Electronic Health Reporter

By Ritesh Ramesh, chief operating officer, Hayes Management.

As we face the third year of the global pandemic, hospitals and health systems are desperate to shore up bottom lines that have been battered by ongoing financial losses projected to exceed $100 billion in 2021. The key to undoing some of the financial damage is optimizing revenue flow and reducing compliance risk, which requires an understanding of the exact driving forces behind the devastating losses.

For many healthcare organizations, the primary problem can be traced to bundling errors, COVID-19 claim denials, and a range of coding issues.

That’s according to Hayes’ inaugural auditing and revenue integrity report, Healthcare Auditing and Revenue Integrity: 2021 Benchmarking and Trends Report, which analyzed more than $100 billion worth of denials and $2.5 billion in audited claims. It found that bundling errors were the top culprit behind the 34% of inpatient hospital charge initially denied in 2021, each with an average value of $5,300. Internal auditors also identified a significant number of concerns centered around disagreements between procedure codes and diagnoses, contributing to 33% of all internal audits containing “disagree” findings.

Understanding the Drivers

The report is based on a review of professional and hospital claims, including current charge and remit data sent to all payer types, audited in the company’s revenue integrity platform, MDaudit Enterprise, during the first 10 months of 2021. It includes more than 900 facilities, 50,000 providers, 1,500 coders and 700 auditors from U.S.-based acute care and children’s hospitals, academic medical centers, healthcare systems, and single and multi-specialty physician groups.

In terms of denial trends, the report identified bundling as the top category for both inpatient and outpatient hospital charge denials – the latter of which had an average value of $585 for each denied claim. The top reason was that the benefit had been included in a previously adjudicated service or procedure. Professional services had a first-time denial rate of 15%, led by claim submission/billing errors and carrying an average value of $283 each.

Under- and over-coding were also identified as problematic. In terms of revenue risk, audits indicate that under-coding created underpayments averaging $3,200 for a hospital claim and $64 for a professional claim. In terms of over-coding, Medicare Advantage plans and payers in particular are under heightened scrutiny for expensive inpatient medical necessity claims, drug charges, and clinical documentation to justify the final reimbursement.

Telehealth, which by July 2021 had stabilized at levels 38 times higher than pre-pandemic utilization rates, was another source of trouble. The Hayes analysis found that 13% of telehealth claims were denied, led by a lack of information and submission and billing errors (14%) and non-covered charges (10%). Other top reasons were duplicate claims (7%), incorrect modifier/required modifier missing (5%), procedure code/bill type/place of service code missing (2%), missing documentation (4%), and pre-certification/authorization (4%).

Other findings of note in the Hayes report are an average denied amount of $900 for hospital outpatient claims, $690 for inpatient claims, and $170 for professional claims due to missing modifiers. Further, 33% of charges submitted with hierarchical condition category (HCC) codes were initially denied by payers, highlighting increased scrutiny of complex inpatient stays and higher financial risk exposure to hospitals.

Digging into COVID-19

The financial damage resulting from the COVID-19 pandemic runs deep – and is unlikely to be reversed any time soon as new surges bring new revenue challenges. The Hayes analysis found that in the first 10 months of 2021, 40% of COVID-19-related charges were denied. Further, 40% of professional outpatient audits for COVID-19 and 20% of hospital inpatient audits failed.

While the volume of inpatient COVID-19 cases remains lower than outpatient cases in the year-end surge, case volumes are still 2-3 times higher than experienced in late spring and early summer. As a result, total denial dollars associated with inpatient admissions increased linearly to two to three times higher than the lowest levels in July 2021.

One area of improvement related to the pandemic is in average lag days, which is the time it takes for the payer to respond after a claim is initially submitted by a provider. The dynamic and fluid nature of billing submission and coding rules during the 2020 cycle of the pandemic caused many organizations to delay releasing claims to payers until they were certain they had all the protocols and processes under control. As a result, claims processing took longer, averaging more than 30 days for inpatient claims and over 20 days for outpatient claims. We are seeing that improve incrementally in 2021, with average lag days for hospital billing dropping to under 20 days and to under 15 days for outpatient claims.

However, we foresee more pressure on processing times from payer to provider with each new surge. That is driven in large part by the nature of inpatient COVID-19 cases, which are complex and require multi-day stays, services, and charges.

Mitigating Risk and Optimizing Revenues

This analysis makes clear the urgent need for healthcare organizations to address revenue and compliance risk through a unified revenue integrity-based approach – which provides an opportunity to use denial insights to help focus auditing efforts while also incorporating prospective audits to reduce denials. Doing so allows healthcare organizations to increase the impact of their existing compliance programs by more rapidly identifying and addressing risk, resulting in improved revenue flow and reduced risk of takebacks.

Use of an auditing platform that also incorporates robust analytics dashboards streamlines the process, helps focus improvement efforts and provides an at-a-glance understanding of performance by enabling prospective and retrospective audits to be performed and tracked. Importantly, because it protects the organization from compliance risk, optimizes reimbursements and improves revenue retention, there is a solid business case for investing in the right platform – one that can override budget constraint arguments by converting what is often considered a cost center into a source of recovered revenues.

Taking immediate steps to address revenue and compliance risk and staunch the losses associated with claims denials, over-coding and under-coding is imperative for healthcare organizations. A unified, technology-enabled revenue integrity-based approach streamlines auditing efforts and enables the scope of audits to be expanded. This will, in turn, optimize revenue flow, reduce the risk of financial penalties, and eliminate revenue leakage.