A History Lesson on Insurance and the Importance of Data Analysis

Almost every medical practice feels helpless against the big, bad insurance companies—at least from time to time. Over the past 30 years, we’ve watched the insurance industry take control of nearly all healthcare spending in the United States, even as it quite successfully deflected any responsibility for medical inflation to the providers.

The public and government officials have clearly considered voracious hospitals, greedy doctors, and sociopathic medical device and pharmaceutical companies to be the real villains in our “badly broken healthcare system” for a very long time. The best lies, they say, contain at least a modicum of truth, and self-interested providers and corporations have clearly contributed to the problems in our current system. But there’s plenty of blame to go around when trying to figure out who’s responsible for our much-maligned way of delivering care in America.

A Little History Lesson

When I first began my own career in medical group administration back in the 1980s, billing and collecting medical accounts barely resembled today’s more sophisticated “revenue cycle management.” Consider these typical medical practice billing features from those days:

• A large number of patients received bills from us and sought reimbursement from their insurance carriers. They might bring in a proprietary claim form (the HCFA-1500—later renamed CMS-1500—was not universally accepted yet) and ask for assistance or physician signatures.

• Most practices smaller than five or six doctors didn’t use computers for billing at all. One very popular paper system, called One-Write, used a pegboard system and multiple carbon copies. The receptionist or biller (often the same person) could simultaneously make charge entries on the superbill, the “day sheet,” and the ledger card with one stroke of the pen. (By the way, the term “superbill” came from the standard procedure of attaching the office charge slip on top of an insurance carrier’s claim form.)

• Staffers had to take the information from the charge slips (office notes and other documentation) and type each claim form by hand—if the office even offered that service!

• Even if the doctor’s office processed the claim form, the payment often went directly to the patient (or insurance subscriber), leaving the practice with the responsibility to collect it from the patient.

Accepting Assignment

Somewhere along the line, someone came up with the idea of collecting payments directly from the insurance company. It was a reasonable idea meant to speed up the collection process. (Remember that top-performing medical practices back then aimed at getting average days in accounts receivable [A/R] down to 90 or 100 days!)

Since insurance contracts were directly between the carrier and the subscriber, it required the subscriber to assign benefit payments to the provider—that is, to authorize the insurance company to pay the provider directly. Somewhere along the line people began (erroneously) using the term “accept assignment” to refer to accepting insurance payment as payment-in-full, but it really meant that the provider agreed to cooperate to accept payment directly from the insurer.

But at What Cost?

This turn of events started a major shift in the way patients understood medical billing. Getting maximum reimbursement from the insurance company became the provider’s problem. Insurance company explanations of benefits proclaimed provider charges to be excessive (above “usual, reasonable, and customary”), and patients took the payers’ word for it. They began increasingly to resent those greedy doctors who overcharge for their services.

Practice overhead began its precipitous rise as doctors had to hire billing staff, pay for claims processing, and develop strategies for collecting residual balances from patients. Billing automation began to develop rapidly, and various third-party revenue cycle services were born.

After a more-or-less disastrous run, prepaid healthcare (a la HMOs) gave way to a new model, often referred to as “preferred provider organizations” (PPOs). The PPO strategy was basically two-pronged. It approached subscribers (usually large employers) with a promise to lower their premiums by negotiating lower prices for healthcare from a select few providers. At the same time, it approached providers with a promise to bring large groups of patients if they would agree to a discounted fee schedule.

Thus economic control began shifting away from patients and providers toward payers. Eventually the American insurance industry (including government payers) had a firm hold on the purse strings. Doctors and hospitals signed some incredibly lopsided contracts with payers out of fear that they would lose patients to competing providers. And we all learned the truth behind the “alternative” version of the Golden Rule: “Him what’s got the gold makes the rules!”

From that point forward, we in the provider community began to feel overpowered by the health insurance industry—until most doctors feel virtually helpless up against the multibillion-dollar powerhouses. Reimbursement remains flat or declining, while overhead continues to rise along with economic inflation.

Even more maddening, physicians and their staff members struggle with seemingly capricious (or even malicious) processes at the insurance companies they deal with. It feels like the insurance companies simply don’t have to keep their end of the bargain. They delay, down-code, and deny payments regularly. They demand documentary proof of medical necessity. They operate like economic bullies.

The End of Private Practice?

These helpless feelings are a major part of what’s driving the current exodus of doctors from private practice to hospital and health-system employment. Frustration with the current healthcare financing system has also motivated more independent-minded physicians to “unplug” from the system to set up direct-pay (so-called “concierge”) practices.

In the direct-pay model, the physicians no longer accept assigned benefits. They don’t bill insurance. They don’t sign any provider agreements. Patients pay their own bills, and it’s up to them to seek reimbursement from their insurance carriers. The practice can reduce staff (no billing department) and reduce office size, and the physicians can maintain (or grow) their incomes with far fewer patients. The patients get more time and more personal attention from the physicians.

Any Other Options?

What if you don’t like the idea of selling the practice and joining the herd going up the gangway two-by-two into the hospital ark? How can you maintain economically healthy independence without dismantling your traditional practice and reinventing your office as a direct-pay boutique? Is there another path in between?

The August 2014 issue of Medical Group Management Association’s Connection magazine featured a practice profile piece describing one medical group’s successful confrontation with one of these economic bullies.(1) Like most providers, this group faced payers who treated its repeated requests for meetings with indifference. The administrator had gathered clear evidence demonstrating the payer’s errors and poor claims payment performance, but requests for meetings continued to go unanswered.

Some payer representatives showed some interest in the solid data the practice presented—data that demonstrated the patterns of errors, unwarranted claim rejections, and contractual violations. But it was clear that nothing was going to change. Of course, there is great financial incentive to allow errors to continue: correcting the problems would hurt the payer’s cash flow.

The payer resisted all efforts to improve the situation. It refused to consider contract revisions proposed by the practice, and the medical practice felt it simply couldn’t afford to walk away from this major payer group representing a large part of its patient base.

After being rebuffed repeatedly, the practice reached out to the state’s Department of Insurance (DOI) and to the state medical society to increase the leverage needed to get the payer’s attention. The medical society brought some legal horsepower to the equation in the form of an attorney well experienced in payer issues.

Better-performing practices don’t simply roll over for the “big guys.”

The DOI was willing to get involved because the practice could clearly demonstrate that:

• Payers were not meeting terms in their own contracts.

• Payers were systematically rejecting claims inappropriately.

• Payers ignored the provider’s communications and data demonstrating the issues in question.

In the end, the medical practice spent tens of thousands of dollars building and arguing its case, but the results were spectacular. Along with a six-figure settlement, the practice won a whole new level of performance by the payer. Average days in A/R dropped from 182 to 41 inside a year’s time. The outstanding 120-day A/R was reduced by 92%.

Better-performing practices don’t simply roll over for the “big guys” who throw their weight around. They have a clear command of their own practice data and have the diligence and drive to stand up and say “Enough!”

Reference

1. Waress B. Strength in numbers: MGMA member turns the tide in payer-provider struggle. MGMA Connection. August 2014:34.