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payer provider dynamic
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Payer-Provider Dynamic

Your practice survives on its collections. Collections levels help determine the value of your practice, and whether your practice is investing in new facilities and paying bonuses – or closing down and handing out pink slips.

This article is about making and exceeding those all-important collections numbers. It's an eye-opening look at the deficiencies of modern collections systems and billing services, prepared by the founder of a company that literally rewrote the book on billing. The fact that you're reading it means that you probably already have encountered some of these shortcomings:

Lower billing performance
» Painfully slow collections
» Frequent payment denials

Increasing audit risk
» Growing frequency of post-payment audits
» Paying refunds and penalties resulting from post-payment audit

When our founder developed a billing system, it was a matter of professional survival. We had to find a better way to collect payments than the stale, rote methods introduced and disseminated by insurance companies aiming at paying less and keeping the physician's money to themselves. So, we began to innovate and track our results. Our experiments extended far beyond developing new collections techniques. We gradually created a comprehensive billing system that includes valuable billing process management tools and a completely new billing and management philosophy and framework.

Billing Intelligence's system uses centralized consolidated technology serving hundreds of physicians. With its emphasis on centralized tracking of payer performance from a single point of control, shared coding compliance rules, and accountable teamwork, our system is different from any other system the industry has to offer. Long before “performance improvement” became a corporate buzzword, our billing system was making it happen to physician practices around the country.

After you read this article, your view of billing will never be the same. The (B)n system completely changes the nature of the claims processing cycle. It provides an honest, no-nonsense, accountable approach to billing that places the practice owner firmly in control.

What's Happened to Your Promising Practice?

You didn't go into the medical profession to be “average.” Like everyone else in this line of work, you're an optimist. You believe you can be a top producer and earn the highest possible compensation for your services. After all, you have excellent training and you are not afraid of hard work.

Yet your practice is not making what you (and your partners) think it should be making. What's gone wrong? And more importantly, what, if anything, can you do about it?

This article examines why billing services fail. It looks at what keeps so many otherwise talented, capable practice owners and managers from generating top revenue.

The good news is that billing performance can be improved – dramatically and permanently. But first you need to know where to begin and what needs fixing.

If you are like most practice owners and managers who hit “low collections,” your first inclination may be to blame your setbacks on insurance companies or billing personnel. Don't. By seeking to place the blame elsewhere, you'll cheat yourself of a valuable opportunity to learn. Instead, take a good, hard, dispassionate look at what you're doing. Chances are you'll find the fault lies somewhere within you: either with your attitude, your behavior, or your technique. Our research has shown this to be particularly true for practice owners or managers experiencing any of the following common billing problems:

Insurance companies
» increase your denial rates
» ignore your appeals
» audit your medical notes and impose refunds and fines

» lack consistent and integrated billing methodology
» employ incompetent and/or lazy billing personnel who collect fees on easily paid claims and forfeit difficult claims without follow up
» are unable to identify and discover specific reasons for specific underpayments

While the telltale signs of billing underachievement may appear endless, the true causes are generally quite specific. More often than not, their roots can be found in the overall approach you take to the billing process.

Whose System Are You Following?

In the “provider-payer dance” - our metaphor for a claim payment interaction – there are always two systems at work: the provider's system and the payer's system. To lead in this process, you must know and apply a billing system that works. Merely submitting claims and placing yourself in the arms of the payer, waiting to get paid, is not enough.

Healthcare insurance business continued to boom, mostly at the expense of both providers and patients. Two key aspects dominate business background for insurers. They

1. Must meet tougher profit margin benchmarks. For instance, United Healthcare saw its earnings rise 38% in the 3rd quarter of 2006 alone. To keep its share value growing, United Healthcare will have to demonstrate still better performance in the 3rd quarter of 2007.

2. Approach the limit of their ability to grow premiums. Premiums increased 70 disproportionately beyond inflation and 65 workers' earnings growth in 2001-2006. For 60 instance, health insurance premiums 55 increased 65.8% between 2001 and 2006 50 while inflation grew 16.4% and workers' 45 earnings increased 18.2% during the same period. 


The motive in business is always profit, but 30 insurance companies have it particularly rough. 25 They play in a massively regulated, traditionally 20 altruistic industry, where they are the only for-profit 15 game in town. Against all odds, they aggressively 10 pushed their way to the top. But now, as Wall Street 5 sweethearts, they have stepped through the looking 0 glass into a world that seems to keep pace no matter Health In-Inflation Workers' how fast they run. The faster they grow profits, the surance Earnings Premiums higher they drive expectations, leaving them increasingly desperate for new ideas to generate revenue.

Ideally, the billing encounter should be viewed as a win-win situation. But a practice owner or a billing manager who has spent time “in the trenches” knows, this is simply not the case. Insurance companies adopt an adversarial approach to providers. Under the payer's “system,” the goal is to keep as much as possible of the provider's money without violating the timely payment laws. Payers delay claims processing, underpay, return for payment refunds, and impose penalties.

Practice owners and billing service managers must assume responsibility for the current sad state of provider-payer relations. Whether you lead or follow in the provider-payer dance depends largely on whose system prevails – yours or the payer's. It also depends on how effective your system is. To take control, you must be fully aware of what's happening at each step along the way. You also must be comfortable in a leadership role. Our experience shows that most practice owners and managers struggle and sometimes even fail because they do not know how to be in control of the payment process.

Payers develop their current system in response to their business needs. Fair or unfair, the onus is on the provider/billing service, not the insurer. Rather than feel bad, or complain, you have to take matters into your own hands and learn to thrive within their requirements or constraints, like them or not. If their system can derail your billing efforts, then you need to adopt a newer, more effective billing system. It's that simple. This article shows a better way. You may not get every claim paid, but by using our system you will get more claims paid and you will certainly know what's happening on each step. And more importantly, you'll know what to do about it! But first, let's take a closer look at how and why the payer's system works so well.

The Payer's System

Payers have developed a simple but effective bag of tricks to seize control of and rapidly derail a significant portion of billing efforts.

Strategy 1: Increase billing service costs with added complexity and new denial reasons.

Payers use arcane terminology and disparate data formats. Deciphering payer messages require sophisticated technology, skilled personnel, and time.

Payers also report only one error at a time. So, once you correct that error and resubmit the claim, payers get another chance for a new delay, based on a “newly discovered” error.

Next, payers frequently modify both formats and regulatory compliance rules (“Correct Coding Initiative or CCI” and “Local Medical Review Policy or LMRP”). Discovering changes and implementing them in your system require both investment and time. For instance, in January 2007, thousands of physicians discovered they were having trouble getting Medicare to pay for services billed under the codes 99303 and 99333. What where they doing wrong? ANSWER: Medicare deleted codes 99301-99303 from CPT in 2007, forcing the physicians to review the new 99304-99306 codes in an up-to-date CPT code book. The 99331-99333 codes also were deleted in 2007. Review the new codes, 99324-99328.

This is just one example of systematic strategy to reduce or delay physician payments by complicating, changing, or otherwise raising physicians' costs of claims payment processes. This way, payers confront providers with a lose-lose dilemma of expensive process maintenance on one hand and forfeited payments on the other hand. A practice ignoring the changes faces increased claim underpayment and rejection rates as well as higher audit risk exposure. On the other hand, staying current with format and coding rules requires continuous and expensive billing system upgrades and frequent re-education of billing personnel. 


The payer-related component of the medical billing process costs an average 8% to 10% of providers collections. It includes claim generation, scrubbing, electronic submission to payers, payment posting, denial identification, follow up, and appeal. By complicating the process, payers increase the likelihood of failing the payment and winning the subsequent appeal process. Providers face the lose-lose choice of expensive medical billing process upgrades or forfeiting denied payments.

Strategy 2: Reduce allowed fees.

Average physician reimbursement from billing Medicare and commercial payers dropped 17% in 2002-2006. From 2005 to 2006, allowed amounts for EandM visits alone dropped 10% nationally, 27% in the Northeast, and 20% in Northwest.

Strategy 3: Increase leverage over providers through consolidation.

It is harder to drop a contract with low allowed amounts when there are fewer remaining payers. Consolidation in the insurance industry reduces competition among payers for physicians' services, allowing payers pay less to providers. Today, 73% of the insured population are covered by 3 plans alone: the top ten health plans cover 106 million lives, while three plans, namely, United, WellPoint, and Aetna together cover 77.7 million lives. In 2006, the consolidation rate accelerated. For instance, United Healthcare Group purchased 11 plans in 2006, including MetLife, PacifiCare, and Oxford. Turning down a contract offered by a payer that controls such a large portion of population results in giving up significant revenue from medical billing.

To drive providers into networks with lower allowed amounts, payers invented the “enrollee payment program.” For instance, United Healthcare has announced a new national policy to discontinue direct payment of medical billing to out of network providers. Effective July 1, 2007, under the "pay the enrollee program," United Healthcare will direct out-of-network benefit checks to the insured member rather then non-participating providers. As hard as it is to collect from the insurer, surely having to chase the actual patient for payment will be harder, more costly and result in even lower collections.

This policy forces the providers to choose between chasing the patients for payments or joining the payer's network. In both cases, the provider loses some of earned revenue. Oxford Health Plans, a United Healthcare Company, implemented the Pay the Enrollee policy on April 1, 2006. According to the Oxford web site announcement, Oxford may refuse to honor the assignment of benefits for claims from non participating providers pursuant to language in the Certificate of Coverage. If enrollees choose to receive treatment out-of-network, the claim reimbursement may be sent directly to the enrollee. In such cases, the non-participating provider will be instructed to bill the covered employee for services rendered.

Once the provider is in the network, the payers implement profiling techniques to identify inefficient physicians. A recent the Government Accountability Office (GAO) study examined 10 healthcare purchasers with profiling systems to determine whether inefficient physicians could be identified. After identifying inefficient physicians, the payers provided incentives to improve efficiency, such as

» educating physicians to encourage more efficient care
» designating in physician directories those physicians who met efficiency and quality standards
» dividing physicians into tiers based on efficiency and giving enrollees financial incentives to see physicians in their particular tiers
» providing physicians bonuses or imposing penalties based on efficiency and quality standards
» excluding inefficient physicians from the network

Providers face the lose-lose choice of seeing fewer patients or accepting lower rates.

Strategy 4: Underpay claims.

Partial denials cause the average medical practice lose as much as 11% of its revenue. Denial management is difficult because of complexity of denial causes, payer variety, and claim volume. Denial risk is not uniform across all claims. Certain classes of claims run significantly higher denial risk, depending on claim complexity, temporary constraints, and payer idiosyncrasies:

Claim complexity
» Modifiers
» Multiple line items

Temporary constraints
» Patient Constraint, e.g., claim submission during global periods
» Payer Constraint, e.g., claim submission timing proximity to fiscal year start
» Procedure Constraint, e.g., experimental services
» Payer idiosyncrasies
» Bundled services
» Disputed medical necessity

For complex claims, most payers pay full amount for one line item but only a percentage of the remaining items. This payment approach creates two opportunities for underpayment: the order of paid items and payment percentage of remaining items. Additionally, temporary constraints often cause payment errors because of misapplication of constraints. For instance, claims submitted during the global period for services unrelated to global period are often denied. Similar mistakes may occur at the start of the fiscal year because of misapplication of rules for deductibles or outdated fee schedules. Payers also vary in their interpretations of CCI bundling rules or coverage of certain services.

Strategy 5: Return for post-payment audits, demand refunds, and impose penalties.

The top two revenue-boosting wells for payers are drying up. Premium wars preclude insurers from raising rates, and recently enacted timely payment laws limit how long they can withhold repayment to earn interest as they had in the past. To meet profit expectations and still play within the new rules, insurers have decided to go after the reimbursements after they are paid.

The Justice Department recovered record $3.1 Billion in fraud and false claims in 2006. If payer audits seem like old news to you, take another look at the numbers in Table 1. It is an undeniably unscrupulous game. And you should know about it, because unless you are actively working to manage audit exposure, you are at risk.

Table 1. Fraud Statistics – Health and Human Services

Year New Matters Judgments Average Judgment
1993 61 $155,323,165 $2,546,281
1997 347 $920,350,127 $2,652,306
2000 260 $912,388,758 $3,509,188
2003 243 $1,825,406,640 $7,511,962

If your skepticism has led you to the –rational– rebuttal that audits are expensive for everyone, rest assured that the invisible hand (gloved in technology) has helped insurers overcome this traditional obstacle. Driven by the simple goal of reducing the cost of identifying audit targets, insurers began building claims databases. With the advent of electronic submission, this became almost costless. As with many purportedly win-win propositions we have seen from insurers, electronic submission has proven a wolf in sheep's clothing. As providers submit claims to be paid, insurers simply add each claim to their growing database, and their Computer Science geeks regularly crank out reports that give executives a bird's eye view of all their providers.

Invariably, providers are in denial about their exposure, and insurers are quick to comfort them. They will tell you that audits are an unfortunate but necessary tactic for keeping fraud in check, implying that honest providers have nothing to worry about. But insurers are not crusaders for truth and justice. Providers need to understand that the motive is money, the means is a gargantuan statistical database, and that every provider is an opportunity.


Healthcare finance insiders call this a Big Brother system and, setting aside the melodramatic implications of such a name, it is easy to see why. While executives have a soft spot for pretty charts, the true power of such a system is its ability to drill into the data and find outliers (when they talk about this type of tool, Information Systems specialists use jargon like data mining and On Line Analytical Processing, or OLAP for short). The system automatically pinpoints providers that are “easy audit targets: because they are (see Table 2 for a short list of reports) :

» Doing something differently from the pack,
» Lacking infrastructure for systematic denial follow up,
» Lacking compliant medical notes.

Additionally, effective March 1, the UnitedHealth Group will fine a physician $50 if a patient goes outside the insurer's network for lab services.
The sum represents the cost difference to UnitedHealth between nonparticipating and participating laboratories, according to the article. Physicians could also face further sanctions if patients continue to use out-of-network labs, including a "change of eligibility" in UnitedHealth's pay-for-performance and quality-rating programs, a "decreased fee schedule," or termination from the plan's network.

Table 2. Audit Triggers – Profiling Methodology

Stage Report
Prepayment Review CCI and LMRP rules
    Inter-claim, intra-claim, cross-claim
   Lifetime duplicates    Date range duplicates    
   Modifier codes
   Visit level
Post-Payment Audit
   High payments per day
   Surge analysis
Procedure repetition
Unusual modifiers
   Unusual procedure rates
  Geographic improbabilities
  5/50 patterns

It's a fact of life: If you do not have an effective billing system of your own, payers will take the lead in the provider-payer dance. You will default to the payer's system. And at the end of the day, there will be no pay-off for you.

Traditional Billing Systems

If you are like most practice owners or managers today, you employ a form of a traditional billing systems, which have been evolving since the birth of claim-based physicians reimbursement. While they might use many different technologies, their underlying structures remain remarkably consistent. Billing and coding personnel schooled in these methods learn to: code CMS-1500 forms, submit claims, review “scrubbing” and A/R reports, call insurer to inquire about payment status, and call provider for missing data.

If you use a traditional billing approach and find yourself frequently falling victim to the payer's system instead of your own, you have plenty of company. Here are a few reasons why:

• Traditional billing systems limit the provider's role in the provider-payer dance and transfer the payment and decision initiative to the payer. Except for the initial claim submission, providers are completely passive at every step. You wait for the payer to review the claim, wait to receive the errors, wait for the review of the corrected submission, and wait, and wait. By waiting for the payer to determine if, when, and how much will the claim be paid, you waste valuable time and further reduce the chances of getting the claim paid.


» The average claim error rate is about 45%-55%. If your only method to find errors is to submit the claim to the payer and wait for payer's response, you will need multiple submission cycles for each claim until you eradicate every error.

» By delaying your own response to billing operator's query for claim clarification, you again waste valuable time and further yet reduce the chances of getting the claim paid.

•If your billing operator delays follow up or selectively follows up on big balance claims only, you

» Encourage the payer to keep accumulating a significant portion of your revenue and

» Increase your audit risk as you signal the payer that you might not have adequate infrastructure to document properly every patient visit just as you are unable to discover underpayments.

•If you do not manage individual productivity of billing personnel you create three kinds of opportunities for the payers to keep your money:

»You deprive them from improving their skills and productivity. You simply do not know what the person working for you has done to get the claim paid and how long each action took.

»Without grand error perspective, you prevent your entire billing infrastructure from improving its performance and you are unable to keep up with the payers that frequently change format and billing compliance requirements.

»You encourage the billing office to simply collect fees only on uncontested and easily paid claims, forfeiting payments of problematic claims without even trying any collections effort.

Be aware, if you follow a traditional billing system you will fall into the payer's system and wind up doing what the payer expects, i.e., you will leave a significant part of your money to the payer.

The Billing Intelligence System – A Better Way

To get the vast majority of claims paid in full and on time, you must employ a billing system that matches the power of the payer's system! The Billing Intelligence System is a no-nonsense approach to billing that frames the provider-payer dance as a business interaction among equals. The practice owner and manager using our system gains situational control in a conflict-ridden business environment.

Instead of catching up with payer's changes and depending on favors for mission-critical payment information, you gain an accountable mechanism for getting your claims paid. The effect is both effective and efficient. It is based on four principles: aggressive claims processing strategy, meaningful teamwork across everybody involved in the payment process, comprehensive practice management infrastructure, and bottom-line focus on profitability.

Strategy 1: There is no better defense than a good offense.

Simply put, take the fight for the claim payment to the payer's territory. Replace passive claims processing strategy with aggressive approach. Leave the payer no opportunity to underpay a claim even by the smallest amount. Reverse payer's strategy on the payer: make it more expensive for the payer to reject or underpay a claim than to pay it in the first place.

This approach requires

» disciplined discovery of every underpayment or delay and aggressive follow up on each one of them. Quantify and continuously track payer's performance and compare it to your own and national benchmarks.

» complete interest alignment for everybody engaged in the claims processing cycle. Everybody, including follow up personnel, should be compensated proportionally to payment success.

Strategy 2: No lone provider can defeat the payer's system.

The payers have allocated huge resources over the past two decades to perfect their systems. Only meaningful teamwork is effective in matching payer's methodology to keep your money away from you. Your biller must be able to establish and maintain disciplined teamwork in two important ways:

» Inter-Provider teamwork: Consolidate payment monitoring to accumulate the big picture of payer's performance. Share every claims processing improvement across all providers. Enable economies of scale: the larger is the network of providers using this approach, the greater and the more frequent are the opportunities to get the payers pay the money they owe you.

» Provider-Biller teamwork: An effective and accountable communication system expedites exchange of information and claim reprocessing. Without such a system, the biller may find herself fighting both payer and provider for missing information. Make the payment process 100% transparent to all involved. Log and communicate every action taken to get the claim paid.

Establish zero-tolerance environment for finger pointing: we are all in the same boat.

Strategy 3: Match payers capacity with comprehensive infrastructure.

Your system must integrate and leverage information for four goals: payer's side automation, audit risk management, patient relationship management, and practice workflow management.

» Automate payer's side of the claim flow. Industry insiders call making such a connection between two different systems a "handshake." Claims stop spending time shuttling back and forth between payers and providers and get paid sooner and ultimately more often. Systems include on-demand reports to calculate reconciliations, discover problematic claims automatically, and allow continuous discovery and addition of claims processing rules to match payer's system.

» Reduce audit risk – avoid audit threat by preparing for audit. Integrate disciplined visit documentation procedures using SOAP notes. Monitor audit trigger red flags in real time. Track claims that might offend national or local frequencies for specific CPT codes.

» Build patient relationships and actively maintain patient loyalty. Focus on targeted patient attraction and loyalty development. Provide individual, timely, and meaningful information. Avoid billing confusions or errors.

» Eliminate waste – integrated front and back office with a centralized practice workflow management. Integrated scheduling and billing functionality helps avoid unbillable encounters, while integrated EMR/SOAP notes and billing helps maintain compliance, readiness for post-payment audit, and penalty avoidance. An integrated system enables automated tracking of compliance and red-flagging audit risk.



Claims are not paid by waiting for the payers to pay them. Claims are paid by payers who discover that delay and underpayment are more expensive than payment in full and on time. Without a system to make payers pay, you will default to payer's system and find yourself giving up control.