Hospital Reimbursement Solutions

Third-Party Payer Denials: The Neglected Receivable
Consumer discontent and frustration permeate the health care environment. These sentiments are largely those of "insured" patients whose coverage turns out to be illusory. All too frequently, a patient believes he has health care coverage, receives medical treatment and, then after services are rendered, finds out that his claim is either partially or fully denied.

Traditionally, when claims are denied or when there is a delay in payment, patient accounts personnel convert the outstanding balance to patient responsibility (self-pay) rather than pursue the third-party payer for the hospital's assigned benefits. After sufficient time has passed, a collection agency or law firm is retained to collect the balance due on the account from the patient. Thus, hospitals generally ignore potential third-party payer avenues of recovery, such as the patient's insurer and his employer.

Some hospitals do encourage patients to retain their own attorneys to resolve denials by third-party payers. Typically, these patients and their families find themselves at a significant disadvantage against a third-party payer and its legal counsel who are sophisticated and experienced in the law relating to commercial insurance, HMOs, PPOs, Blue Cross, and self-insured groups. It is inefficient, and often ineffective, for each patient to litigate his own denial inasmuch as the law relating to insurance denials is evolving and complex, and a piecemeal approach does not permit the accumulation of a body of knowledge to counter that accumulated by the insurer. Moreover, the litigation of third-party denials or delays without proper representation can lead to court opinions in favor of insurers and employers that may serve as precedent to prevent recoveries by patients and hospitals in subsequent cases.

The traditional practice of not challenging third-party denials and instead pursuing only the patient needs to be reexamined. Its result is profound consumer discontent, especially in those cases in which the unfortunate patient having believed his premium payments were buying him coverage for his treatment, finds he must incur legal expenses not only to enforce his claim for benefits, but also to defend against a collection suit by the hospital, plus the additional expense of paying the hospital bill. Consumer resentment is directed not only against the insurer, but also against the hospital for its approach toward financial recovery, and the health care system in general. Hospitals should challenge wrongful denials and delays and pursue guarantors and third-party payers simultaneously for each party's appropriate share of the medical bill. This course of action will not only enhance the hospital's image as patient advocate but, if done properly, will result in a significant increase in payment of outstanding bills, particularly on larger balance accounts.

SELF-INSURED GROUPS Self-insured groups comprise an increasing share of the commercial insurance market. The protections typically provided to insureds under state codes of insurance have been extinguished for many patients because many employer-sponsored health insurance programs are subject only to federal regulation. With the passage of ERISA (the Employee Retirement Income Security Act of 1974), employers have been encouraged to provide health insurance benefits to their employees. Many have chosen to do so by means of a self-insured plan. The advantages to the employer of such self-insurance include exemption from state code regulation, thereby eliminating minimum standards of coverage requirements and mandated benefits. Although such relaxation of state code protections may create an incentive for employers to provide some level of health care coverage to their employees, it creates new challenges for patient accounts personnel to make sure that the hospital is not the unwitting victim of well-meaning legislation.
COMMERCIALLY-INSURED GROUPS Many employer-sponsored health plans are funded via commercial insurance. Such plans are subject to state codes of insurance and have requirements with respect to levels of coverage and mandated benefits. However, it is unwise to assume that all commercial insurance carriers look at benefits and policy provisions in an objective, equitable fashion. Increasingly, the environment is one of ratcheting down coverage by finding ways to disallow claims in a self-declared effort to control health-care premium costs.

Many Directors of Patient Accounts are unaware of the extent of the potential for challenging and reversing denials in their accounts receivable. These denials may be due to a myriad of reasons including, but not limited to, preexisting conditions, medical necessity, defective pre-certification or claim form compliance, COB (coordination of benefits) subrogation, disputed worker's compensation claims, or failure to exercise continuation or extension of benefits rights. Traditionally, upon receipt of a denial of health insurance benefits, the attitude in many facilities has been to reclassify the account to strict self-pay. However, this view, and the uncritical acceptance of insurance denials, can lead to unnecessary hardship for patients and to a lower rate of return on recovery of bad debts for hospitals. It is time for hospitals to assert their assigned rights to third-party benefits by the full use of the protections afforded under state, ERISA, and case law. What can hospitals do?

THE FRONT END The appropriate training of staff engaged in pre-admission and admission procedures is essential to protecting the hospital's best interest and, ultimately, the patient's best interest. Pre-verification of benefits is essential where non-emergency services are to be rendered. Hospital staff have an opportunity prior to admission to become familiar with any conditions precedent to third-party payment (pre-certification and/or claim form requirements, continuation or coordination of benefits problems), and to become aware of eligibility requirements and limitations of the health insurance plan. It is not uncommon for insurers to pre-certify or even pre-authorize an admission, and then issue a denial of benefits after services have been provided. if pre-admission and pre-certification procedures are thorough and well documented, the hospital will be in a stronger position to overcome such a subsequent denial of a properly pre-authorized or pre-certified admission.
MANAGED CARE Many employers seek to control their employee health care costs by negotiating a managed care contract should contain realistic pre-authorization terms with which pre-admission and admission staff are familiar.

Hospital documentation should be thorough as to attempts to pre-certify emergency admissions, and personnel should be diligent in ensuring that patients have complied as far as is reasonably possible with the referral or pre-authorization provisions of the contract inasmuch as such contracts typically provide great specificity regarding conditions precedent to payment. For example, if referral by the primary care physician is required under the managed care contract, admissions personnel can take the necessary steps to ensure compliance as the circumstances dictate. If compliance would be unreasonable in certain circumstances, those circumstances should be documented in the patient's medical or patient accounts record. Proper documentation can overcome an initial denial based on non-compliance with such terms.

Many managed care contracts contain provisions that encourage prompt payment of claims by offering a discount for payment within a stated time period. Billing and collection practices may need to be refined to ensure that discounts are not applied to claims paid later than the stated time.

TIMELINESS After the account has been billed, third-party follow up by hospital personnel must be done on a timely basis. Timeliness of payment is often required by state regulation. If payment is not made within a specified number of days after due proof of loss (typically 30 days), the insured and/or his assignee hospital may be entitled to statutory interest in addition to the benefits claimed.

Such state regulation is not applicable to self-insured groups, but federal regulation imposes a 90-day limit on delayed payment. A written explanation of the denial is required to be provided within that 90-day limit along with information regarding the appeal process. If such an explanation is not made within the time limit, it may be deemed a denial of benefits, and an appeal as set forth in the plan must be allowed. When a denial occurs, hospitals should identify those cases and separate them for analysis for potential referral to a law firm handling such denials. This practice may require designating a separate financial class for third-party denials, but the potential for improved recovery and an advocacy image to patients justifies the effort. This environment cries out for such creative, proactive patient accounting.

With respect to self-insured plans, under ERISA, when a denial occurs, the insured must appeal the denial on a timely basis (typically within 60 days of notice of the denial), In the present economic environment, ERISA plans are under significant pressure for financial survival, and may issue an initial denial that is reversible if the appropriate appeal is instituted. Sadly, patients as well as hospitals often are unable to handle the appeal effectively, and the denial is not reversed. Accordingly, it is extremely important for the hospital to secure sophisticated legal involvement in these situations.

REMEDIES Remedies vary by federal regulation, by state law if applicable, and by case law within a particular jurisdiction or fact pattern. A challenge may be brought based upon the provisions of the insurance contract by the hospital pursuant to the assignment of benefits it has secured from the patient. In addition, if pre-certification or ongoing certification is well documented, the hospital may be able to demonstrate a right to payment under a theory of promissory estoppel (detrimental reliance) because it reasonably relied on the representations of coverage made by the insurer. Legal theories such as breach of contract or regulatory noncompliance also may be appropriate in particular circumstances. In some instances, the hospital may be entitled to punitive damages or reasonable attorney's fees.

Moreover, recovery often may be obtained on a pre-litigation basis by careful analysis and investigation of a file combined with knowledge of the law underlying the dispute. For example, the insurer may deny a claim based on the fact that treatment was for a condition that it asserts was pre-existing even though the patient had no prior treatment for that condition. When the policy is carefully examined, it may be that the coverage is excluded only if the patient is not "treatment-free". That is, even if the patient exhibited symptoms of a condition, he will be covered if he has not received treatment. Or, if the policy requires an insured to be "symptom-free" for a specified period of time, the question of when "symptoms" rise to the level at which a reasonable person would seek treatment is an issue that may be successfully challenged when a denial is based on a pre-existing condition. Moreover, under health insurance regulations of some states, where the medical opinion of a patient's physician conflicts with that of an insurer's physician as to whether a condition is pre-existing, such a conflict must be resolved in favor of the patient.

Similarly, denials based on absence of medical necessity or because no pre-certification was obtained may often be challenged. Often certification is obtained for treatment as medically necessary, but it is not obtained prior to treatment because of circumstances beyond the patient's control. Sometimes an insurer may issue a pre-certification, then after treatment change its position and say the treatment was not medically necessary, thereby retroactively denying coverage. In addition, denials under managed care contracts due to the failure to first contact the patient's primary care physician should be challenged where the medical record or circumstances of the case justify noncompliance. Other denials that may be challenged include those based on an employee's failure to elect continuation of coverage upon termination of employment. However, often when the case is investigated, it turns out that the employee was never offered the proper notice to elect such continuation of coverage as required by law. Or a claim ma be denied because the injury allegedly occurred on the job and the employee's health insurer declares that the bill will be paid under a state's workers' compensation act. Yet, in these situations, payment often can be obtained by looking at the worker's compensation insurance carrier, the health insurance carrier, and the patient, and pursuing the appropriate parties as the circumstances dictate.

Probably the most disturbing and insidious type of denial, which typically occurs under individual plans but also may occur under group plans, is rescission. In effect, the health insurance carrier says, "Dear insured and/or patient, you did no inform us fully of your medical history at the time of your insurance application. Had you done so, we would not have insured you. Therefore, we now rescind the policy. We are refunding your premiums and it is as though the insurance policy was never in existence." Such unilateral abrogation of responsibility under the policy can, and in many instances should, be challenged by the hospital as assignee. Typically, an individual policy holder will be notified of the rescission, but the hospital will be told only that the patient is not insured. If it has been well documented, such contradiction will be readily identifiable, and should be challenged. Hospitals, by the assignments of benefits they receive from patients before notice of rescission is made to the patient, are entitled to the same notice and opportunity of challenge as the insured, and are often better equipped to make such a challenge.

CONCLUSION What does asserting hospital rights against third-party payers mean for the health care delivery system? It means maximum reimbursement for the facility. It also means being an advocate for the patient and his family at a time when they may be particularly vulnerable by exercising the assigned rights, and perhaps preventing the addition of significant financial burdens to a family already enduring a difficult situation. Without hospital intervention, families may be forced into declaring bankruptcy, with minimal potential recovery for the hospital, and maximum distress to the patient.

In today's competitive environment, how we handle patient accounts, and the creative approaches we pursue, can make a difference not only in our own hospital and community, but nationally. The statutory and case law tools are in place for hospitals to hold insurers accountable for "trigger-happy" denials, and to encourage prompt and fair resolution of disputed third-party payer claims. Having worked in the reimbursement field for over twenty years, I am not convinced that we are doing all we can to make our current beleaguered system work. I believe it can work, if hospitals assert their rights, and the rights of their patients, by holding third-party payers to fulfillment of their obligations under the law.

Directors of Patient Accounts and other patient accounts personnel must maximize their reimbursement level to maintain their hospital's financial viability. By identifying and challenging unwarranted third-party payer denials, hospital personnel can also provide a service to the patients and families in the community served.