comorbid conditions (cirrhosis, symptomatic heart failure, immunosuppression, or HbA1c greater than 10%).

4. EACH DAY, DEFEND WHY THE PATIENT NEEDS TO BE IN THE HOSPITAL.

Don’t let your progress notes be swallowed by a “copy-forward” monster and instead provide daily updates, such as:

Up-to-date clinical status and response to interventions (for example, oxygenation or pain level).
Updated plan of care: current interventions, additional diagnostic workup, or changes to the intensity of care (for example, increased intravenous pain medication dose or frequency).
Why the patient cannot be safely discharged to a lower level of care (for example, a skilled nursing facility or home).

5. WORK WITH YOUR UTILIZATION REVIEW NURSES AND PHYSICIAN ADVISORS.

In the end, the two most powerful tools in combating clinical denials for hospital services are good medicine and clear documentation. Armed with an understanding of health care reimbursement and denial prevention, hospitalists can help their hospitals prevent unnecessary clinical denials and receive the reimbursements they deserve.”

Dr. Farah is a hospitalist, physician advisor, and Lean Six Sigma Black Belt. She is a performance improvement consultant based in Corvallis, Ore., and a member of The Hospitalist’s editorial advisory board.

References

1. LaPointe J. $262B of Total Hospital Charges in 2016 Initially Claim Denials. RevCycle Intelligence. 2017 June 26.

2. The Advisory Board. An ounce of prevention pays off: 90% of denials are preventable. 2014 Dec 11. [www.advisory.com/research/revenue-cycle-advancement-center/at-the-margins/2014/12/denials-management]

3. Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group. The Nation’s Health Dollar: Where It Came From, Where It Went. [www.cms.gov/files/document/nations-health-dollar-where-it-came-where-it-went.pdf]

4. National Association of Insurance Commissioners. 2018 Market Share Reports. [www.naic.org/prod_serv/MSR-HB-19.pdf]

5. Centers for Medicare & Medicaid Services. Transforming the Healthcare System through Competition and Innovation. 2019 Nov. [www.cms.gov/files/document/cms-financial-report-fiscal-year-2019.pdf]

6. Centers for Medicare & Medicaid Services. MS-DRG Classifications and Software. 2020 Oct. [www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software]

7. Centers for Medicare & Medicaid Services. HCPCS Coding Questions. 2020 Feb. [www.cms.gov/Medicare/Coding/MedHCPCSGenInfo/HCPCS_Coding_Questions]

8. Healthinsurance.org. Health insurance and Obamacare terms. [www.healthinsurance.org/glossary/denial-of-claim/]

9. The Advisory Board. Latest Trends in Hospital Revenue Cycle Performance. 2017. [mahamweb.org/images/meeting/112817/maham_2017__latest_trends_in_hospital_rev_cycle_performance_abc.pdf]

10. Centers for Medicare & Medicaid Services. Medicare Program Integrity Manual. Chapter 6: Medicare Contractor Medical Review Guidelines for Specific Services. 2020 July. [www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/pim83c06.pdf]

11. MCG Health. Industry-Leading Evidence-Based Care Guidelines. [www.mcg.com/care-guidelines/care-guidelines/]

12. Change Healthcare. What Is InterQual? [www.changehealthcare.com/solutions/clinical-decision-support/interqual]

Under a fee-for-service payment model, health care providers get paid by private and public payers for patient services such as physician visits, hospital stays, procedures, and tests. In an ideal world, providers would receive accurate, complete, and timely reimbursements. Unfortunately, the reality is far from ideal, where payment denials and delays are a common occurrence.

According to one study, out of $3 trillion in total claims submitted by health care organizations, an estimated 9% of charges ($262 billion), were initially denied.¹ The good news is that 90% of all denials are preventable, and two-thirds of those preventable denials can be successfully appealed.²

Hospitalists are essential in preventing denials for hospital services and should be familiar with the basics of health care reimbursement and common reasons for denials. In this article we will provide an overview of the U.S. health care payment system, revenue cycle management and types of denials, and focus on the role of physician advisors and hospitalists in preventing and combating denials.

Overview of the U.S. health care payment system

In 2018 alone, the U.S. spent $3.6 trillion on health care. Of those dollars, 33% went to payments for hospital care and 20% went to physician and clinical services.³ So where do the nation’s health care dollars come from?

The United States has a complex multiple-payer system that includes private insurance companies and public payers funded by the federal and state governments, such as Medicare and Medicaid. Per the National Association of Insurance Commissioners’ 2018 Market Share Reports, there are 125 private accident and health insurance companies in the U.S., with the top five – UnitedHealth, Kaiser, Anthem, Humana, and CVS – holding a cumulative market share of almost 40%.⁴

Medicare accounts for 15% of federal budget spending and provides insurance coverage to almost 60 million people who are 65 and older, have end-stage renal disease, or have been approved for Social Security disability insurance benefits.⁵ Medicare Part A covers hospital, skilled nursing facility, home health, and hospice care. For example, for inpatient stays, Medicare Part A pays hospitals a predetermined rate per discharge according to the Medicare Severity Diagnosis Related Groups (MS-DRGs), which are based on the principal and secondary diagnoses, and performed procedures.⁶

Medicare Part B covers physician services and outpatient services and supplies, including labs and durable medical equipment, which are paid based on submitted Healthcare Common Procedure Coding System (HCPCS) codes.⁷ It is important to know that hospital observation stays are considered outpatient services, and are paid by Medicare Part B. Outpatient stays often are reimbursed at a lower rate than inpatient admissions, even in cases with similar utilization of hospital resources.

Medicaid is jointly funded by the states and the federal government and offers insurance coverage to more than 75 million eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities. Over 10 million people are dually eligible for both Medicare and Medicaid.⁵ Increasingly, government payers, both state and federal, are contracting with private insurance companies to deliver Medicare and Medicaid services, also known as Medicare Advantage and Managed Medicaid Plans.

According to the U.S. Department of Treasury, in the 2019 fiscal year (October 2018 to September 2019), 33% of the nation’s health care dollars came from private insurance, 21% from Medicare, 16% from Medicaid, 15% from other government programs (for example, Veteran Affairs), 10% from out-of-pocket, and 4% from other private sources.⁵

Understanding revenue cycle management and denials

Providers, such as physicians or hospitals, submit claims to insurance companies that include, among other information, patient demographics and insurance, diagnoses, MS-DRGs and/or HCPCS codes, and charges. Revenue cycle management’s goal is to receive accurate, complete, and timely reimbursement for provided patient services, which is a complex and resource-intensive process.

According to the Healthcare Financial Management Association (HFMA), revenue cycle management includes “all administrative and clinical functions that contribute to the capture, management, and collection of patient service revenue.” These functions could be broken down into four main categories:

Claims preparation (for example, patient registration, insurance eligibility, benefit verifications, and preauthorization).
Claims submission (for example, charge capture, medical coding based on medical record documentation and claims transmission).
Claims management (for example, payment posting, denial management, and patient collections).
Reporting and analysis.

Claim denial is “the refusal of an insurance company or carrier to honor a request by an individual (or his or her provider) to pay for health care services obtained from a health care professional.”⁸ Payers can deny an entire claim or provide only a partial payment. Initial denial rate is tracked at the claim level (number of claims denied/number of claims submitted) and at the dollar level (total dollar amount of claims denied/total dollar amount of claims submitted).

Denials are classified as hard versus soft, and clinical versus technical or administrative:

Hard denials result in lost revenue unless successfully appealed (for example, lack of medical necessity).
Soft denials do not require appeal and may be paid if a provider corrects the claim or submits additional information (for example, missing or inaccurate patient information, and missing medical records).
Clinical denials are based on medical necessity, including level of care determination (for example, inpatient versus outpatient) and length of stay. They can be concurrent and retrospective and typically start as soft denials.
Technical or administrative denials are based on reasons other than clinical (for example, failure to preauthorize care or lack of benefits).

According to the Advisory Board’s 2017 survey of hospitals and health care systems, 50% of initial denials were technical/demographic errors, 20% medical necessity, 16% eligibility, and 14% authorization. Forty seven percent of those denials came from commercial payers, 33% from Medicare/Medicare Advantage, 17% from Medicaid, and 3% from other payers.⁹

Determination of medical necessity may vary by payer. As an example, let’s look at inpatient admissions. According to the Medicare Two-Midnight Rule, inpatient admission is appropriate “if the admitting practitioner expects the beneficiary to require medically necessary hospital care spanning two or more midnights, and such reasonable expectation is supported by the medical record documentation.”¹⁰

Medicare guidelines acknowledge that a physician’s decision to admit a patient is based on complex medical factors including, but not limited to:

The beneficiary history and comorbidities, and the severity of signs and symptoms (also known as Severity of Illness or SI).
Current medical needs (also known as Intensity of Service or IS).
The risk of an adverse event.

Generally, private payers do not follow the Two-Midnight Rule, and instead utilize evidence-based MCG guidelines,¹¹ InterQual® criteria¹² or internal criteria to determine if an inpatient admission is “medically necessary.” Hospital utilization review nurses often use MCG and/or InterQual® to aid admission status decisions and may request secondary review by a physician if medical necessity for an inpatient admission is not clear-cut.

The role of physician advisors

Considering the rising financial pressure and growing complexity of private and public payers’ rules and regulations, many hospitals turned to physician advisors to help prevent and reduce denials. Typically, physician advisors perform concurrent secondary reviews to help determine the most appropriate level of care, participate in peer-to-peer discussions with payers, and write formal appeals to overturn clinical denials.

“Physician advisors are generally not in the business of critiquing clinical practice, instead they review whether the chart documentation supports initial and continued hospitalization,” said Charles Locke, MD, senior physician advisor at the Johns Hopkins Hospital and president of the American College of Physician Advisors (ACPA). “However, physician advisors should seek additional information and provide feedback in those cases where the documentation does not support medical necessity for hospitalization.”

Many physician advisors are current or former hospitalists. Chris Shearer, MD, chief medical officer for remote advisory at Sound Physicians Advisory Services, says that “hospitalists are the natural physician advisors as they have a working knowledge of what patients need to be inpatients and which are less sick and likely to be discharged quickly.”

The role of physician advisors extends beyond reviews to include physician engagement and education. Physician advisors are a critical link between physicians, utilization review nurses, case managers, and clinical documentation integrity (CDI) and revenue cycle teams, and are increasingly involved in hospital-wide denial prevention efforts.

Physician advisors are invaluable in identifying and validating root causes for clinical denials and generating potential solutions, as they bring to the table:

Clinical expertise.
Understanding of clinical workflows.
Knowledge of the most current public and private payers’ regulations.
Insight into hospital-specific clinical documentation opportunities (for example, by diagnosis, procedure, service line, and provider).
Understanding of payers’ reasons for clinical denials through peer-to-peer discussions

The role of hospitalists in preventing clinical denials

I asked three experienced physician advisors – Dr. Locke, Dr. Shearer, and Deepak Pahuja, MD, chief medical officer at Aerolib Healthcare Solutions – what hospitalists can do to prevent clinical denials. The experts had the following five recommendations:

1. “THINK IN INK.”

The best tool in combating denials is well-documented clinical judgment that outlines:

WHY the patient requires hospitalization, based on severity of presenting signs and symptoms, comorbidities, and risk of complications.
WHAT the plan of care is, including diagnostic tests and/or interventions.
HOW LONG you anticipate the patient will be in the hospital, including potential implications of social determinants (for example homelessness, active drug use) on discharge planning.

2. MASTER THE TWO-MIDNIGHT RULE.

If you expect that a Medicare Part A patient will require two or more midnights in the hospital, document it in the history and physical along with supporting clinical reasoning and sign an inpatient order. If the patient is discharged prior to the second midnight, document the reason in the progress notes and the discharge summary (for example, death, transfer to another hospital, departure against medical advice, faster than expected clinical improvement, or election of hospice in lieu of continued treatment in the hospital). Remember that Medicare Advantage plans may not follow the Two-Midnight rule and instead may use MCG guidelines, InterQual®, or internal criteria.

3. KNOW “SLAM DUNK” MCG CRITERIA FOR TOP DIAGNOSES.

Most large private payers utilize MCG guidelines to determine medical necessity for hospital admissions. Those guidelines are complex and change every year, and it is not required for hospitalists to know them all. However, it might help to remember a few key inpatient admission criteria for the top 5 to 10 diagnoses, such as:

First episode of heart failure without prior history.
Upper gastrointestinal bleeding with liver cirrhosis, syncope, or orthostatic hypotension.
Pneumonia with documented hypoxia, outpatient treatment failure, pneumonia severity index (PSI) class 4 or 5, or CURB-65 score of 3 or greater.
Cellulitis with outpatient treatment failure or high-risk comorbid conditions (cirrhosis, symptomatic heart failure, immunosuppression, or HbA1c greater than 10%).

4. EACH DAY, DEFEND WHY THE PATIENT NEEDS TO BE IN THE HOSPITAL.

Don’t let your progress notes be swallowed by a “copy-forward” monster and instead provide daily updates, such as:

Up-to-date clinical status and response to interventions (for example, oxygenation or pain level).
Updated plan of care: current interventions, additional diagnostic workup, or changes to the intensity of care (for example, increased intravenous pain medication dose or frequency).
Why the patient cannot be safely discharged to a lower level of care (for example, a skilled nursing facility or home).

5. WORK WITH YOUR UTILIZATION REVIEW NURSES AND PHYSICIAN ADVISORS.

In the end, the two most powerful tools in combating clinical denials for hospital services are good medicine and clear documentation. Armed with an understanding of health care reimbursement and denial prevention, hospitalists can help their hospitals prevent unnecessary clinical denials and receive the reimbursements they deserve.”

Dr. Farah is a hospitalist, physician advisor, and Lean Six Sigma Black Belt. She is a performance improvement consultant based in Corvallis, Ore., and a member of The Hospitalist’s editorial advisory board.

References

1. LaPointe J. $262B of Total Hospital Charges in 2016 Initially Claim Denials. RevCycle Intelligence. 2017 June 26.

2. The Advisory Board. An ounce of prevention pays off: 90% of denials are preventable. 2014 Dec 11. [www.advisory.com/research/revenue-cycle-advancement-center/at-the-margins/2014/12/denials-management]

3. Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group. The Nation’s Health Dollar: Where It Came From, Where It Went. [www.cms.gov/files/document/nations-health-dollar-where-it-came-where-it-went.pdf]

4. National Association of Insurance Commissioners. 2018 Market Share Reports. [www.naic.org/prod_serv/MSR-HB-19.pdf]

5. Centers for Medicare & Medicaid Services. Transforming the Healthcare System through Competition and Innovation. 2019 Nov. [www.cms.gov/files/document/cms-financial-report-fiscal-year-2019.pdf]

6. Centers for Medicare & Medicaid Services. MS-DRG Classifications and Software. 2020 Oct. [www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software]

7. Centers for Medicare & Medicaid Services. HCPCS Coding Questions. 2020 Feb. [www.cms.gov/Medicare/Coding/MedHCPCSGenInfo/HCPCS_Coding_Questions]

8. Healthinsurance.org. Health insurance and Obamacare terms. [www.healthinsurance.org/glossary/denial-of-claim/]

9. The Advisory Board. Latest Trends in Hospital Revenue Cycle Performance. 2017. [mahamweb.org/images/meeting/112817/maham_2017__latest_trends_in_hospital_rev_cycle_performance_abc.pdf]

10. Centers for Medicare & Medicaid Services. Medicare Program Integrity Manual. Chapter 6: Medicare Contractor Medical Review Guidelines for Specific Services. 2020 July. [www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/pim83c06.pdf]

11. MCG Health. Industry-Leading Evidence-Based Care Guidelines. [www.mcg.com/care-guidelines/care-guidelines/]

12. Change Healthcare. What Is InterQual? [www.changehealthcare.com/solutions/clinical-decision-support/interqual]