Retrospective denials are generating attention from patients and providers, and for all the wrong reasons. Insurers increasingly require pre-approval, and put the onus on patients to attain prior authorization for medical services. But that doesn't guarantee the insurer will end up paying.
Traditionally, prior authorizations were only required for expansive, elective or new procedures. Now, though, some insurers require it for renewal of prescription drugs since pre-approvals are time-limited. This means patients are now legally on the hook for bills if insurers refuse to pay for a preauthorized service.
Including "this is not a guarantee of payment" is essentially a loophole for insurers to cite the treatment as medically unnecessary, leaving patients in the dark through the push and pull of prior authorizations between insurers and providers, according to Attorney Becky Greenfield.
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Greenfield, who is with Miami-based boutique firm Wolfe Pincavage, has stressed that these practices don't extend to all insurers, and some insurers may even be unaware of the downstream effect the loophole has been having on providers and patients. But it's still an ongoing problem.
Part of the problem for insurers is that healthcare costs are growing exponentially. Payers and understandably looking for ways to cut down costs, and prior-authorization requirements are one way to do that. One factor that makes this a potentially thorny issue is that, with more procedures and drugs requiring prior authorization, the patient or the provider now needs to get the OK from the insurer, giving the latter more control over care.
Another potentially problematic factor is the increased utilization of third-party vendors.
"Where payers need to do audits and medical necessity reviews internally, there is now a booming industry for third-party vendors to do that for payers," said Greenfield. "Vendors, from my understanding, are paid a percentage of what they save, so they will do anything they can to find savings through things like medical necessity reviews, all kinds of stuff."
Some insurers, especially large insurers, will hire multiple vendors even for the same types of reviews. In some cases they're not even sure which vendor is doing what.
"When we or our clients approach the insurer in some kind of formal or informal dispute resolution process, we've received responses like, 'Huh, we didn't know this vendor has this ongoing project,'" said Greenfield. "So part of the problem is they've lost some control over the vendors they've been hiring."
Yet vendors remain an attractive option for insurers because many vendors are paid on a contingency basis, meaning they don't represent a lot of up-front costs for the insurer but save a lot on the back end.
In some states, there are rules stipulating that insurers can't spend payment to review medical records; the provider needs to be paid promptly, so the way to review costs in that scenario would be on the back end.
But there are other ways for insurers to control these costs, said Greenfield. They're reviewing records while the patient is already in the hospital, and if there's a question as to whether inpatient or outpatient services are more appropriate, there are concurrent reviews between the treating provider and a clinician working for the insurance company. They collaborate on ascertaining a patient's specific circumstances to decide on the best service or level of care.
"If you're doing all this on the front end … once the services are rendered at the level of care that has been vetted by the insurance company, you should be paid for those services," said Greenfield. "There shouldn't be an added roadblock for providers who may ultimately receive the bill."
A COMPLEX WEB
When it comes to prior authorizations, there are multiple criteria being used in the healthcare industry. Insurance plans often use their own proprietary criteria. The hospital may be following another set of criteria. That situation naturally causes some discrepancies.
Hospitals will either work with their own teams to determine what is medically necessary, or they'll hire a vendor. In one real-life scenario, one of Greenfield's clients is having a dispute with a large, national insurance company. This particular insurer partners with a hospital vendor service. If there's a question as to whether a patient should be treated with observation or admission, the provider sends medical records to this vendor, who is owned or affiliated with the insurance company. The vendor might say that a certain course of treatment is medically necessary. Or it might not.
"(Providers) spend all this money on clinicians, then they spend money to appeal the claim," said Greenfield. "They have to hire a huge team to go through the appeals process and make sure they've exhausted their remedies, then they pay a lawyer to pursue these claims in court. Change Healthcare came out with a revenue cycle index in 2017 that estimated hospitals as a whole spend about $8.5 billion in vendor-related administrative costs. That's $118 for one claim, and the provider will have thousands and thousands of claims per year."
The Department of Health and Human Services' Office of the Inspector General released a study on Medicare Advantage claims from 2010 to 2012 and found MA plans overturned 75% of their denials on the first appeal, and then overturned additional denials on the second appeal. So the administrative costs are significant.
"All of these administrative costs have to be paid in some way, so they're included in the cost of care, driving up the cost of care for consumers," said Greenfield. "The cost of care is not just Dr. Smith performing a knee replacement. It also includes administrative costs to hire the correct vendors and the correct employees, and overcome these legal hurdles.
"I have friends at insurance companies, and they do a lot of great things," she said. "They'll tell you margins are small and costs are high, and then you see a public report for some of these enormous health insurers, and they're making billions of dollars. If you look at returns for hospitals, they've been pretty stagnant. Many rural hospitals have been closing or at the brink of closing. They can't keep up. So you're seeing consolidation in the market. There aren't that many independent hospitals still around. Coming from the provider side, from what I've seen, the insurance companies are making a killing."
Possible ways to address this, said Greenfield, include increased oversight from the state and federal level. Particularly, government would need to hold managed care accountable, especially in the case of a prior authorization.
"Regulators need to step in and make sure insurance companies are held accountable for their words," she said. "Because ultimately, with respect to prior authorization, it's not just the providers, it's the patients – they'll get their knee replacement and they'll be out there running the New York Marathon, and they could go bankrupt. The regulators would help level the playing field a little bit."
Greenfield said such measures would need to be implemented soon, as she perceives the playing field as becoming increasingly uneven.
"These types of disputes are just a part of doing business," she said. "And that's a blanket statement – that doesn't apply to all insurance companies. But for many, that's part of doing business."