Addressing Healthcare Reimbursement

Addressing Healthcare Reimbursement

A Focus on Denial Management and Medical Necessity

The hard truth is that denials are a major pain point for all hospitals. Attempting to avoid denials altogether requires a conservative front-end approach which inevitably sacrifices essential reimbursement. Hospitals need appropriate compensation for the services they provide, making this approach unsustainable despite the potential savings from reducing denial management cost. The alternative is taking an aggressive approach on the front end, which requires a systematic and consistent process where hospitals need to be staffed to appeal the denied claims. Functionally, this means hospitals must retain skilled physician advisors ready to deliver compelling arguments for medical necessity when reviewing admissions and when challenging payer denials. In cases where a denial is not overturned, best practices call for physician advisors to document whether a written appeal is warranted, adding another layer to the revenue cycle process.

Hospitals and health systems know this. The difficulty lies in the execution. Healthcare organizations can no longer afford to take a hit on reimbursement, therefore medical necessity determinations and denial management must become a priority.

In this review, AppriseMD looks at how hospitals can tackle barriers to reimbursement, increase the focus on medical necessity and uncover hidden factors that contribute to revenue loss.

Barriers to Reimbursement

Hospitals and health systems struggle with reimbursement now more than ever. Supply charges, labor costs, inflation and the increased administrative burdens from payers have significantly impacted a hospital’s ability to cover patient care costs, creating a compensation blockade. Some of the payer barriers, for example, include increased denials, payment delays and downgrades, which has a staggering impact on a hospital’s cash reserve. In fact, the “median health system witnessed a significant decline in cash reserves, measured as days cash on hand … from 173 days in January 2022 to 124 days in June 2023.” That’s a plunge of 28% and can impede a “hospital’s ability to deliver care.”¹

Other obstacles to revenue cycle management include automation, artificial intelligence (AI) and varying medical necessity criteria. “Payers are using more sophisticated algorithms to perform automated reviews, more complex criteria for claims submission and medical necessity, and more variables in their contracts such as medical necessity criteria and technical specifications — all leading to an increase in denied claims,” according to Modern Healthcare.² Avoiding denials upfront helps alleviate some of these uncontrollable factors, but the problem remains: reimbursement is being sacrificed if the goal becomes only to avoid the denial. Hospitals taking a more aggressive approach may experience higher denial rates and subsequently respond by implementing their own AI solution. But is this the best answer when implementation time, cost, maintenance and upgrades are factored in?

Automation and AI

In a September 2024 article, the American Hospital Association attributed much of the increase in claim denials to the use of AI tools and machine learning algorithms. In fact, the article shared that care denials increased an average of 20% for commercial claims and almost 56% for Medicare Advantage (MA) claims between 2022 and 2023.³ While technology can augment medical necessity decision-making, it cannot replace an experienced medical professional. Automation does not consider the patient’s individual clinical circumstances, unique scenarios or original thinking, highlighting the need for an experienced medical professional to evaluate the claim.

Providers should be scrutinizing denials to ensure that the use of automation is appropriate. This also satisfies numerous state insurance laws that require proper evaluation of healthcare claim denials.⁴ This is where physician advisors are an asset, as they provide a level of sophisticated analysis and advocacy that complements and, in many cases, surpasses the capabilities of AI in denial management prior to a claim’s submission. Thus, physician advisors give hospitals a way to begin addressing denials on the front end.

Medical Necessity

Mitigating denials by correctly determining a patient’s level of care (LOC) involves complex medical decision-making which is further complicated by time constraints, ever-changing payer guidelines, regulatory compliance and preconceived ideas about what will be approved. These barriers can impact the quality of care as well as reimbursement. Mitigating reimbursement risk and ensuring revenue protection compels the expertise of a clinician skilled in both the treatment and reimbursement healthcare settings. Physician advisors bring regulatory knowledge with a proficiency in compliance guidelines and clinically appropriate measures that meet medical standards to every admission case. These skill sets are invaluable to case management and utilization management (UM) teams tasked with ensuring patients receive the best care in the most cost-effective manner at the right time.

Physician advisors perform a variety of job functions, but their key function is that of determining medical necessity. Medical necessity, as defined by the American Medical Association, is “health care services or products that a prudent physician would provide to a patient for the purpose of preventing, diagnosing or treating an illness, injury, disease or its symptoms in a manner that is (a) in accordance with generally accepted standards of medical practice; (b) clinically appropriate in terms of type, frequency, extent, site, and duration; and (c) not primarily for the economic benefit of the health plans and purchasers or for the convenience of the patient, treating physician, or other health care provider.”⁵

The admission decision, facilitated by medical necessity determinations, impacts many areas within the hospital, including quality, case management, operations, revenue cycle and finance, making the physician advisory role a fundamental position within any hospital or healthcare system.

The Invisible Barricade to Revenue

Reducing denials upfront requires a second-level physician advisor review to ensure that the first-level review is not impacted by reviewer perspective. These silent, or self-imposed denials during the first-level review are often attributed to reviewer perspective, and they are hard to quantify. At minimum, a self-denial results in reduced reimbursement, making it imperative that hospitals have a process in place to address this issue. Claims mistakenly prejudged as a denial are submitted at a lower LOC, representing lost revenue. These self-denials fall under the radar because they are not being evaluated for potential reimbursement, and hospitals cannot afford to leave money on the table.

Another area often overlooked by both technology and utilization management (UM) teams is a practitioner’s reticence to perform much-needed peer-to-peer reviews to overturn denials when they inevitably happen. Treating physicians may be too busy and not able to spend the allotted time to really push for the higher LOC, or they may simply not want to engage with the payer medical director. This represents another unseen barrier to revenue, which is why AppriseMD employs some physician advisors to just facilitate the peer-to-peer discussions because these physicians embrace opportunities to educate the payers on medical necessity.

“Physician advisors are there to support and augment the clinical and nonclinical operations of the hospital,” said AppriseMD CEO Franklin E. Baumann, MD, CHCQM-PHYADV. “Hospitals need a dedicated physician advisor on utilization review teams to both educate treating physicians and serve as a resource.” In other words, nothing can replace the clinical expertise, critical thinking and effective communication of a physician advisor focused on denials. Equally, hospitals should implement second-level medical necessity determination reviews by experienced physician advisors to ensure that revenue integrity measures are enforced.

Filling the Gap

Whether in-house or outsourced, physician advisors fill resource gaps before the claim is submitted. While some may view the second-level review as denial prevention, it should be seen as revenue protection. Physician advisors support submission decisions for borderline cases when they initiate a discussion, physician-to-physician, with the attending physician, who ultimately has the best insight into a patient’s disease state. Sometimes the medical record does not tell the whole story, making the dialogue between the physician advisor and the attending a necessary step in determining the most appropriate LOC and thus reducing the chances of a denial.

Utilization review nurses manage many tasks, and they need second-level reviews conducted promptly. This can be a challenge for hospitals. Some hospitals enlist physician advisor overflow support services to provide second-level reviews quickly during busy times when their in-house teams are inundated. Hospitals also look to external organizations if their in-house physician advisors are not able to cover holidays, nights and weekends. “Correctly determining the appropriate LOC is of paramount importance,” making it critical that hospitals have physician advisors available to perform second-level case reviews when required. Case managers also need quick decisions on medical necessity determinations, so having a reliable resource to return a case within a two-hour time frame is essential. Escalating these cases to UM physician advisors solely focused on medical case reviews allows hospitals to accommodate cases around the clock without compromising revenue integrity or quality.

Summary

Aggressively addressing denials is essential for maximizing reimbursement. The ideal solution involves a comprehensive approach that focuses on getting admission decisions correct upfront and effectively managing post-denial challenges. This requires the consistent employment of second-level review processes conducted by experts skilled in medical necessity who return cases in a timely manner. Addressing healthcare denials centers on medical necessity, making physician advisory a core component of revenue cycle. This means that hospitals should have a backup plan to address overflow support and gap coverage, ensuring that all medical case reviews undergo the same process, which mitigates reimbursement obstacles.

SOURCES

1. Eddy, Nathan, “Hospitals confront mounting reimbursement challenges and diminishing cash reserves,” Healthcare Finance News. November 30, 2023.
2. “Why your denails are skyrocketing and 3 ways hospitals can respond,” Modern Healthcare. March 13, 2019.
3. “Skyrocketing hospital administrative costs burdensome commerical policies impacting patient care,” American Hospital Association. September 2024.
4. “The Use of AI in Claim Denials,” AppriseMD. April 8, 2024.
5. “Essential Health Benefits: Balancing Cost and Coverage,” Institute of Medicine of the National Academies. 2010
6. Norris, Amanda, “Are commercial payers to blame for majority of rev cycle claims denials payment delays?” Healthleaders Media. May 25, 2023.