Report quantifies the financial impact of certain health plan business practices on providers

As hospitals seek to regain their financial footing coming out of the pandemic, they may find themselves stymied by commercial payer policies, according to a new report.

“It’s true that commercial payers might generate more net revenue than public payers on a per-case basis,” Crowe states in a report it recently published. “But at what cost?”

Commercial payers “take the longest to pay, require providers to jump through more hoops to get paid, and delay payments to providers via claim denials at a higher frequency than government payers,” the report states.

Several challenging KPIs

For the report, Crowe analyzed data from its proprietary revenue cycle analytics platform, which the company says is used by more than 1,800 hospitals and 200,000 physicians.

Commercial payers pay $18,156 per inpatient case, according to the data, compared with $14,887 from Medicare. For outpatient cases, average payments are $1,607 and $707, respectively.

Meanwhile, medical necessity denials for the first quarter of 2023 were at 3.2% for commercial payers and 0.2% for traditional Medicare, according to the data. Looking at initial denials as a larger group, Crowe found rates of 15.1% for commercial payers and 3.9% for traditional Medicare.

“Providers expect 15% of every dollar billed [to commercial payers] to be challenged and scrutinized and to expend labor-intensive and costly procedures to ultimately get paid,” the report states.

Request-for-information denials were 4.8% for commercial payers and 0.4% for Medicare.

Providers recently avoided a potentially burdensome development in the context of medical necessity denials. UnitedHealthcare previously had announced it would incorporate prior authorization for non-screening gastroenterology procedures effective June 1.

But after feedback from provider advocates such as the American Hospital Association, the insurer said it would not implement prior authorization at least for the rest of the year. Instead, providers must submit advance notification for a relevant procedure if they want to be considered for the UnitedHealthcare gold card program that is set to launch in 2024.

Submitting the required notification might lead to a recommendation that the provider engage in “a comprehensive peer-to-peer discussion with a board-certified gastroenterologist around clinical guidelines,” according to a UnitedHealthcare bulletin.

Chipping away at revenue

Per the Crowe report, accounts receivable over 90 days was 31% among inpatient claims submitted to commercial and managed care payers, compared with 12% in traditional Medicare. For outpatient claims, the share was 32% and 11%, respectively.

Looking at indicators of payments that are lost altogether, Crowe found:

• Bad debt was 1.9% as a share of gross patient services revenue from commercial payers, compared with 0.3% for traditional Medicare beneficiaries who have cost sharing.
• Final denials amounted to 2.8%, compared with 1.6%.
• Takebacks as a share of net patient revenue from commercial payers totaled 3.2%, compared with about 1% in traditional Medicare.

Examining the three categories together, Crowe concludes, “Eight cents of every dollar providers bill to commercial payers will never be received or will be taken back once received.”

HFMA News sought a comment from AHIP to get the health plan perspective on the report findings but had not heard back when this article was published.

Strict measures may result

Even with 8% of commercial payments being lost, such payments still bring in more revenue for hospitals compared with Medicare payments (and that’s even before accounting for the share of Medicare payments that are lost).

But when considering the erosion, the delays and the need to defend an estimated 15% of claims, Crowe says there is substantial uncertainty in the revenue hospitals receive from health plans.

Such constraints should put hospital billing and collection practices, as well as decisions to close units or lay off staff, in a different light, according to the report: “When providers make difficult decisions that ensure they capture all the dollars they can, they should be able to make those decisions without fear of the media shining a negative light on their business practices.”