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.
