Why Electronic Billing Raises Health Insurance Premiums

In this day and age of modern technology, insurance companies and medical providers are constantly seeking ways to reduce costs and increase revenue. Electronic billing is utilized by providers, and software is utilized by insurance companies to process claims. And though administrative costs are significantly reduced by these methods, major flaws exist in the process that results in overpayments to medical providers.

I’m going to explain why and how modern day technology has cost you, the consumer, to pay a higher price for insurance premiums. Before I begin, allow me to explain, briefly, how administrative costs have been reduced by electronic billing and automated claim processing.

When a medical claim is billed electronically, it is rare that an actual person will review it. A computer scans the bill; the software looks for errors, called edits, and calculates reimbursement to the provider. This lowers administration costs by reducing the number of employees required to process a claim. It also reduces salaries, because employees in customer service are no longer required to be as experienced or knowledgeable as they once were.

Electronic billing lowers costs for providers by reducing paper, postage, and the number of employees needed for claim follow-up. It also speeds up the payment process.

Many medical providers employ a billing service, because it eliminates costs associated with implementing electronic billing software. Billing services promise to increase revenue, because they utilize the latest technology and incorporate many different services for a nominal charge: billing insurance and patients; coding; account reconciliation; claim follow-up. In addition to handling all aspects of billing, they will also provide patient scheduling and electronic medical record programs to providers. The fee charged by a billing service usually ranges from 5%-10% of a provider’s revenue per month and is worth the cost.

Now, let’s examine how electronic billing and automated claim processing results in overpayments to medical providers.

Electronic billing does not require medical record submissions or a breakdown of charges on a per item basis. Because electronic billing is preferable to paper submission, it has become acceptable to submit all claims electronically, including complex surgeries and inpatient claims.

Though an insurance company’s software is designed to flag bills for inconsistencies and errors, some errors will not be flagged by the computer and can only be caught by a manual review of a bill. Therefore, it is detrimental that data-entry employees have a high accuracy rate.

Per-unit charges

Any type of charge that is calculated on a per-unit basis is subject to a charge increase if there is a data entry error: medications; injections; recovery room charges. For example, one slip of the finger could result in charging six hours in the recovery room instead of three; nine hours instead of six.

Accidental up-coding

Every service and procedure has a five digit code depicting exactly what was performed. Though each code is different, they are numerically similar as it pertains to categories. For instance, an x-ray code depicting two views of the chest is different than an x-ray code depicting four views of the chest—one code is 71020 and the other is 71030, respectively. Reimbursement is obviously greater for four x-rays than it is for two.

It is not uncommon for someone to charge for a service or a supply and, unaware the item has already been charged for, another person charges for the same item. This results in a duplicate charge and would be easy to identify if an itemized list of charges, called a charge master, was submitted along with the bill. But this would require the bill to be submitted via mail and reviewed manually. Because electronic billing is not designed to read charge masters, and because it is preferable for the system to process a claim instead of a person in order to reduce costs, charge masters are not submitted, and duplicate charges are not identified.

If an insurance company pays a provider based upon a percentage of billed charges, all of the above errors will result in an overpayment. It will increase the amount of coinsurance a patient is responsible for, too.

Since medical records are not required for claim submissions, it is simple to up-code, or charge for a service that has a reimbursement rate greater than what was actually performed. This would include charging for a consult instead of an office visit; up-coding an office visit from 10 minutes to 20 minutes.

This may seem like nickels and dimes to some, but nationwide, this is one of the reasons insurance premiums have skyrocketed. Not only does this happen with simple office visits, but because documentation is not needed to substantiate charges on a bill, this happens with surgeries and inpatient claims, which I will discuss below.

Before I explain how manipulating edits is possible, let me explain why it would happen.

A billing service’s reimbursement is based upon a percentage of a provider’s revenue, so it is in the best interests of a billing service to find ways to increase revenue. This can be done legitimately or illegitimately. The latter is much more profitable.

Many people don’t realize that billing services are immune to fraud and abuse charges; it falls directly onto the medical provider’s shoulders. (However, this will soon change under the health care reform legislation.) Also, fraud and abuse is only punishable for government plans like Medicare and Medicaid. The only thing providers have to fear when committing fraud against a commercial plan is being removed from the plan’s preferred provider list for a period of time.

Additionally, if a billing service commits fraud and abuse, the medical provider is able to claim they had no idea what was occurring, whether true or not, Though this does not provide immunity for a physician, it does, indeed, create a degree of difficulty when building a case against a provider. It will likely prevent a fraud and abuse case from ever seeing the light of day in court. This could also be a factor in a substantial reduction of fines and penalties a provider is forced to pay the government in order to settle allegations of fraud and abuse.

Understanding edits is quite simple. The software is designed to read a procedure and diagnosis code and verify that they coincide. For example, if an EKG was billed and the diagnosis depicted gonorrhea, the claim would deny. (Though that might seem silly, I have seen this circumstance.)

Explaining it in a slightly more technical way, every procedure has certain diagnoses that justify medical necessity. A rotator cuff repair requires that that the patient has a torn rotator cuff, not just shoulder pain.

Additionally, the edits eliminate payment for unbundled procedures. In a nutshell, payment is not allowed for the cut in addition to the fix—only the fix is payable. To explain further, the shaving, or debridement, of a bone is not payable in addition to a repair, because debridement is part of a repair. There are exceptions to this rule. For example, if debridement was performed in an area other than where the repair took place, it would be payable. This circumstance would be indicated by placing a two-digit code, called a modifier, at the end of a procedure code. The software is able to identify the two-digit modifier, and the procedure will often be paid. Since medical records are not required for electronic billing, there is no verification through medical records.

The use of this modifier increases insurance payments substantially, resulting in increased revenue for the medical provider and the billing service.

This is only one small example of how the edits are manipulated in order to obtain payment.

Providers and billing services are aware that it is unlikely a bill will be reviewed alongside medical records. This results in not just manipulating the edits, but taking advantage of the entire process, including the inexperienced representatives that are employed by an insurance company.

Some procedures are considered experimental by certain insurance companies. For example, while a rotator cuff repair is a common procedure, there are different techniques that can be utilized for the repair. Some of the techniques have not been around that long and, therefore, are not covered by an insurance company, because there is not enough statistical data to conclude that the technique works for an acceptable period of time. This circumstance is not limited to my example of a rotator cuff repair. There are different techniques to all corrective procedures like back surgery, knee surgery, heart surgery, etc.

Depending upon a surgeon’s preferred technique; a provider may utilize cutting-edge technology (pun intended) and opt for a more advanced technique. These types of procedures should be billed as an unlisted procedure via mail, with medical records attached, for a manual review of the claim. When claims are billed like this, the insurance company will deny the claim, because it is not an approved technique.

This results, quite often, in someone changing a procedure on a bill to reflect a payable code, even though it doesn’t describe the procedure performed, and rebilling it via mail with a stamp that says “corrected claim”. The insurance company receives the bill and, because it saves time and money, loads it into the computer. The computer scans the claim and will deny it as a duplicate bill.

Once the denial is received by the provider or billing service, a phone call is placed to the insurance company to explain that the bill was denied as a duplicate in error. Because insurance company representatives are less knowledgeable and experienced than they once were, they are less likely to question the correction, no matter how strange it might seem. The representative overrides the denial, rescans it into the system as a new claim, and the entire process begins again, but this time payment is issued for a procedure that should have been eaten by the provider.

Once a provider or billing service identifies these types of procedures a surgeon chooses to perform, the initial claim denial is completely avoided by billing it “right” the first time.

These are only a few examples of how electronic billing and automated claim processing results in overpayments to providers. As you can see, the lack of documentation is a huge factor, but the way the process is designed allows it to happen. These costs are paid by the insurance companies and then shuffled onto consumers.

Insurance companies do perform random audits of medical bills, some of the overpayments are caught and recouped, but that doesn’t mean providers and billing services refund patients any overpayments they have made due to coinsurance.

My advice to patients is this: Request your insurance company to audit your large bills alongside medical records and the charge master, especially for those who have coinsurance.