Getting Claims Paid Right: Payer Repricing Programs Use 50 Non-Code Variables

There you are, thinking that “130% of Medicare” always pays more than “120% of Medicare.” And believing that fee schedules tell you what you should be paid for each CPT code. How wrong you are!

There are dozens of non-code factors that commercial and governmental payers use to set payment rates for physicians, says James Rubin, M.D., CEO of Medical Present Value (MPV), a San Antonio-based claims analysis service and software company. Differences among insurance companies in how they use those factors can and frequently do exceed the value of a moderate differential like “10% of Medicare,” he says. (For legal efforts to force disclosure of payer pricing factors, see article, p. 8).

Payers’ pricing routines — or more precisely, the “repricing” programs that insurers use to discount the gross charge, fee-for-service claims submitted by physicians and other providers — differ not only between insurers such as Aetna and Cigna, Rubin notes. They also differ, he says, between products offered by the same insurer, such as Aetna’s PPO and point-of-service offerings; between regions and markets in which the same product is offered; between providers participating in the same product in a market or region; and even between different departments of large multi-specialty groups.

Rubin says most payers use “nearly 50” factors, in addition to CPT and HCPCS procedure codes and codes that vary prices according to region or market, in repricing/ discounting routines. The factors used — and the formulas for using them — differ from payer to payer and contract to contract. Some factors, like average wholesale prices (AWP) for oncology drugs, change as often as daily. “We don’t look at payers,” he says. “We look at contracts.”

There are simple claims that can be figured just from the fee schedule, he notes. But to set discounts on large numbers of claims involving many physicians in a multi-specialty practice, he says, an insurer will use all or nearly all its non-code factors.

He lists the following major categories of repricing factors:

* Bundling edits.

* Place-of-service differentials.

* Provider-type differentials.

* Different dollar conversion factors based on range of CPT code.

* AWP for prescription drugs.

* Multiple-surgery price reduction factors.

* Geographic adjustors for Medicare-based contracts.

* Local medical review policies used by Medicare contractors and commercial payers.

* Methods to handle procedures not covered by CPT/ HCPCS codes.

* Modifiers of several kinds.

Payers in special programs, such as workers’ compensation, Medicaid and Medicare, also have separate non-code factors, and these differ state to state and contract to contract as well, he notes.

Trying to Figure His Own Claims

Rubin’s odyssey from full-time anesthesiologist to full-time “computer guy” and pricing analyst began seven years ago in his own practice, when he tried to find out exactly how claims were discounted. And he wanted to analyze whether contracts were profitable. “What [were the precise terms] I sign[ed] up for? What does ‘120% of Medicare’ really mean?”

Gradually he discovered the complexity of the repricing world. “I could get [payer personnel] to give me generic answers, but not precise answers,” Rubin recalls.

Along the way, he learned that he needed a team of contract analysts, mainly former payer claims adjudication and repricing people. “They understand what the contracts are really saying,” he says.

Even more important, he adds, they know the insurance language in which to work with payers to flush out inconsistencies between their contracts and their claims processing.

“We have analyzed thousands of contracts,” Rubin says. “None of them fully disclose” the non-code pricing factors. In general, the contracts authorize payers to develop and use these factors.

To analyze some payments, simply reading the contract and getting lists of non-code factors and formulas will not fully explain the final price paid. In such instances, MPV analysts “reverse engineer” the discounts, Rubin says. They start with the price and work backwards to determine precisely how it was figured.

Software Mimics Repricing Formulas

MPV applies its Phynance[TM] service to payer repricing mechanisms. The clients are mainly medical groups in Texas, generally with 20 physicians and more, including single- and multi-specialty and academic groups. Its other clients are CMS and commercial payers that want to bring their pricing results closer to their contracts.

Rubin says the techniques are usable across the country. The firm recently raised $14 million in investor capital and is rolling out its services nationwide.

For medical groups, the Phynance service has three main uses:

(1) Before claims are submitted to payers, they’re transmitted to MPV to find “contract level problems” consistently appearing in the bills created by the group’s practice management software. The software at MPV that a group’s claims go through is programmed to mimic the repricing routines that apply to the particular practice, Rubin says, except that where payers or providers are using the wrong variables, parameters or formulas, MPV alerts the client to the problem.

(2) After reimbursement is received, payments go through MPV’s software again to determine whether they are correct and explain errors at the line-item level.

(3) When analyzing the profitability of contracts, Phynance shows with precision what the revenue side is likely to be, Rubin says.

MPV finds both under- and overpayments. Finding overpayments is useful, he notes, to assure compliance with Medicare and commercial payer policies. But the large majority of errors are underpayments and, as a result, practices make money running these routines.

“On average our clients are experiencing about a 5% increase in revenues” from post-payment review, Rubin claims — about $2.5 million for a fairly large group with $50 million in annual collections. MPV’s analysis has the contract-level precision to tightly focus discussions with payers, he asserts.

The firm produced similar results in a study it conducted for the Texas Medical Association to quantify the underpayment problem. Running unidentified client data, MPV discovered, according to Rubin, that:

* One of five claims was valued by payers below the contracted amount.

* The amounts of these underpayments averaged 5% of a practice’s net collected revenue.

* Many of these problems involve claims with multiple line items billed per claim, especially those for surgical and other specialty procedures.

Medical groups pay MPV for Phynance in two ways, Rubin says. First, they pay a contract definition or modeling fee upfront for analysis and programming to match the repricing routines to which the group’s claims are subject. Second, they pay a monthly subscription fee to run their pre- and post-payment claims through MPV, and to perform contract financial analysis.

The fees vary widely. Contract modeling runs from $40,000 to $100,000, and the subscription runs from $5,000 to about $80,000 per month, says Michael Mott, marketing director.

Three key variables that determine the fees for a given client are the amounts of the group’s revenue flows, how the client uses the service, and the payer contracts the client has.

If the client has a large number of contracts, or the contracts are especially complex, Mott explains, MPV’s task increases, but so does the client’s financial return from underpayments. The firm strives to achieve returns for clients of three, four or five dollars for each dollar paid to MPV, he says.

(The second part of this article, looking at the possibilities of bridging the provider-payer divide on payment methodology, will appear in the August PCR.)

For more information, contact Rubin at (210) 582-6300 or

COPYRIGHT 2002 Atlantic Information Services, Inc.

COPYRIGHT 2003 Gale Group

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