Medical Necessity: Beyond DRGs

Vol. 16 •Issue 2 • Page 21
Medical Necessity: Beyond DRGs

HIM professionals are perfectly positioned to prevent leaking revenue due to medical necessity denials.

HIM professionals are perfectly positioned to play a significant role in managing the revenue cycle by helping to prevent revenue loss due to medical necessity denials. To do so, however, requires becoming a champion of change within your health care organization. This includes being a strong advocate for creating a multidepartmental team that evaluates and institutes more effective processes for medical necessity validation; working to educate clinical and medical staff on issues surrounding claim denials; and exploring automated tools that promote medical necessity compliance.

Cost of Doing Business?

Do you know how much money your facility loses each year based on medical necessity denials? What percentage of total revenue lost is caused by outpatient medical necessity denials? What is your organization’s loss leader by service, payer or provider? How should you go about compiling and analyzing denials data for your hospital? Most health care organizations pay close attention to inpatient denials, yet revenue lost through outpatient denials is increasing as more services are moved to the outpatient setting.

Consider this scenario: Your facility has a busy outpatient magnetic resonance imaging (MRI) service. An MRI of the lumbar spine costs $900.00 and the Centers for Medicare and Medicaid Services (CMS) allows $360 in reimbursement. Your hospital receives 50 denials per month ($450,000 value of services). If staff did not obtain a signed Advance Beneficiary Notice (ABN) prior to performing the MRI, your hospital lost $180,000 in Medicare reimbursement. With a signed ABN your organization could have billed the entire $450,000 because the actual charge can be billed when an ABN is signed. The final loss to the hospital is not $180,000 in Medicare medical necessity denials but $450,000 because once the service is provided without an ABN; the patient cannot be billed.

This example illustrates the importance of knowing the cost to your organization in lost revenue due to medical necessity denials. Here are some additional facts about outpatient denials that should be of importance to your hospital’s executive leadership:

• Twenty-seven additional CPT/HCPCS codes were removed from the CMS “inpatient only” list of services for 2006. Each year the list of allowable inpatient services shrinks as improvements in surgical technique, new anesthetic drugs and enhanced technology render more complicated services appropriate for the outpatient setting. Historically, outpatient denials are linked to clinical areas with smaller per dollar procedure values such as lab and radiology. As more complex services with higher dollar values are offered in the outpatient setting, the financial impact of outpatient denials will catapult outpatient services to a higher level on the finance radar screen.

• According to the American Hospital Association’s (AHA) TrendWatch Chartbook for 2003, “hospital outpatient revenue remained at 35 percent of total hospital revenue in 2001, up from 13 percent in 1980. Private payers continued to pay more than the cost of providing care, helping some hospitals to compensate for losses from public payers and uncompensated care.” In addition, according to the 2005 AHA Utilization and Volume Report from the TrendWatch Chartbook, Chart 3.14, the percentage share of outpatient surgeries rose from less than 20 percent in 1980 to more than 60 percent in 2003. (Source: The Lewin Group analysis of AHA Annual Survey data 1980-2003 for community hospitals)

With the growing complexity of services provided in the outpatient setting, and because an increasing share of hospital revenue is based on outpatient services, the need to check medical necessity of these services becomes crucial.

The First Step: Involve all Stakeholders

Because HIM interacts with all providers and departments in its daily responsibilities, it can play a significant leadership role in making the case for a multidepartmental denials management team. HIM understands and works collaboratively with all departments necessary to document medical necessity. HIM knows the stakeholders and can enlist team members from finance, information technology (IT), case management/utilization/quality assurance, the contracting officer, registration and admitting, and leaders from both the nursing and medical staff. A comprehensive team would also include the emergency department (ED) so its special challenges are factored into the improvement processes. HIM professionals can take the lead to ensure that all team members understand the importance of positive revenue flow and how process change to reduce denials will support the goals of each function.

Each functional representative brings an important perspective to the denials management team:

• HIM professionals can be process owners because of their familiarity with payer rules and coding and documentation requirements.

• Finance experts contribute their experience in billing, timely claim filing and are often involved with HIM and clinicians in the appeals process.

• Case management/utilization and quality professionals understand the clinical requirements needed to meet commercial payer medical necessity criteria and are key team members in the appeals process.

• Registration and admitting are essential team members because they interact with patients prior to service and often have overall responsibility of checking medical necessity rules and distributing ABNs. They also are good barometers of patient reaction to the process and are important drivers of the medical necessity check being performed at the physician office prior to the patient arriving for services.

• Nursing and medical staff representatives offer insight into clinical practice and are key team members when lobbying CMS to modify coverage decisions. A medical staff champion can convince colleagues of the importance of writing outpatient orders using CPT and ICD codes to facilitate medical necessity determination at the hospital.

• IT input is essential if an organization opts to implement an in-house designed software application.

• Compliance assures that the outcome of the process meets facility, state and federal rules.

A formal plan for the team should be developed that outlines goals, expectations, responsibilities and accountabilities. Measurement should be a key focus of the team in order to identify problems, pinpoint solutions and document improvement.

Medicare Denials

Your organization should manage the Medicare medical necessity denial as soon as the patient walks in the door. During the registration process, staff can check medical necessity of services ordered before the patient enters the clinical area. Often contact with the ordering physician is required to ascertain the patient’s diagnosis so accurate LCD/NCD review can be carried out. When the service does not meet CMS medical necessity criteria, staff can council patients regarding CMS rules and provide the accurate ABN. Actions by staff in this area are important to creating patient and physician satisfaction with the process. Collaborative education by the team’s physician champion and patient access director is necessary to teach ordering physicians to include a diagnosis when scheduling a procedure for a Medicare patient. This allows staff to perform the medical necessity check prior to the patient’s arrival and alert the ordering physician.

There are many variables that impact medical necessity compliance. CMS issued National Coverage Determinations (NCDs) that affect numerous procedures. Local carriers add to the complexity with their own Local Coverage Determinations (LCDs). Correct Coding Initiative (CCI) edits regulate which code pairs can be billed together and are added and modified quarterly. The process of pinpointing potential compliance problems and avoiding coding errors can be overwhelming. To help make the process more manageable, patient services staff should have access to automated tools that can check the medical necessity of a Medicare order in real time, generate an ABN when needed and store standing orders.

If your organization chooses to implement medical necessity software, the HIM department should work closely with the software vendor to design a smart encounter form that can be used by the outpatient registration staff in areas such as the ED, lab and radiology. HIM should provide the software vendor with key words frequently used with orders, diagnoses, services (cardiology, rheumatology, gastroenterology, etc), as well as information about ordering physician(s) or group(s). With this information, the software vendor can create an encounter screen that is customized to your organization. The HIM department also should assume responsibility for ongoing updates to the encounter form so that it reflects the latest regulation changes. The denials management team can thus be assured that the software is updated to HIM’s exact standards.

Medical necessity validation software also can be of value to your medical staff, especially when writing the order. The software can immediately notify the physician if a procedure is on the “inpatient only” list; if the service and diagnosis have LCD or NCD restrictions; and if an ABN must be obtained from the patient prior to services. Software tools can provide direct viewing access to local and national medical review policies, making it possible for the clinician to review service options that meet the patient’s needs as well as meet medical necessity guidelines. If a service is not considered medically necessary, the clinician can create, print and store an ABN.

Commercial Denials

Accurate insurance verification is crucial to avoiding denials from commercial payers. Ensure that your registration staff (including the ED and night staff) uses effective processes, combined with automated tools, to verify the patient’s current insurance coverage. The case admitted late Friday night that is not seen by case management until Monday morning is a common medical necessity loss due to inaccurate insurance information. In this situation, the nurse case manager learns late in the day on Monday that the insurance coverage information in the hospital system is incorrect, after having previously submitted the clinical review to the insurance carrier listed in the admitting system. Not only is this a potential HIPAA compliance issue, but critical filing time has elapsed and the case manager cannot file the initial clinical data to the correct insurance carrier within standard time limits. The result is a commercial inpatient denial and loss of the right to appeal based on the lack of timely filing.

The inability to accurately collect and transmit data also can result in excessive commercial denials. Sometimes denials are caused by missing or inaccurate claim “field data” (identification number, payer name, physician name, etc.), but more often the chart is lacking adequate documentation of clinical services to support the claim. By teaming the HIM coder with the case manager, the number of medical necessity denials can be substantially reduced.

The CDM: Liability or Timesaver?

Accurate claims data is crucial to achieving accurate reimbursement. An outdated charge description master (CDM) containing inaccurate codes and cost data results in lost revenue. HIM professionals have the opportunity to lead the denials management team in championing the need to capture and stabilize charges while ensuring use of timely, accurate codes. HIM also can take the lead in acquiring chargemaster software. Based on coding and charge expertise, the HIM professional is the ideal expert to review available software solutions and work with the vendor on content issues. They can act as coding support for the CDM administrator. Pairing an experienced coder with the CDM administrator promotes accurate coding of standard lab and radiology services while increasing coders’ comfort level with hardcoding new and increasingly complex services. Use of accurately coded and priced chargemaster software reduces the outpatient load in the HIM department, freeing staff to concentrate efforts on denials management and reimbursement recovery.

Once chargemaster software has been implemented, the denials management team should perform an audit on Medicare outpatient and commercial claim denials and identify the root cause of the denial. By investigating and correcting process deficiencies, errors can be prevented before they reach the billing department. The end result is reduced denials, rework and write-offs, which can have a tremendous impact on a hospital’s bottom line. Preventing coding and compliance errors also is in the best interest of physicians and ancillary departments because claims data is used to evaluate and measure outpatient service mix and physician performance, among other measures.

Managing the Revenue Cycle

Ensuring medical necessity compliance can be a time-consuming and labor-intensive process, even with a multidepartmental team charged with the task. New software and Web-based technologies that go beyond medical necessity validation to support improved revenue cycle management can simplify the effort. Look for a system that can analyze and identify the underlying cause of a claim denial. It should also be able to calculate the dollar value of losses as well as the financial impact of interventions. Systems that support revenue cycle management should have robust reporting capabilities and provide data that can be used facility-wide to support contracting, staffing, finance and compliance. With such a system, the hospital will be able to submit clean claims the first time and positively impact the organization’s revenue cycle.

Barbara Aubry is a health care policy specialist with 3M Health Information Systems, based in Rockleigh, NJ.