Solving the Problem of Utilization Review and Hospital Payment Denials
Today’s health insurance plans—whether health maintenance organizations or traditional indemnity plans—must reimburse hospital, physician and other provider services only if they are deemed “medically necessary,” resulting in unnecessary payment denials. The managed care motto is: “Why should we pay for Cadillac care when Chevy treatment would have sufficed?”
In order to ensure that healthcare services are indeed Chevy, not Cadillac, health plans often employ physicians and nurses to conduct a post-treatment “utilization review.” Upon completion of the utilization review, if the health plan (payer) finds that the patient services exceed the necessary level of care, the payer would then deny at least a portion of the treatment, and sometimes the entire claim.
So if a hospital emergency room physician treats a patient and then admits him or her overnight, the payer can review the chart after the fact and determine whether that inpatient stay was medically necessary. The health plan medical director may second-guess the ER decision as over-cautious, thinking the patient should simply have spent a few hours in an observation room before returning home.
The result: the ER physician and hospital receive denial letters instead of reimbursement checks despite making their best call in a tough, fast-moving environment. This chronic problem has led to a myriad of legal disputes about level-of-care issues and standards used to assess clinical judgments. After receiving a denial letter, the healthcare provider normally files an appeal with the health plan demanding fair compensation.
Hospitals and physicians often overlook an attractive alternative to appeals—reconsiderations. The reconsideration process addresses the growing problem of health plans using utilization review to deny payment for all services rendered, not just the portion of the services disputed by the plan.
Case in point: If the health plan finds after utilization review that the ER should have released the patient from care, rather than admitted the patient, then the payer often uses this finding as an excuse not to pay for any portion of the care—even, ironically, the initial diagnostic testing needed to make the plan’s determination (e.g., hospital lab tests showing the patient to be hemo-dynamically stable with unremarkable vital signs).
Indeed, a plan’s claims processing system—having considered its medical director’s decision that the patient failed to meet inpatient standards—often denies the entire hospital stay, including ER treatment and ancillary services, even the diagnostic blood work.
Clearly, there is a total disconnect between how a health plan’s medical director clinically views (and denies) services, and how a health plan’s claims processing system identifies and often refuses to pay for services the medical director has not denied.
What frustrates hospitals as they pursue legal avenues to reimbursement is why they must appeal a claim that is only partially denied, but not paid at all. Shouldn’t they receive payment for the undisputed care without having to appeal?
Again, the answer is reconsiderations. Because most payers allow only one or two levels of appeal, hospitals should first contact the health plan and demand that the claim be reconsidered, if only to obtain payment for services not explicitly denied by the plan’s medical director. Certainly, any diagnostic testing upon which the health plan’s physician relied to deny a claim must be paid as necessary to rule out (or in) a condition for which the patient was a candidate for treatment. This notion of clinical judgment is inherent in the practice of medicine.
Once the health plan reimburses the undisputed services (or wrongly denies them again), the healthcare provider can decide whether to appeal any portion of the services that remains unreimbursed. In this way, the hospital saves a level of appeal, which it may need later, and should receive compensation for undisputed services.
So if the plan promises to pay only for Chevy treatment, it may decide later not to pay for Cadillac care, but it must pay its Chevy hospital bill. Anything less is a breach of contract and possible violation of applicable law.
Anderson & Quinn, LLC is a renowned law firm based in Rockville, Maryland, providing individuals, businesses, corporations, and healthcare institutions with the legal and litigation support they need.
