Unfortunately, the healthcare industry faces challenges with financial waste. It has been estimated that the healthcare system in the United States wastes approximately $765 billion annually, about 25 percent of what is spent. Part of this number is due to payment integrity issues such as fraud, waste and abuse (FWA).
If you’re not familiar with payment integrity, it refers to the process used to make sure a health insurance claim is paid correctly. It’s designed to identify fraudulent, erroneous or abusive claims and reduce or eliminate errors by clinical providers, improper billing and ineligible beneficiaries.
Comprised of areas like coordination of benefits, claims audit, administrative overpayment and subrogation, payment integrity ensures that each claim is paid correctly by the appropriate party. Part of the reason it’s becoming more of a discussion point in healthcare is the focus on cost management and rapidly increasing amounts of big data spurred by technology and analytics.
Even though fraud, waste and abuse are a prevalent issue in healthcare, they are certainly preventable. Some commercial health payers and healthcare insurance programs that are funded by the government (i.e. Medicare) employ an administrator to handle payment integrity, while others utilize a third-party resource. Many payers don’t have any staff or process in place to address the issue.
Fraud, Waste and Abuse
To better understand the need for payment integrity in healthcare, it’s important to examine how fraud, waste and abuse affect the industry. Fraud refers to intentionally using deceptive methods to gain something–in healthcare, this could be knowingly billing a service or procedure more than once or at a higher rate than necessary level. Waste encompasses overuse of services, not necessarily intentionally. Abuse in healthcare can mean unsubstantiated payment for services.
Fraud, waste and abuse often result in higher costs for health insurance plans, premiums and copayments. They can negatively affect a payer’s revenue and even its reputation. Plus, the cost for recovering lost revenue may be more than that of implementing a payment integrity process in the first place. For a claim to be qualified as fraudulent, it must be proved in court that it was processed erroneously for financial gain.
The following numbers show just how much payment integrity issues cost the healthcare industry:
- Approximately 3 to 7 percent of all healthcare claims are paid inaccurately.
- The estimated total cost of healthcare fraud in the U.S. is $200 billion.
- Payment integrity issues result in about $800 billion in healthcare losses annually in the U.S.
- Federal health officials made more than $16 billion in improper payments to private Medicare Advantage health plans in 2017.
- One-in-five medical claims submitted are processed incorrectly.
- Payers could save up to $15.5 billion in unnecessary administrative costs if insurance companies would improve their claims processing accuracy.
- Improper payments for the following services were made to Medicare last year:
- Home health ($3.2 billion, 17.6 percent)
- Durable medical equipment ($2.6 billion, 35.5 percent)
- Hospice ($2.1 billion, 1.7 percent)
- Laboratory ($1 billion, 28.2 percent)
- All services ($31.6 billion 8.1 percent)
The Role of an Independent Review Organization
One of the best ways to proactively manage payment integrity is through an independent review organization (IRO), which is designed to streamline the process of medical reviews and reduce unnecessary waste. IROs offer unbiased decisions, eliminate conflicts of interest and ensure that each party is treated fairly through a resolution based solely on clinical documentation, not opinions or unsubstantiated data. They also are able to adhere to strict compliance requirements and offer substantiated benefits such as patient protection, cost-effectiveness and a positive impact on health plan review processes.
By playing a part in reducing errors in healthcare through attention to detail and precise documentation, IROs help payers improve member satisfaction. Through their evidenced-based external determinations, they offer reduced liability through the utilization of external, Board-certified Specialists in the same field of service as the original provider(s), decreased risk and reduced medical errors and adverse events.
It may seem more expensive to outsource work instead of performing it in-house, but utilizing an IRO allows an organization to pay on a case-by-case basis, thereby reducing ongoing expenditures. If the work is done in-house and contains errors or isn’t performed correctly, there is the chance of fraud and costly settlements.
Advanced Medical Reviews (AMR) offers our healthcare clients a reputable and cost-effective method for meeting their medical case and pharmacy benefit review and utilization management needs. We are HITRUST CSF-certified and fully accredited by URAC, and our clients include health plans, managed care groups, workers’ compensation and disability clients, TPA, IPA, Medical Groups, MSO, PPO, HMO, Medicaid and Medicare teams, hospitals and government entities.