Hospital Billing, Errors and Overcharges; The Problem and Solution

Hospital Billing, Errors and Overcharges; The Problem and Solution

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Hospital costs represent approximately 40% of all healthcare expenditures by employer group plans. Hospitals do not provide what anyone would consider a normal invoice for their services; rather, they typically provide a very simple and often single-page synopsis of charges incurred (see Attachment 1).

Almost all employers outsource the management of their healthcare benefit program to an outside administrative service organization (ASO) such as Blue Cross, Aetna or Cigna that is responsible for processing and paying hospital and physician bills on the employers’ behalf. That ASO or TPA (third party administrator) is most often paid a flat fee per employee per month for their services, regardless of the size of the employer organization. ASO’s & TPAs have no financial interest in the amount paid for medical bills or the overall costs incurred by the employer’s plan in general.

To increase their internal efficiency and reduce their own overhead costs, ASOs strive to employ a process called auto-adjudication as broadly as possible, where claims are paid electronically without ever being touched by human hands. Whenever auto-adjudication is used, medical bills are paid without human review and the ASO is simply acting on the assumptions that the bills being paid are correct, both in terms of what was billed for (i.e., that the services were actually provided) and the how much was charged for those services. The problem is, both of those assumptions are almost always wrong relative to hospital charges, as it has been repeatedly found that almost 100% of hospital bills contain errors and overcharges to the detriment of the employer and patient (see Attachment 2).

Errors and overcharges are almost never identified or addressed, because the ASO does not take the time or make the effort to confirm the hospital’s billing accuracy. This is because the ASO has no incentive to identify or correct errors, due to the fact that it has no financial interest in the outcome of the claim, and in many cases even has a perverse incentive to favor the provider. The perverse incentive is created by the Preferred Provider Organization (“PPO”) relationships which often connect the profitability of ASOs and hospitals.

PPO networks were created as managed care was emerging about 25 years ago. Initially, PPOs played the neutral role of Switzerland” in the hospital billing and payment process, offering equal value to the payer (in the form of an actual discount) and the provider of services (in the form of patient steerage). Today however, the PPOs are almost completely managed to the favor of the ASO/Insurance Companies and providers, and to the detriment of employer payers.

All large ASOs (Blue Cross, Aetna, Cigna, United Health etc) own their own PPO networks, and the appeal of their service/product offerings, and thus the intrinsic value of their organizations, are closely tied to the number of hospitals and doctors participating in their networks as well as the perceived discounting their contracts provide. With most hospitals participating in most of the major PPOs, the value of patient steerage has diminished, and the benefit that PPO relationships offer hospitals is the ability to get paid quickly and easily and without scrutiny of charges. This being the case, the PPOs will yield to the unfair demands of provider hospitals simply to keep them happy and increase the likelihood that the hospitals will continue to participate in their network.

As a result, under what any reasonable person would consider absurd and unacceptable arrangements, hospitals and ASOs actually work together to prevent, prohibit or disallow the confirmation or auditing of hospital billings by the employer clients that work with those ASOs. This means that when an employer funds a hospital bill for the treatment of one of their employee plan participants, they will not receive confirmation of the accuracy and validity of the charges, regardless of the size of the bill or the complexity of the services offered.

In many cases, especially where employers have ERISA benefit plans, this unseemly arrangement between the ASO and a hospital leaves the employer in a position where it is not possible to satisfy its fiduciary duties to prevent the wasting of a the health plan’s financial assets and to ensure that the plan is getting fair value in return for the fees paid to service providers.

The only practical solution currently available for the problem discussed above is to provide for hospital bills to be reviewed for accuracy and validity by an independent organization with very specialized billing and medical expertise and to adjust payments to insure payment accuracy and reasonableness.

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