External payer audits quadrupled in volume in 2023, making timely responses more challenging than ever for resource-strapped healthcare organizations. Though patient volumes and surgeries have begun to recover from COVID-19 declines – with a 23% and 27% increase over 2022 – inflation, staffing shortages, reimbursement, and regulatory issues continue to jeopardize the financial health of healthcare organizations nationwide.
These were among the key findings of the 2023 MDaudit Annual Benchmark Report released today by MDaudit, an award-winning provider of technologies and analytic tools that enable the nation’s premier healthcare organizations to minimize billing risk and maximize revenues.
Ritesh Ramesh
“Increased complexity and reduced resources mean healthcare organizations are operating in an environment that demands flawless optimization for billing compliance, coding, and revenue integrity capabilities,” said Ritesh Ramesh, CEO of MDaudit. “Our analysis reveals the urgency for healthcare systems to stay ahead of the curve by harnessing digital initiatives and advanced technologies, including AI, machine learning, and analytics, to proactively manage compliance and revenue risks.”
Beyond technology, healthcare leaders must break down the silos between teams to create cross-functional/departmental synergies and manage change to stay operationally efficient. This will be imperative for growth and profitability going into 2024.
Shrinking Teams Face Growing Compliance and Revenue Integrity Challenges
Amidst nationwide healthcare staffing shortages, technology, automation, and analytics have emerged as critical catalysts for health system executives to drive change. Leaders are leveraging these tools to boost productivity, generate revenue, and control costs while compensating for reduced staffing levels. Managing denials and ensuring timely payments are important, but even more crucial is understanding and addressing the root causes of issues that start upstream with billing and coding practices in provider operations.
Across the MDaudit customer base, there was an increase in technology-driven productivity. Large auditing teams were able to accomplish 10% more in audit activities compared to 2022 with more or less the same resources.
Medicare Advantage plans were under constant scrutiny from the Federal government for compliance and overpayments. The data shows that these plans rejected 25% more in reimbursement dollars to providers this year versus 2022.
Telehealth remains a substantial contributor to compliance and revenue challenges. According to MDaudit data, telehealth volumes were flat relative to last year and an average of 30% of audits failed for services administered in a patient’s home or office. Proficiently coding and documenting these crucial charges is imperative for ensuring the ongoing success of patient care and favorable outcomes.
In 2023, external payer audits surged fourfold compared to 2022, often involving large audit documentation requests (ADRs). Mounting requests with tight deadlines and appeal timelines posed a significant risk of revenue loss and potential clawbacks, creating challenges for hospitals because of staffing issues.
Mitigating Denials to Protect Revenues
MDaudit’s findings emphasized the crucial role revenue integrity and billing compliance play in supporting the accurate and ethical capture and optimization of revenue for services rendered to patients. These teams are crucial for preserving financial stability, sustainability, and compliance, all while upholding the commitment to delivering high-quality patient care. Billing and coding are not about revenue alone; these cross-functional workflows directly influence patient experience and relationships, as well as a healthcare organization’s ability to grow.
Health systems are burdened by denials and increasing demand, underscoring the vital need for operational efficiency in billing, coding, and clinical documentation to enhance profitability.
The MDaudit analysis also found that:
Commercial payers are taking longer to respond to claims in 2023 vs 2022. Initial response times were 29 days (about six business weeks) for an outpatient claim and 35 days (about seven business weeks) for an inpatient claim.
MDaudit data for 2023 shows the value of commercial payers’ initial denials for professional claims has increased by 30% and by 5% for inpatient claims, as compared to 2022.
Medicare Part A and Part B rejected 16% of the claims initially submitted for outpatient services – the most profitable for healthcare organizations.
More than 60% of professional billing claim denials in 2023 were driven by documentation requests and eligibility concerns from payers.
“As we move into 2024, proactive actions and precision on billing compliance and revenue integrity outcomes are no longer optional. The healthcare landscape is evolving, affecting every facet of this industry,” said Ramesh. “New payer strategies and the integration of AI have intensified denials, payment delays, and claim scrutiny. How organizations and providers adapt and respond to these challenges will shape their long-term success.”
About the Report
The MDaudit Annual Benchmark Report equips compliance, HIM/coding, revenue integrity, and finance executives with industry insights, emerging trends, and data-driven information to help them take informed action and enhance outcomes for their organizations. The analysis in this report includes a comprehensive examination of data collected from a network of over 650,000 providers and more than 2,200 facilities that provide data to MDaudit for auditing, charge analysis, and denial assessment. This report encompasses insights from more than $5 billion in audited professional and hospital claims and denials by both commercial and government payers exceeding $150 billion.
Healthcare organizations undoubtedly felt a sense of relief as 2022 faded in the distance, taking with it a devastating financial performance that resulted in negative profit margins for more than half of U.S. hospitals – the worst year hospitals have faced since the start of the pandemic, according to Kaufman Hall. Not only were operating margins down for most of 2022, but hospitals also struggled with higher labor costs in a more competitive market plagued by chronic clinical and administrative skill shortages.
Physician practices fared no better, with 90% saying that soaring expenses outpaced revenues last year, according to a survey by the Medical Group Management Association. Staffing and labor costs were cited most often as the source of rising costs. Other common culprits were lower reimbursement rates, significant increases in lab supply and drug costs, higher utility costs, lower patient volumes, and rising malpractice premiums.
The new year does not mean healthcare organizations are out of the financial woods, however. A plethora of new challenges to the bottom line have emerged, led by a sharp uptick in third-party audits. Supported by a $2.5 billion budget for the Healthcare Fraud and Abuse Control and Medicaid Integrity programs, federal payers are stepping up both pre-payment and retrospective claim audits – and private payers are following suit. This not only increases the risk of penalties and claw backs, but it also slows claims processing and, subsequently, reimbursements and puts greater pressure on providers to submit clean claims the first time.
Five Revenue Integrity Trends
To avoid a repeat of 2022’s dismal financial performance, revenue integrity leaders surveyed by MDaudit are placing a priority on revenue opportunities (34%), compliance pressures (29%), revenue risks (29%), and staffing issues (9%). For 37% of respondents, all these issues are top of mind for 2023.
These concerns align closely with the focus on growth, revenue, and profitability that dominate most organizational planning – and is evident in the following key revenue integrity trends identified in the 2022 Annual Benchmark Report.
The Centers for Medicare and Medicaid Services (CMS) has made no secret of its intentions to crack down on fraud, abuse, and waste, throwing more budget dollars into audits, heightening program integrity oversight of Marketplace plans, and exploring new methods of using advanced technology to conduct more rapid and thorough documentation reviews.
Historically, as CMS goes, so do commercial payers, putting healthcare organizations in the crosshairs of an unprecedented level of third-party external audits. To emerge relatively unscathed, organizations need to put in place proven processes that guide immediate and effective actions in the wake of adverse findings.
With limited time to correct the internal processes or billing practices that contributed to the problems, many organizations are turning to corrective action plans (CAPs) to streamline and accelerate their response to unfavorable outcomes. Those that do also realize the added benefit of having their chances of future billing compliance risks significantly reduced while their ability to achieve revenue integrity is enhanced.
The Audit Environment
The signs of an aggressive audit environment are everywhere. The Department of Health and Human Services (HHS), in its 2022 budget, allocated a staggering $2.6 billion to halting fraud, abuse, and waste in its Medicare and Medicaid programs – up from $180 million in 2021. A primary target is Medicare medical review of fee-for-service claims – which CMS has likely increased due to a robust rate of return to the Trust Funds (estimated to be more than $9-to-$1, based on a three-year rolling average).
The Office of the Inspector General (OIG) has also ramped up its scrutiny of how well provider organizations complied with requirements tied to the use of nearly $180 billion in Provider Relief Funds and with recently enacted mandates such as the No Surprises Act. One survey found that almost 25% of hospitals respond to as many as 2,000 external audit-related monthly requests from multiple sources. While results of many of those audits are confidential, Medicare Fee-for-Service data show a 6.26% improper payment rate in their 2021 report.
When audits by commercial payers identify problems such as overpayments, they may require the provider organization to generate and implement an actionable CAP for the relationship to continue. And while a CAP is not required when a RAC audit uncovers issues with billing practices, the offending provider organization should act swiftly to not only remedy the immediate problem – generally by refunding the overpayments – but also to identify and address any underlying practices or processes that may put the organization at risk for future issues and liability.
Audit pressure isn’t just external. Many healthcare organizations are also ramping up internal scrutiny – and they’re not always happy with the findings. When looking specifically at internal audits, the Healthcare Auditing and Revenue Integrity: 2021 Benchmarking and Trends Report from MDaudit found that more than 30% of the time, audit outcomes are unsatisfactory and have not met acceptable thresholds.
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.
