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Claims Adjudication Crisis

October 25, 2007
by Donna Levigne
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When Naperville Health Care found itself in need of a new claims adjudication system, the financial future of the organization was on the line.

The majority of today's healthcare payer organizations understand that having a claims adjudication system in place that takes into account code review is a crucial first step in administering an effective cost containment strategy. The problems arise when an organization fails to regularly monitor the progress that its claims adjudication system is making in this area. When our management team at Naperville Health Care Associates (NHCA) was forced to quickly replace the vendor for managing our claims review, we discovered we had been missing financial savings.

Naperville, Ill.-based NHCA is the physician-hospital organization of Edward Hospital. Although the organization is comprised of 200 primary care and specialist physicians who are independently contracted with NHCA, the infrastructure and support are administered by a relatively small group of three claims examiners and 19 total employees. The three examiners are responsible for roughly 23,000 covered lives or almost 8,000 patients each — an exceptionally large workload compared to industry averages.

To make this daily workload manageable, we have been moving closer toward a paperless process each year. We now have 70 percent of all claims coming in via electronic means. In addition, we instituted a claims review system as part of our cost containment strategy to save the examiners from the laborious manual claims review process. We believe that with claim turnaround time mandates, NHCA would have needed considerably higher staffing levels in a manual review process and still not have been guaranteed the savings of an automated process.

However, our progress toward automation was set back when the claims management review software vendor under contract was purchased by a much larger competitor in January 2006. The new parent company subsequently announced that it would sever the vendor's former contracts and endorse its newer — and much more expensive — system.

We suddenly found ourselves in a search for a new claims review vendor with a system that would be functionally comparable to the old one. Because of my previous experience in driving system implementations, I was charged with the task of researching and selecting the new system, and setting up some basic, yet fundamental, criteria for an ideal system.

My main requirements were for the system to detect improper and erroneous coding within the claims process such as duplicate payments, protect against fraudulent billing by reducing payments based on prior claim history for global surgical packages, and be able to track and report physician payment trends. Most importantly, the system had to be affordable for an organization of NHCA's size.

During the search process for a new system, I worked collaboratively with my staff over several months to research and evaluate a number of vendors. One of the claims review systems that we researched was Virtual Examiner from PCG Software (Malibu, Calif.), which was recommended to us by our current claims administration system vendor, EZ-CAP (MZI Healthcare, LLC, Valencia, Calif.). When PCG's representatives arrived for the system proposal to NHCA, they offered to run a trial review of the company's data using a 12-month sample of the organization's claims from the previous year.

Within a week, the vendor returned to present its findings. The results surprised us. The data which we had already protected by a claims review system came back with dozens of specific examples of where our existing system had failed.

Found money

The Virtual Examiner system emerged as the solution for us because it met all of our claims staff's core requirements, including the ability to identify savings in professional and facility costs before claims payments are made. The system now monitors our internal claims process to identify unclean claims and reduce payment for improper or erroneous coding. Also, the system evaluates each claim not only for fraudulent and abusive billing practices, but identifies those claims that involve third-party liability/coordination of benefits recoveries and case management opportunities.

The duplicate claims check functionality of the new system was an important feature for us because it identifies a number of coding errors that would have previously gone unnoticed. In addition, the system facilitates the way in which reports are prepared for providers by allowing our staff to easily cite the source of each claim edit, whether it was from CMS, National Correct Coding, or another source.

Because the majority of the system's implementation could be conducted remotely and there were no required changes to our infrastructure, I was able to keep the claims department up and running and avoid unnecessary downtime. For us, the entire process from proposal through installation lasted two months.

One feature that the claims staff was looking for in the new system was the ability to adjust and turn off particular claims edits for specific providers. The vendor walked our claims examiners through this method, along with showing them how to tailor the accompanying process reports to reflect these changes.

The numbers that matter

Since implementation in February 2006, NHCA has realized a 56 percent increase in claims savings on fee-for-service claims, and more than a 500 percent increase in savings on capitated services including facility and primary care claims. Simply based on financial aspects, the new system has retained thousands of premium dollars for our organization, and we realized a return on investment in five months.