October 11, 2018

Are Medicare Advantage Plans Creating Excessive Denials?

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MAs are taking advantage of excessive denials to reduce payments to providers.

The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) recently found that between 2014 and 2016, a total of 75 percent of all appealed Medicare Advantage (MAs) denials were overturned, equivalent to roughly 216,000 denials a year. I think the actual number of overturned denials is not really the issue, as 216,000 denials represents a very small sliver of all paid claims.

The issue really is the number of claims that were denied and not appealed. I would argue that only claims that a well-funded and organized provider felt strongly about were appealed. I don’t think it means that 75 percent of all denials were incorrect. Even with that said, I think that MA plans are taking advantage of excessive denials to reduce payments to providers.

Payors deny claims for the same reason a man claimed he could teach a horse to sing, in one of my favorite parables. The story goes that in a kingdom long ago, the king sentenced a man to death. The man says, “wait, your highness, if you spare me, I will teach your horse to sing.” The king agrees to his terms. As he is being led away, one of the king’s guards asks him why he said he could do something that was impossible. The sentenced man said, “well, it will take a year to teach the horse to sing. In a year, one of three things could happen: the king may die, I may die, or the horse might really learn to sing.”

If a payor denies a claim, at the very least, the payor has delayed paying the claim. If the payor is lucky, the provider will lack the organizational wherewithal to appeal. The worst-case scenario for the payor is that the denial will eventually be overturned on appeal. The payor already has an appeals department, and the incremental cost of responding to an appeal is low. The reduction in cost to payors for not having to pay for denied claims (and claims for which the appeals do not succeed) outweighs the payments for successful appeals and payor staffing costs. In other words, for payors, denying claims is a goldmine.

In terms of denials, it is kind of like baseball. The more heavily funded teams can pay for the best players and get the best results. Providers with weak revenue cycle departments will not file appeals because they just do not have the trained staff to handle it. These providers get less reimbursement on claims, making it harder to pay staff. It can start a downward spiral that causes providers to fail.

MA plans also not long ago suddenly started to argue that they could use the same rules and had the same rights as Medicare in appealing underpayments. Several years ago, in lock-step, MA plans began to claim that Medicare’s requirement that underpayments be appealed no later than 120 days after the date a claim was paid also applied to MA plan payments. The real problem with this has to do with add-on payments, such as Disproportionate Share Hospital (DSH) payments, which are adjusted by Medicare as a result of cost report settlements.

I had a large client in the Midwest that failed to get paid by a MA plan for DSH payments for 18 months. When we filed a request for adjustment of the payments, Humana argued that the provider only had 120 days from the date of the underpayment to request relief. On the Medicare cost report, DSH was properly paid, based on computed factors.

In the case of MA, we also see a huge number of “downcoded” claims that end up in the appeals bucket. MA plans systematically pay certain inpatient claims as lower-cost outpatient services and reduce the payment of other inpatient claims to lower-DRG codes. Prime hospitals in California, Nevada, New Jersey, Michigan, and Texas recently were allowed to jointly sue Humana outside the appeals process for decreasing claim payments based on medical necessity concerns, or downcoding services to pay a lower rate. Again, many MA plans argue that the provider only has 120 days from the date the claim was paid to appeal downcoding.

But really, in the case of Medicare Advantage, it goes a little deeper. I was recently at a hearing with a client and the Florida Office of Inspector General. The client felt that they could win the case, and then the Florida Attorney General (AG) dropped a bombshell. The AG told my client that prior small settlements of denied claims amounted to chronic fraud. The fact that the client had not fought denied claims in the past meant that they had become a habitual offender, and treble damages would be assessed if the AG won its case. Under this threat, my client folded, paying the demanded overpayment plus court costs. In the case of Medicare Advantage denials, this means that denied claims could become a False Claim Act issue, as MA payments to providers by payors are covered under the Act.

First, and as always, look at your denied claims from all MA plans. If you do not have enough staff to properly work your claims, then consider outsourcing them to a good company. Look at your MA contracts and your “out-of-contract” MA claims. If your contract or payment is based on Medicare, make sure that the add-on payments and rates are properly applied. If there are underpayments, then make sure you appeal them within 120 days of receiving payments. Look at root causes for denied claims. If the denials seem to be arbitrary, consider setting a meeting with the MA plan.

 

Timothy Powell, CPA CHCP

Timothy Powell is a nationally recognized expert on regulatory matters, including the False Claims Act, Zone Program Integrity Contractor (ZPIC) audits, and U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) compliance. He is a member of the RACmonitor editorial board and a national correspondent for Monitor Mondays.

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