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EDITOR’S NOTE: During a recent Talk Ten Tuesday broadcast, listeners were asked “what percent of your claims are downgraded by third-party payers?” Downgrading by third-party payers occurs when the hospital-billed DRG is changed upon review by health insurance auditors to a lower-paying DRG. The majority of those who responded, over 51 percent, indicated they did not know the extent of the problem at their facility. Braccili responds

A common industry standard among business office operations around the country is the routine calculation of each patient accounts’ Expected Reimbursement Amount, or ERA. Expected Reimbursement Amount is automatically calculated and stored by the hospitals’ contract management system for each patient visit.

ERA is calculated based on the following patient information:

  • Specific insurance plan code as recorded in the system at the time of registration
  • Diagnoses and procedure codes entered by health information management coding professionals at or shortly after discharge
  • Charge codes entered by ancillary departments throughout the patient’s visit or stay, often expressed in terms of CPT or HCPCS codes
  • Contract terms loaded in the hospital’s contract management system which are specific to every individual payer contracting with the healthcare provider

Not only does every individual payer reimburse a different amount to the provider for the very same services provided to any given patient—depending on the patients’ employer-provided group health plan or type of coverage plan purchased by the subscriber—but every individual payer similarly reimburses every specific provider a different amount for the very same services provided by a different provider. 

This head-spinning reimbursement variation is the function of rates agreed to between the provider and the payer at the negotiating table.

Therefore, it is very important, albeit complex and challenging, for hospitals to calculate precisely the amount expected for every individual case billed. 

Expected reimbursement amounts are most often calculated by the contract management system at the time of final claim creation—but prior to claim submission to the payer, usually three to four days after discharge. 

Today, all hospitals receive resulting payments from third-party insurance payers electronically by way of the ANSI 835 remittance file. This file of payments is uploaded or automatically posted to the hospital patient accounting system such that every individual patient account is updated with the following information:

  • The exact amount paid by the payer
  • A reason code for any underpayment or denial explaining the payers’ reason for underpaying or denying the claim
  • The amount the payer estimates is owed by the patient in the form of deductibles copayment or co-insurance amounts

Generally, patient accounting systems will produce payment variance reports or payment variance collector work queues one day after the posting of the third-party payment. These payment variance reports or work queues compare the expected reimbursement amount ERA calculated at the time of billing against the actual payment amount received from the third-party insurance payer—identifying cases where the payment amount received was less than the amount expected. It is critical for patient accounting professionals to review and track down the reason for every underpayment to ensure full reimbursement for services provided. 

Underpayments resulting from clinical issues are referred to the appropriate clinical department for analysis, opinion, and recommendation. The level-of-care and medical necessity underpayment reasons are referred to the case management department for review. On the other hand, underpayments resulting from diagnosis or procedure coding changes made by the payer are best referred to certified coding professionals within the health information management department. These are the very cases involving DRG downgrading. 

If the result of the coder review is to disagree with the payer’s determination, the hospital should file an appeal with the payer following the formal appeal instructions present in every payer/provider contract. If after exhausting all levels of appeal allowed for within the terms of the contract the hospital, as a matter of policy, surrenders the case, the resulting dollars lost are written off to a unique write-off code describing the reason for the write-off or loss. For purposes of our discussion the write-off code description might be described as “Loss Due to DRG Downgrade by Payer.”

These write-off codes are then used by information systems professionals to generate meaningful statistical reports including the following:

  • Downgraded Cases by Specific Payer (to see if one payer’s rate of downgrading far exceeds that of other payers)
  • Downgraded Cases by Specific DRG (to see if the trend of downgraded cases is specialty- or even physician-specific)
  • Downgraded Cases by Specific Coder (to see if there is a need for specific Coder intervention or education)
  • Downgraded Cases for Specific Periods of Time (to look for trends over time—either positive or negative) 

In conclusion, healthcare providers should never surrender reimbursement if coding is accurate and in accordance with coding clinic guidelines—followed by all ethical and diligent certified coding professionals.

Savvy patient accounting leaders would do well to avail themselves of all levels of appeal allowed for in the payer/provider contract and to arbitrate or mediate in accordance with those contract terms. 

Finally, as some payers will deny all appeals without regard to acceptable standard coding guidelines, be ready to litigate against payers in order to get the reimbursement you so rightfully deserve. Know that payers do not want to spend money on hourly attorney fees which are usually unbudgeted. This insight gives the provider the upper hand when litigating these cases, as provider-contracted collection attorneys are more than willing to take these cases on a contingency basis—the provider only pays the attorney if the attorney is successful recovering funds on behalf of the provider.

It is for this reason that, at minimum, payers are likely to settle with providers rather than go the distance to trial.

What a shame it is and what a sad state of affairs when providers must go to these extreme lengths in order to be rightfully paid for services provided in good faith.

But the good news is if you fight the good fight, payers will come to know which providers are pushovers and which are not to be messed with!


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