Five Reasons Health Plans Make Payment Errors

It’s Complicated

When the health plan says a claim is lost or they send an incorrect payment, providers often feel like victims of an evil plot. In trying to decipher health plan motives, it may be helpful to consider the scale and complexity of their operations.

1. So Many Codes
   Health plans must have claims processing systems which can accommodate over 70,000 ICD-10 procedure codes and over 69,000 ICD-10 diagnosis codes. Add to that the over 10,000 CPT codes used for professional billing, and the fact that those codes are not static. In 2020, there were 248 new CPT codes added, 71 codes deleted, and 75 codes revised. Those 394 changes all had to be incorporated into each health plan’s claims processing system and cross referenced with all of their contractually defined payment rules.
2. 20th Century Automation
   While it’s true that automation goes a long way toward enabling management of this complexity, it’s important to recognize some constraints on the payer side. Health plans invest enormous resources in their claims processing infrastructure, which means replacing those systems with the latest technology is both expensive and extremely complex.  Most of today’s health plans exist as the result of multiple mergers and acquisitions.  As a result, some still have different claims platforms in different geographies or for different lines of business.  These legacy systems each have their own set of quirks that makes it virtually impossible to implement the exact same set of payment rules across all systems.
3. Complexity of Provider Contracts
   Yet another issue for health plans is the variation in their contracts with providers.  Most health plans establish a single conversion factor for all providers in a geographic area and payments are calculated using standard RVU methodology.  This is referred to as the “community fee schedule.”  When an individual provider group negotiates a deal that is not the community fee schedule, it drives significant complexity for payers. Every time there is a modification in coding rules, that change has to be applied and tested across all fee schedules to make sure it processes claims as intended.  Just as with providers, compliance with regulatory changes sometimes require manual workarounds that add yet another layer of complexity to the process.
4. The Impact of Benefit Design 
   The last decade has also seen a dramatic rise in high deductible health plans. Since timing of claims submissions from various providers does not necessarily align with the timing of the services delivered, it’s almost impossible to know in real time where a patient is relative to their annual deductible. While this is hugely problematic for providers (and patients) from both an administrative and cashflow perspective, even health plans with the best infrastructure to track claims and payments are faced with this same challenge around timing. 
5. Too Many Claims
   On top of all of these layers of complexity payers have the added challenge of volume. Consider a hypothetical health plan that has one million members. Based on Health Costs Institute reporting, the average American generates about 18 claims per year for health care services. That translates into almost 50,000 claims per day for our hypothetical payor. Even if you assume a 99 percent accuracy rate for processing those claims, that means there are about 500 claims per day (182,500 per year) that have errors. 

It Can Get Better

Clearly there is reason for providers to be frustrated and concerned about insurers’ ability to make payments that are both accurate and timely.  That said, providers need not be concerned that they are being individually targeted by health plans. Given the volume and complexity of claims processing, from the payer’s perspective picking on an individual provider would be the equivalent of finding the proverbial needle in a haystack. That said, providers can take action to improve the situation. For example, validating changes to fee schedules and maintaining open lines of communication with payors can help identify and correct errors before they become a problem.

For those that haven’t already done so, it’s also worth considering use of a Revenue Cycle Management (RCM) service.  Given the complexity, volume, and fluctuations in claims processing, a reliable RCM partner is well positioned to keep up with the requirements of each health plan in order to reduce denials and errors, and ensure timely, accurate payments.  

For more information about NextGen® RCM Services, please visit our webpage.