June 21, 2010

No, you haven’t already read this Alert stating that the 21.3 percent Medicare physician payment cut is now in effect. Yet again Congress has failed to pass legislation preventing us from going over the cliff. Late on Friday the Senate finally passed its version of the House-approved postponement of the SGR reduction in payments to physicians – too late to stop Medicare from beginning to process claims at the lower rate.

A bipartisan majority had defeated an amendment to the House-version of the bill (H.R. 4213) offered by Sen. Max Baucus on June 16th. A much less expensive amendment by Sen. John Thune, that would have begun to reduce the deficit, according to the Congressional Budget Office, was rejected on Thursday. That left Sen. Baucus’s second amendment on the table. This one was very modest, providing for just a 2.2 percent update that would be effective from June 1st through November 30 and would be followed on December 1st by the 21.3 percent SGR cut. The House is expected to act on the Senate bill on Tuesday, and President Obama is expected to sign the legislation into effect right away.

This means that the Medicare Administrative Contractors (MACs) will have been processing claims for services provided from June 1st at the reduced rate, on a first-in first-out basis. Once the bill postponing the SGR cut (and most likely establishing a 2.2% temporary payment update) is approved, the MACs will automatically reprocess all claims paid and adjust them to the higher rate.

Reprocessing three or more weeks’ worth of claims for physician services is costly not just to CMS, but also to the doctors. The AMA called Congress’ multiple missed deadlines for preventing the 21.3% cut a “dereliction of duty.” The administrative costs of practicing medicine are high – and the savings to the health care system would be considerable if claims processing were to become more efficient.

Reducing Administrative Costs

The Patient Protection and Affordable Health Care Act (PPACA) signed into law on March 23rd contains a number of provisions intended to force health plans to reduce their administrative costs. Since 2008, the AMA has been showing private health plans and physicians exactly where the problems are and how much they cost in its annual National Health Insurer Report Cards.

According to the AMA, the health care system as a whole spends approximately $210 billion annually on claims processing. That is more than the annual cost of the PPACA itself ($1.4 trillion over 10 years). Any system of transferring funds from health plans to providers is going to involve work and money, of course, but there are unquestionably ways to reduce current levels of spending on the administration of claims. For one thing, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) electronic transactions rules have not reduced variations in reporting requirements or even the volume of paper processed nearly as much as the HIPAA authors and implementers would have liked.

The AMA, in its press release accompanying the new 2010 National Health Insurer Report Card (NHIRC), “estimates that $777.6 million in unnecessary administrative cost [spending by physician practices, not the health plans] could be saved if the health insurance industry improves claims processing accuracy by one percent. Increasing the health insurance industry’s accuracy rating to 100 percent would save up to $15.5 billion annually that could be better used to enhance patient care and help reduce overall health care costs.”

The key finding of the AMA’s 2010 National Health Insurer Report Card, which was published on June 14th, is that commercial payers make errors in twenty percent (20%) of the medical claims they process. This is how the seven major payers participating in the 2010 NHIRC stacked up on the percentage of claim lines in Electronic Remittance Advices (ERAs) on which “the payer's allowed amount equaled the physician practice's expected allowed amount including the application of claim edits and payment rules (rules that adjust the fee schedule amount):”

Metric 6

* = New metric reported in 2010 NHIRC
** = May not total 100% due to rounding error
BCBS = Blue Cross and Blue Shield
DNR = Payer did not respond 
HCSC = Health Care Services Corporation
UHG = UnitedHealthcare Group

The AMA NHIRC results are based on data pulled from the nationally mandated Health Insurance Portability and Accountability Act of 1996 (HIPAA) electronic standard transactions.  The technical references for these transactions are the electronic remittance advice (ERA) (HIPAA ASC X12 835 Health Care Claim Payment/Advice Transaction) submitted to a physician in response to the receipt of an electronic claim submission (HIPAA ASC X12 837 Health Care Claim--professional transactions).

The correspondence between allowed amounts and expected amounts, Metric 6, is one of 17 metrics in the NHIRC. Other metrics include first remittance response time, electronic fund transfer adoption and compliance rates, and transparency of reasons for denials.

The NHIRC is central to the AMA’s “Heal the Claims Process”™ campaign, which is committed to the goal of reducing the cost of claims administration to a minimal percentage of collections. ABC shares this goal as we seek to minimize the number of days that our clients’ claims spend in the “Accounts Receivable” category.

Cleaning up the errors and delays in claims processing is necessary, but at best it will be an improvement at the margins. The underlying Medicare payment rate, which Tricare and some private payers follow, must be increased. If Congress continues to fail to correct the SGR problem, the CMS Actuary expects Medicare payments to decrease by 26.1 percent in 2011. Keep up the pressure on your Senators and Representatives.

With best wishes,

Tony Mira
President and CEO