#8: Effective Claims Workflows and Resource Use

Balancing efficient and effective claims processing is among the greatest challenges facing the Manager or Director of a claims operation. Not only is the claims staff among the two largest within a Payer organization (Customer/Provider Service is the other), but the contractual and fiduciary responsibility to pay claims correctly and without discrimination is essential.

The challenges noted above would be significant in the face of a static environment, but unfortunately the game and rules for the game are constantly changing. I have seen claim volumes measured by submitted claims per covered participant vary from 1.5 per month to over 3 per month. Similarly, the case mix of services used by participants varies widely. Finally, as quickly as strategy and software designed to control provider billing games are developed, “revenue maximization” experts and software do their best to circumvent the work-flows and controls which have been put in place.

“Efficient” as it relates to claims processing is actually very simple. The total cost of claims processing (numerator) divided by the number of claims processed (denominator) should yield a total cost per claim. The numerator must account for the cost of technology, staffing cost and the cost of any vendors utilized in the pre-adjudication (e.g. claims clearinghouses, PPO re-pricing costs, etc.), adjudication (i.e., any outsourced procedures or controls) and post adjudication processes (e.g., check/EOB/EOP printing and postage).

“Effective” is a different story, and is somewhat subjective. A good starting point is “payment of the right amount to the right entity for each claim received.” I provide claims audits for Plan Sponsor and Payers, and set expectations on what I will review to validate “effective” claims processing. If I ran a Jiffy Lube location, I would call it my 12 Point Safety Inspection:

  1. Validation of enrollment records through comparison of enrollment records provided by the Plan Sponsor with enrollment records maintained in Payer’s system;

  2. Review of the EDI record or original claim documentation to verify that all data has been uploaded or entered accurately;

  3. Review of provider coding, use of modifiers and application of clinical editing criteria to ensure the claim has been handled based on AMA standards and CMS Correct Coding Initiatives (CCI);

  4. Review of amounts billed for reasonableness of charges, clinical appropriateness of services and appropriate application by the network of contracted pricing;

  5. Review of claims for appropriate documentation of authorization requirements and penalties where required authorization has not been documented;

  6. Review of claims cost control procedures, including systematic application of UCR limits, review of claims for third-party liability and hospital bill audit;

  7. Application of deductibles, coinsurance, copayments, out-of-pocket limits and benefit limitations/accumulators;

  8. Handling of adjustments on claims, including an audit trail and appropriate accounting of payments to providers and member accumulators;

  9. Tracking of claims turnaround, from the date received to the date finalized;

  10. Review of the patient’s claims history to validate there are no duplicate payments and to evaluate the clinical reasonableness of the services billed versus recent claim activity for the patient;

  11. Application of calendar year and lifetime maximum benefits; and

  12. Review of the remark codes included on the Explanation of Benefits to the patient and Explanation of Payment to the provider to ensure accuracy and adequacy of explanation.

These are high standards, but there isn’t much room for not having standards in the Payer’s delegated role as administrator. Payers are expected to adjudicate based on the terms of the Plan as outlined in the Plan Document, using “industry standards” or their own standards as the basis for “procedural handling”. Most Payers rely heavily on language in their Contract or Service Agreement protecting them from all but gross negligence. They even acknowledge that errors will be made, and in an extremely complicated business, rightly so.

While I believe that a stratified, random audit (claims of various payment levels and benefit types) can likely provide an indicator of a Payer’s effectiveness, equally important is understanding the use of technology, resources, procedures and controls behind the scenes. That is why as a part of each of my audits I complete an Operational Review. I am looking for several indicators that the Payer has not compromised “effectiveness” through efforts at greater “efficiency”. As a Payer, these are the areas of where you are going to need to tackle decades old debates on best practice, like Processors dedicated to specific clients versus benefit types and auto-adjudication versus manual handling.

Following are my thoughts on best practice in claims handling:

Claims Examining vs. Processing: One of the most troubling developments from the auto-adjudication generation is the loss of the Payer culture and commitment to look at transactions to determine if they “makes sense”. Auto-adjudication within claim platforms creates environments where the claims team is almost 100% focused on resolving edits to push claims to completion. In doing so they miss excessive utilization and billing, procedures inconsistent with a patient’s history, or even the potential for other insurance or third-party liability.

A couple of simple steps can re-energize the culture and build accountability for examining within a Claim Department:

  • Establish a progression of responsibility and related compensation for hires within the Claims Department. Establish a career path which begins with resolution of enrollment, provider and coding issues, followed by transition to more complex claim types once a simpler type has been mastered.

  • Modify auto-adjudication logic to intentionally lower thresholds for manual review. This should include dollar amounts, specific benefit types, dollar amounts for specific services, services requiring pre-certification or prior authorization and/or claims with selected diagnoses. Claims “failing” auto-adjudication due to the tightened criteria should be routed to Examiners at the appropriate level of progression for manual completion.

Differentiate Auto-Adjudication from Auto-Release:

In my previous Blog I discussed the role of the Plan Builder in “systemizing” a Plan Sponsor’s intentions of coverage as documented in their Plan Document. As it relates to claims adjudication, all the steps leading up to a final decision to release should be the focus, with the experienced Examiner providing a final validation and control. These steps which should be automated include:

  • Creating table-based logic linking the billed procedure or service, modifiers, location of service, diagnoses, patient demographics and provider type to derive a benefit category or type. This is the most complex part of claims adjudication and one area where it is essential to be “automated”. A goal would be to have less than 2% of all claims received require an Examiner to select the benefit category or type to be used for application of benefits. The “decision” on the remaining 98% should be automated.

  • Linking logic around exclusions to procedures, services and diagnoses. The decision around what happens once this logic is applied is different from applying it. For example, the system can be programmed to recognize that all claims with a non-covered sterile surgical tray billed in addition to covered office-based surgery can be stopped for manual denial of the tray, or can be assigned an automatic denial by the system. I used an example which will almost always be handled automatically. When you think in terms of services with questionable necessity or coverage due to exclusions (e.g., infertility, pain management, therapies, etc.), once the system “stops” a claim for manual resolution the Examiner can use standardized criteria and procedures to determine coverage. Eventually, the process of applying exclusions will include place of service and/or provider type, as Plans begin to address services being received from inappropriate providers (e.g. elective lab services or radiology received from a hospital on an outpatient basis).

  • Linking logic around claims cost control procedures, programs and vendors. This includes controls related to the enrollment record (potential for coordination of benefits), provider contracting status (application of a network contract or OON program), diagnoses (possible TPL), procedures (clinical review) and line item and total charges (bill review). These rules will determine the appropriate next steps in the handling of the claim. I had a fascinating discussion with a TPA CIO one time who told me that they have “turned off” and do not use many of the clinical edits they purchase from a software vendor, because too many claims are “stopped” for review. From my perspective that defies logic. I don’t believe that a unilateral decision designed to improve “efficiency” should ever outweigh a Payer’s need to be “effective”.

  • Linking benefit design (copays, deductible, coinsurance, out-of-pocket limits and accumulators) to benefit categories. This addresses the question of assignment of Examiners to groups or benefit types. The Payer has much greater issues if it is not able to systematically apply the correct benefits and needs for a staff member to maintain surveillance. For consistency, application of benefit design to benefit types should be automated.

Limits of Authority (Including Auto-Adjudicated Claims):

Whether we would ever admit it, limits of authority in a Claims Department are built around trust in the claims system and in the ability for Examiners to be consistently “effective”. They also reflect the fact that it is just prudent for “more eyes” and expertise to review higher dollar and more complex claims before payment. As a general rule of thumb, I don’t believe that any claim with a payment exceeding $2,000 should be auto-adjudicated and no claim with a payment exceeding $5,000 should be completed without a second review. I also believe that high dollar claims (over $25,000) should be audited and correct payment confirmed prior to release.

Departmental Communication and Training:

The increasing complexity of medical treatment and billing for that treatment requires a comprehensive commitment to initial and ongoing training within the Department. Many Payers subscribe to one or more services which provide ongoing direction on “effective” handling of claims. Two of these are the Trilogy Claims Administration Handbook and Schwabacher Health Insurance Consulting. Another great resource are the clinical and payment policies of the carriers, which are available on-line. Whatever source of information is used, it is essential that the guidance be customized to the Payer’s unique situation and work-flows.

Access to the procedures and information is not enough. It must be put into action within the Claims Department through consistent and comprehensive training and updates. I suggest a weekly commitment of 15-30 minutes to cover hot topics identified through auditing and information releases, and a 1-2 hour session monthly where more intensive training and discussion occurs on new Policies and Procedures.

Use of Vendors in Claims Adjudication: Payers have access to many different types of “outsourcing” options in the process of adjudicating claims, and must decide which ones should be integrated into their quest to be “effective”. One of the problems I see is that the “build versus buy” decision is not completely independent from financial considerations. Said another way, Payers make a great deal of money from outsourced services, mostly through mark-ups on vendor fees. I do think that Payers must consider striking a balance between revenue and ultimate financial impact to a client.

The first decision that a Payer must make is whether they should outsource a component of adjudication. In most cases a “specialist” vendor should provide an improved approach or service. That compares with the Payer as the ultimate “generalist”, having to manage both internal and external forces across the entire adjudication process. No one can afford the resources required to be the best in all cases.

Before entering any outsourcing relationship, it is incredibly important to develop a set of metrics for the ongoing management of the relationship, and to visit the metrics on a regular basis. What is the expected use of the vendor as it relates to the Payer’s entire book-of-business? What is the expected volume of transactions that the vendor will be involved with? What is the intended result as measured by savings, accuracy or any other factor? What is the operational impact, including reduction in cost and improvement in Department metrics? What is the vendor’s and Payer’s revenue, and what is the value provided to the Payer’s clients?

The balance between revenue and value is very important. Previous blogs have shown that I am not a fan of “out-of-network management”, which is typically subject to a contingent fee, and involves one or more “wrap” network solutions. It should be no surprise to know there is a direct relationship between the percentage contingent fee charged for savings and the quality of the contracts accessed for savings. The lower the percentage, the weaker the contracts. It is one thing if I know this and mark-up a vendor’s fee from 10% of savings to 15%, and quite another thing if I mark the 10% up to 30% or higher. There is a significant conflict of interest if I am providing a second-rate service at premium pricing just to increase my bottom line. The same type of analysis needs to occur with subrogation services, medical bill review, oncology management, dialysis “pricing” and any of the other available services.

I could spend an entire blog looking at each of the claims cost control businesses from a qualitative perspective but will save that for another day.

Quality Assurance:

The bare minimum component of a QA program is random auditing, and even that can be flawed based on program structure and staffing. Structurally, a pure percentage random sample of 2 or 3% of claim processed likely will not have enough representation of complex and high dollar claims. From a staffing perspective, if the Auditor has risen through the ranks in the Claims Department, can I expect my audit results are not biased by relationships and a desire to protect friendships?

Building a strong QA focus begins with the goals of the program. I would hope that most TPAs don’t just do it because they want to meet the industry standard or offer performance guarantees to clients. Accuracy and consistency with procedures and controls is a significant contributor to “efficiency” and “effectiveness”. Components of the ideal program include:

  • Staffing with a truly independent resource or resources, with extensive examining and auditing experience. By the way, an experienced Auditor should be able to audit 65-80 claims per day;

  • Use of a random “stratified” sample methodology to include in-network and out-of-network claims, auto-adjudicated and manual release claims, adjustments, various benefit categories and various dollar amounts;

  • Focused audit on 20% of claims released with payments exceeding $5,000 and 100% on claims exceeding $25,000;

  • Focused audits on 2-3 specific service types where new Policies and Procedures are Tracking of all financial adjustments, including overpayments and underpayments for root cause;

  • Tracking of all non-financial quality issues identified by Customer/Provider Service, such as improperly sent letters, incorrect EOB/EOP messages, etc.; and

  • Development of a monthly actionable QA Report detailing programming, training, communications and other enhancements which can be put in place to improve quality.

Efficient and Effective claims management is not easy, but can be an absolute differentiator for a Payer.


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