Solving the Claim Overpayment Conundrum

Claims overpayments are more than a nuisance; they are an epidemic. Between $68 and $226 billion is lost annually to Fraud, Waste and Abuse (FWA), according to the National Health Care Anti-Fraud Association (NHCAA). As much as 10 percent of healthcare spending is attributed to abuse alone(i), with the federal government losing more than $70 billion to improper Medicare and Medicaid payments in 2010.(ii)

This fact was not overlooked in the Patient Protection and Affordable Care Act (PPACA), which included provisions that will enhance data-sharing efforts among payers and impose stricter penalties for those who abuse the system. And while the new rules written into PPACA are largely devoted to eradicating FWA in Medicare and Medicaid, commercial health insurers stand to benefit from Health and Human Services’ (HHS) increased screening and data-sharing efforts designed to prevent overpayments—whether the result of abuse or simply a billing error—rather than trying recoup them after the claim has been settled.

Paying on an inaccurate claim and then attempting to recover the money is clearly inefficient. Follow-up activities, including letters, phone calls and even legal action, if necessary, can significantly erode a claim’s original value. This “pay-and-chase” post-payment recovery model, however, will remain part of the landscape due in part to an HHS ruling that only fraud program recovery costs can apply toward  medical loss ratio (MLR) rates—a byproduct of PPACA that has increased certain regulations on health insurers.(iii) Moreover, post-payment recoupment may be necessary in complex cases when payers must honor prompt-pay regulations while collecting information that may reveal an overpayment. And in many cases, an effective audit and recovery program can offer insights into overpayments with root cause analysis and process improvement recommendations to help prevent claims errors from reoccurring in the future.

At the same time, most health plans are continuing to invest in efforts to prevent overpayments, knowing the money they will save by identifying erroneous claims early strengthens their bottom line.

Traditional Rules-Based Approaches Lose Favor

For health plans already feeling the financial pinch of a constrained economy, rising medical costs and increased competition, gaining control of overpayments is of paramount importance. Many insurers have long utilized technology to identify these claims, with mixed results. Traditional rules-based systems apply “if-then” scenarios to an analysis of medical claims in an attempt to recognize abnormalities or suspicious patterns.

While these efforts are vital to an overpayment prevention strategy, many insurers have made significant technology investments only to find the solutions have not produced the returns promised or expected. At the heart of the problem is the health plans’ approach to detection: applying payer-centric models to a provider-centric problem. For the most part, payers are utilizing their own data sets to determine aberrancy, meaning they can analyze only those claims submitted to their company.