Overpayment Solutions Require Multipayer Data, Payer/Provider Collaboration

For health care providers and payers, investigating and resolving overpayment issues is costly. Solving health care claims overpayments takes leveraging technology across multiple payers and the collaborative effort of payors and providers, according to Terry Cameron, Senior Vice President of Payment Integrity Services at Emdeon. Focusing on prepayment solutions and educating providers to prevent overpayments from occurring in the first place is much more effective than following the current pay and chase method, Cameron said. “Providers need to know how to bill, when to bill, and what is appropriate billing from health care plan to health care plan.” Working for a vendor that moves claims from providers to payers, Cameron has had first hand experience monitoring claims, accurately identifying aberrant claims by using more effective data models across multiple payers, communicating problems, and educating payers and providers. Cameron presented approaches for solving claim overpayments based on his knowledge at a webinar sponsored by the Health Care Compliance Association (HCCA) on Monday, November 18, 2013.

Problems with Current Processes for Overpayment Identification

“Overpayments are a cause of significant lost and delayed revenue,” Cameron explained. Between $68 and $226 billion is lost annually to fraud, waste, and abuse in the health care industry, with abuse accounting for about 10 percent of health care spending.  Although the pay and chase postpayment recovery model will continue to be implemented because an HHS ruling states that only fraud program recovery costs can apply to medical loss ratio rates, and the Recovery Audit Contractor program identifies and corrects improper payments that have been made on claims, these processes do not serve the overall problem well, Cameron stated.  Payers are applying payer-centric models to a provider-centric problem and are not leveraging technology on prepayment claims or using multiple payer data.  The current processes do not identify provider aberrancies accurately, missing some and identifying others that might not constitute fraud or abuse when seen in the bigger picture of multiple payers. Rather than applying to the 20 percent of providers whose practices may be considered fraudulent or abusive, all providers have the potential of being impacted in some way under the current methods. Simplifying the process and use of similar payment rules by multiple payers would result in faster processing of claims and improvement in the revenue cycle.

Approaches to Solving Claims Overpayments

Cameron recommends that providers integrate fraud, waste, and abuse analytics into their workflow and monitor claims submissions. In addition, providers should score risks identified in their networks and proactively reduce risks through appropriate interventions.  Although health plans are investing money in technology to identify and prevent overpayments, the investments “have not produced the returns promised or expected,” Cameron said. He stressed that health plans should leverage technology to prevent overpayments in the first place with prepayment review and augment postpayment recovery approaches with prepayment solutions. “A strategy that includes claims scoring predictive analytics and rules-based detection technologies is vital for today’s health plans,” he added. Moreover, payers must have an adequate and trained staff to manage the solutions.

Cameron suggested a multi-payer data approach to identifying overpayments and outlier claims, explaining that more value is offered when health plans can trace a doctor’s billing patterns across multiple payers. By looking at multipayer databases and across providers, it is easier to identify providers with aberrant patterns and score them on the level of risk of fraud, Cameron added.  Not all outliers are fraud; there might be a good reason for the aberrant pattern. If the pattern is aberrant but not fraud, the payer can educate the provider and provide an opportunity for the provider to make changes, Cameron explained. Health plans also can implement analytic technologies that combine predictive, data-driven, integrated code edits, and clinical aberrancy rules to identify claim outliers at the time a claim is adjudication, Cameron said. “These data-driven analytical solutions examine hundreds of variables and can detect unknown and emerging patterns and can rank each claim to determine the measure of risk it represents.”


Milliman Updates Analysis of Medicaid HMO Profitability

For the fifth consecutive year, Milliman Research  has issued an analysis of the financial performance of Medicaid managed care organizations (MCOs). Authors Jeremy Palmer  and Christopher Pettit have compared the performance of 162 Medicaid MCOs in 32 states. Although there was not enough data for them to include California and Arizona, they did cover multiple regions of the country. The review was limited to MCOs that reported at least $10 million in 2012, so it did not include some MCOs owned by large nationwide organizations.

Measuring Profitability

Palmer and Pettit used the medical loss ratio and administrative loss ratio to measure profitability. Medical loss ratio (MLR) is a fraction in which the numerator is the amount paid for claims or saved for payment of future claims and the denominator is all premium revenue. The administrative loss ratio (ALR) is the percentage of revenue spent on administration. The MLR and ALR are subtracted from 100 percent, and the remaining percentage is the profit from operations, called the underwriting ratio. (Investment income is disregarded for this purpose.)

Making Comparisons

Palmer and Pettit then compared the MCOs in several different ways, grouping them by revenue, affiliation with a larger  organization, financial structure, i.e., not-for-profit or profit-making, as well as  geographically. Each company’s MLR, ALR, or underwriting ratio was ranked by percentile; the figures presented were  the mean and the 25th, 50th and 75th percentile for each variable. The individual scores of MCOs were not identified.

The MCOs were grouped by capitated payments per member per month (PMPM), from $225 or less, $226 to $300, and more than $300. Not surprisingly, the MCOs that received higher PMPM payments spent more on claims. The average MLR for the lowest paid group was 86.5 percent, while the highest paid group’s MLR was 88.4 percent.

Affiliation Status

Although some people would hypothesize that economies of scale would reduce an MCO’s ALR, that was not the result. There were 35 independent MCOs and 127 were affiliated with larger organizations. In actuality, the independent organizations both had higher MLRs (89.3 vs 87.7 percent) and lower ALRs than the affiliates (10.4 percent compared to 11.5 percent). The affiliates had a higher percentage left over after MLR and ALR were subtracted, 0.8 percent compared to 0.3 percent.

Profit Status

The loss ratios of an MCO may reflect the purposes inherent in its financial structure. The for-profit MCOs had lower MLRs and higher ALRs than the not-for-profits; in other words, they spent comparatively less on health care and more on administration. The not-for-profits had a lower percentage of revenue remaining after ALR and MLR were subtracted from revenue, but they retained more capital than the for-profits, perhaps because they have no need to pay dividends to shareholders and are free to save for other projects.

State of Operation

The breakdown of statewide averages showed that all but two states had average MLRs over 80 percent, and 23 states’ MLRs exceeded 85 percent. Illinois MCOs had the lowest average MLR, 75.1 percent, and the highest ALR, 17.5 percent. Nevada’s MCOs averaged 77.0 percent devoted to health care and 12.8 percent to administration, and had the underwriting ratio, the profit from operations. Given the developments in the administration of Kentucky’s Medicaid managed care program, perhaps it is not surprising that the state had the largest percentage of loss, 11.4 percent.  All four Kentucky MCOs lost money in 2012.

Gains vs Losses

The only information about specific MCOs was a table that identified the qualifying MCOs in each state  and indicated, among other things,  their total annual revenue, PMPM payment group, affiliation status and financial structure, as well as whether they had gains or losses in 2012. The specific affiliations were not listed, however, so unless the MCO’s name reflected its affiliation, as United Health Care, Amerigroup, and Coventry usually did, one could not compare the success of the large organizations with affiliates in several states without checking their affiliations through other sources.  It appeared that Amerigroup, Coventry, and United made gains in more states than they had losses.  Of the states where Milliman listed a Centene affiliate, more had losses than gains.

Should Fraud Prevention Expenditures Be Counted as Incurred Costs in the Medical Loss Ratio?

On June 20, 2013, the HHS Office of Inspector General (OIG) issued a report entitled “Prescribers With Questionable Patterns in Medicare Part D.” The report concluded that over 700 general-care physicians had questionable prescribing patterns. According to OIG, many of these physicians prescribed extremely high numbers of prescriptions per beneficiary, which may indicate that these prescriptions are medically unnecessary. Moreover, more than half of the 736 general-care physicians with questionable prescribing patterns ordered extremely high percentages of Schedule II or III drugs, which have potential for addiction and abuse.

On June 24, 2013, the OIG issued another report entitled “Medicare Inappropriately Paid for Drugs Ordered by Individuals Without Prescribing Authority.” In that report, the OIG found that, nationwide, Part D inappropriately paid for drugs ordered by individuals who clearly did not have the authority to prescribe, such as massage therapists, athletic trainers, home contractors, interpreters, and transportation companies. The OIG further found that in 10 States, Part D also inappropriately paid for drugs ordered by other individuals without the authority to prescribe, such as counselors, social workers, and chiropractors.

In both of these reports the OIG recommended that Medicare Drug Integrity Contractors and Part D sponsors should do a better job monitoring prescriptions and prescriber authority. The Centers for Medicare & Medicaid Services (CMS) concurred with these recommendations. Of course, there are costs associated with this increased monitoring.

On June 24, the Senate Homeland Security and Government Affairs Committee held a hearing on Medicare prescription drug abuse. At that hearing, Alanna Lavelle, Investigations Director for Wellpoint, Inc., a Medicare Administrative Contractor, suggested to the committee that the cost of fraud and abuse detection should be counted as an incurred cost for improvement of quality of care in the medical loss ratio (MLR).  The MLR regulations for Medicare Advantage (MA) (42 C.F.R. 422.2430) and the Medicare prescription drug program (42 C.F.R. 423.2430), issued on May 23, 2013 and effective July 22, 2013, both specifically exclude fraud prevention costs from activities that improve quality of care for purposes of fulfilling the MLR requirements. The entire Senate committee panel of witnesses, including Gary Cantrell, Deputy Investigator General for Investigations at HHS; Jonathan Blum, Acting Principal Deputy Administrator of CMS; Stuart E. Wright, Deputy Inspector General for Evaluation and Inspections HHS; and Joseph Rannazzisi, Deputy Assistant Administrator in the Office of Diversion Control at the Drug Enforcement Agency concurred with Lavelle’s suggestion.

To expect Part D sponsors to expand prescriber monitoring and other enforcement activities without being allowed to count the cost of these fraud prevention activities as incurred expenditures for purposes of fulfilling their MLR requirements seems counter-productive, according to Lavelle.

The witnesses testified that they believe that Congressional authorization would likely be needed to amend the CMS regulations to include fraud prevention costs in the definition of quality of care activities or to otherwise allow these costs to be counted as an expenditure in the MLR.

At the hearing, Senator Tom Colburn (R-Okla.), ranking member, indicated that every year the Senate gets these reports of prescription drug fraud from the OIG and a year later nothing has been done by CMS.  CMS can be prodded by Sen. Colburn and other committee member to take action year in and year out, but Congressional action allowing fraud expenditures to be included as incurred costs for purposes of fulfilling the MLR requirements would give Medicare Part D sponsors a clear incentive to raise their monitoring of prescriptions and prescribers.

How Did Consumers Benefit from the Medical Loss Ratio and Rebate Requirements?

A recent study published by the Commonwealth Fund examined the effects of the medical loss ratio (MLR) requirement on premiums and costs. Specifically, the authors, Michael McCue and Mark Hall, compared the insurers’ public financial statements filed with the National Association of Insurance Commissioners from 2010, before the rule became effective, to 2011, the first year the rule was in effect. Instead of focusing solely on the rebates paid, they also looked at changes in the relationship between the total premium, overhead (administrative costs + profit), and medical payments.

McCue and Hall explained that an insurer can improve the MLR by cutting overhead or reducing the premium. The savings from reduced nonmedical costs may not necessarily be passed on to the plan members. For example,suppose Plan A charges a premium of $1,000, pays medical expenses of $750 and administrative expenses of $200 and keeps the remaining $50 as profit. Its MLR is 75 percent. It must pay consumers the difference between the premium charged and the required  MLR—80 percent in the individual market. Its profit is gone. In the group markets, where an 85 percent MLR is required, Plan A loses $50.

To improve its MLR, the plan could reduce the premium or the administrative costs, or both.If Plan A reduced its administrative costs to $100 and its profit to $30 and applied all of it to reducing the premium, the resulting premium would be $880. The $750 in medical costs would reach the 85 percent MLR required of group plans with $2 to spare.

But, McCue and Hall point out, the plan could reduce its administrative costs to $120 and keep the premium at $1,000. If it paid $750 for claims, it could pay the penalty of $50 (for individual plans) or $100 (for group plans) and still make a profit. The savings in administrative costs would benefit the plan, but not its members.

To see whether, or how much, the MLR requirement benefited consumers, McCue and Hall compared the administrative expenses from 2010 to 2011. In the individual market, insurers reduced their administrative costs and profit by a total of $560 million while enrollment grew by nearly 250,000. Thus, the cost per member per month dropped significantly. The changes varied widely among states.  The per capita overhead (administrative costs + profit) dropped in 35 states. Per capita administrative costs fell in 39 states, while per capita profit dropped in 34.

In the group markets, more of the savings in administrative costs stayed with the insurers. In the aggregate, small group plans reduced their administrative costs by $190 million and made profits of $226 million.The average MLR remained about the same, 83.6 percent.  Enrollment grew. The average per capita administrative cost fell, and the per capita profit rose. In 28 states, the profit per member rose (or the loss per member fell).

Although large group plans paid $386 million in rebates, they cut their administrative costs by 785 million. As a result, the authors found, overall profits in the large group market grew by $959 million.The changes in costs and profits in the large group market varied among states, however. Administrative expenses fell in 26 states. In 19 states, the operating profits of large group plans fell in 2011; in six, they fell by $50 per member or more. But in ten states, per capita profit grew by more than $99 per month.

The authors concluded that the MLR rule was a substantial factor in the changes in administrative costs in all three markets. In the individual markets, both administrative costs and profits dropped; consumers benefited because premiums did not rise as much as medical expenses. According to McCue and Hall, historical pricing patterns commonly resulted in MLRs below 80 percent in the individual market, so that these insurers had to cut profits (or increase losses) to attain the 80 percent MLR. Eventually, some individual insurers may leave the market.

But overall, the insurers in the group markets increased profits by at least as much as they lowered their costs, and they did not reduce premiums. The legislative purpose to lower costs to consumers was not accomplished. It may be necessary to regulate rates, tighten the MLR rules or increase competition to achieve that objective.