The Bottom Line - Cost Effective Medical Management

Saturday, May 6, 2006 | 0

By Janet Jamieson, Ph.D. Director Health Policy & Research, Medata Inc.

Three of the biggest issues impacting workers' compensation payors today are the time, cost and internal resources associated with managing the adjudication process for medical claims. Public agencies, whether they are self administered or outsourced to a third-party administrator, need to be concerned with the cost of medical management. Studies have shown the cost of managing medical claims for workers' compensation ranges from 7% to 10% of total medical dollars. As medical treatment costs have increased substantially over the last ten years, so have the total dollars paid for medical management.

Recent state reforms in California and other states have focused on containing medical treatment costs through mandated utilization management, treatment guidelines, fee schedules, etc. However, many of the new mandates and requirements associated with these reforms have resulted in increased operational costs for workers' compensation payors. For example, when California recently mandated utilization review, some payors elected to outsource the process to a UR vendor. However, without developing filters to identify which bills should be sent out for UR, or implementing a process for integrating the UR decisions into the claims and medical bill review processes, some payors experienced increased costs rather than savings from the reform.

The Challenge

As recent state reforms appear to be working in reducing system costs, workers' compensation payors are looking for ways to reduce their costs of "doing business." Payors realize that they cannot continue to do business the same old way. We might look to the next major reforms for the property and casualty industry to be focused on organizational efficiency.

For many workers' compensation payors, the claims environment today is still primarily a paper and people processing model which is labor-intensive and inefficient. The property and casualty industry as a whole has been slow to adopt technologies commonly used in other medical payor environments. Existing technology solutions are fragmented, piece-meal, and sometimes provide overlapping or disconnected solutions.

Cost effective medical management requires payors to "work smarter" and leverage existing technology solutions to ensure they are not paying more than they are saving. Payors need access to analytical tools and decision support information to focus their cost containment expenditures on the opportunities that provide the greatest savings. ALL medical providers are not crooks trying to game the system, and you do not need to "touch" every medical bill to obtain maximum savings. Studies have shown that less than 4% of the providers are the abusers and they can be identified and managed. Approximately 18% of providers account for 80+% of all the medical bills submitted and can be identified and managed as well. Even though "auto-adjudication" has been around for some time, there are still payers who touch every bill. Using analytical tools with a "rules engine" can allow payors to process 65-70% of their medical bills without any human intervention.

Cost Effective Medical Management

The solution to cost effective medical management is a conceptual decision process of identifying and developing "integrated" technology solutions, essentially putting the pieces together to build comprehensive, integrated processes, leveraging existing technology to reduce operational costs, and increase the quality and consistency of the decision process. This "integrated" processing model could reduce your current costs of medical management by as much as 40%.

Medical Bill Processing

Medical bill processing is probably the most labor intensive, inefficient part of the overall claims adjudication process. Unlike Medicare or private medical payors, workers' compensation does not use comprehensive electronic billing, adjudication and payment solutions. Data entry and bill review are still primarily a manual process in this industry. However, there are technology solutions that can provide less "hands on" processing that could reduce the number of people required to process medical bills by 40% or more. These solutions also provide for greater standardization of processes and decisions and can shorten the time-line for processing, thus avoiding penalties.

Medical bill processing includes: bill receipt, processing of received medical bills and attachments and transforming them into an electronic file; processing the bills through a bill review application to re-conform them to the appropriate state payment methodology and fee schedule; the adjudication process, where what to pay is decided; and the payment process. All four of these processes include significant opportunity for efficiencies and cost savings.

Medical Bill Receipt

The majority of medical bills and attachments are still presented in a paper format. However, there are indications that changes are coming. Several states, including California and Texas are now mandating electronic billing, or at least requiring payors to be able to receive bills electronically. With electronic billing comes shortened timelines for payment without penalties, and in some states new educational requirements for bill reviewers and claims adjusters. Standardization of billing formats is also being addressed by state reforms. All of these changes are driving payors to consider new technologies and better selection of existing technology solution vendors.

There are currently two divergent approaches to solving the data entry challenge: solutions focused on transforming paper bills and attachments into electronic formats; and solutions focused on electronic billing. No one vendor provides a comprehensive solution that integrates both.

Solutions that attempt to make the manual data entry process more cost efficient, such as OCR, scanning and KFI, have helped, but have not had a significant impact on reducing the hands-on processing. Much of the work flow is still manual. Bills still come into the mail room and need to be sorted, scanned, and assigned. Data entry personnel may now have an image of each bill to make corrections and completions to the data entry format, but since the error rate is 10% per bill, they still must touch every bill. Also, most OCR engines today have not been able to successfully process "black HCFAs", which represent the majority of the paper bills received. However, there is a new technology solution which will be available by mid-year that proposes to address the current limitations of the OCR process. This new process should be able to process over 1,000 bills per day per FTE. In frustration at the lack of solutions, some large payors are now considering or actually sending the data entry function off-shore.

There are a very limited number of vendors providing electronic billing solutions, with P2P being the leader. Although this approach has been available for several years, it has failed to provide a comprehensive solution. Payors using this solution often find that even after several years, less than 20% of the providers bill electronically. Signing up individual providers is like herding cats, and there will always be a number of providers who will never bill electronically. In addition, there are significant costs to both the providers and payors for using this type of solution. Some state funds, such as West Virginia, are now looking to require providers to bill electronically by using a vendor, or bill directly by providing a web "on line" billing form.

The bottom line is that since there is no one integrated solution that provides for both paper and electronic billing. Payors need to "piece" an integrated solution together for bill submission. It has been estimated that building an integrated solution to reduce the manual intervention now required can cut the cost of bill handling by up to 50%.

Medical Bill Review

Medical bill review applications are a necessary commodity for conforming and repricing medical bills to jurisdiction fee schedules and payment methodologies. However, all bill review applications and vendors are not created equal. Payors need to select a vendor solution based on their needs. Outsourcing the process to vendors who price per line can run as high as 10-20$ a bill. Some application vendors provide multiple ways to access their applications, including WEB access, ASP, service bureau, and leasing the application on the payor's servers.

All bill review applications are not created equal. There are bare bone applications; applications that require the client to develop their own edits, and comprehensive applications that include a number of defensible edits. The difference between applications, in terms of savings, can be as much as 40%. Also, applications that require manual decision making by the reviewers are not only less efficient, but do not provide for consistency and standardization of the review process. Some application vendors provide for more than just bill review, including the capability of automating letters for provider complaints, and comprehensive reports. By selecting the right bill review application for their needs, payors can increase their savings by providing up to 40% greater reductions, eliminate duplicate payments which are as high as 25% with some applications, and reduce the number of bill reviewers required by eliminating manual decisions and hands on processing.

Medical Bill Adjudication

In spite of agreeing that you don't need to touch every bill, a large number of payors still do. It's called "spending $100 to save $1." All providers are not dishonest, nor do they all game the system. An analysis of a large national data base of medical bill review data consistently shows that less than 3% of providers are abusers. Cost driver studies show that 100 CPT codes account for over 80% of all the dollars. Twenty ICD9 diagnosis codes account for over 80% of all the dollars. You don't need to manage everything!

You can't manage what you don't know, so analytical applications and rules engines are critical to setting up a process for auto adjudication of bills. Depending on payor established rules, 60-80% of medical bills can be auto adjudicated and moved through to the payment process. Rules for auto adjudication can be created based on claim, history, and treatment dollars; by provider, service, diagnoses, place of service, etc. and rules can combine several of these variables. You can also combine treatment parameters and exception audits into full scale rules functionality. You can define unique reason codes for each rule, with the option to define bills to pass or pend.

Work Flow Management Systems

Rules engines can also provide for work-flow management solutions. They can distribute bills, based on pass or pend rules, to the appropriate next process. It maybe utilization review, further review by the claims examiner, or payment. They can allow every step of the medical bill adjudication process to be automated, and real time on line management reporting to ensure jurisdiction on time processing. They can provide management reporting of work loads, workers performance, and business rule outcomes in real time.

Implementing auto adjudication and work flow management technology solutions has resulted in a 40% reduction in work load for claims adjusters and bill reviewers for some payors.

Payment Processing

Payment processing for most payors is still a print and mail solution either, done in-house or outsourced to a vendor. However, as some jurisdictions are developing requirements for automatic payment options, new electronic funds transfer (EFT) solutions have been emerging in the last 18 months.

From a cost efficiency point of view, the problems associated with the traditional payment methods are: paper is expensive to process and maintain; it is vulnerable to theft, fraud and loss; it requires a labor-intensive manual process; it's also difficult to track and reconcile for payees; and payee reconciliation problems generate payor customer service loads. As a result, customer satisfaction is affected negatively. The challenge is to automate the manual process by acquiring broad EFT processing capabilities and automating the payment status and dispute resolution processes.

Comprehensive EFT payment solutions are new to this industry. However, there is at least one vendor who currently provides a total solution which includes: all payment types via multiple payment mediums; all types of payments, not just medical; and payee EFT enrollment and management. They also collect and aggregate payment data, and generate and disburse payments through EFT, print and mail, and stored value cards. Added value services include automated payment status inquiry for both payors and providers, and dispute resolution processing.

If your company is still using a print and mail solution, a payment automation solution can significantly reduce your costs for payment from $7 to $10 dollars per payment to $1 to $3 dollars. In addition, implementing an automated payment status inquiry and dispute resolution process can significantly reduce the current estimated costs of $10 to $20 for these processes.

Automated payment solutions are easy to implement and usually do not require significant IT resources, or large up-front implementation costs. Companies usually realize a significant ROI within a couple of months. If your company does nothing but implement an automated payment solution this year, you should experience almost immediate cost savings and gains in organization efficiency.

Putting It All Together

Hopefully, the information presented in this paper has been helpful in looking at the whole medical billing process, and in providing some solutions to reduce operational costs and gain organizational efficiency in your medical management efforts.

The key processes to focus on include:

1. Building an integrated strategy for receipt of medical bills, incorporating both electronic billing and paper processing solutions

2. Selecting a bill review application that automates the review process to reduce manual processing and decision making

3. Implementing the use of rules engines and analytical applications to facilitate auto-adjudication of 70+% of your bills

4. Adopting a payment automation solution that includes both print and mail and EFT, as well as dispute resolution and automated payment status inquiry, and,

5. Public agency payors that outsource their medical management may be paying too much for ineffective, unneeded services. To ensure vendor accountability, you need to do the following:

* Include a provision in your vendor contract that ensures you have access to your own data
* Conduct an independent audit of your medical management vendor at least every 24 months
* Conduct an assessment of your medical management costs and effectiveness of the services you are buying

Janet D. Jamieson, Pb.D., is the Executive Director Health Policy & Research for Medata, Inc.

She can be reached at telephone number 707-294-0759, or via email at jjamieson@medata.com.

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The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.