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Ways to deal with "Usual and Customary" payment reductions

How many times have you received reduced payment on claims for charges that are "above usual and customary"? Many insurance companies get their payment data from Ingenix and use the 80th percentile to determine how much they will pay for a specific CPT code. Anything billed over that amount is denied as above usual and customary. Our company always fights these denials. When the usual and customary reduction occurs on claims from insurance companies that my clients do not participate with, we bill the balance to the patient and one of two outcomes usually occurs: (1) the patient gets the insurance company to pay the difference, or (2) the patient pays the difference. You heard it right…we get paid 100% of the claim billed to non-par insurance carriers…a novel idea and a very strong argument for not signing up to participate with every insurance carrier who throws a contract in front of you. We frequently get requests from insurers to accept a reduced fee in exchange for prompt payment. The requests go something like this:

Dear Provider,
Although the usual and customary charge for the procedure you performed is $1,200, we will agree to pay $1,494 of your $2,100 charge if you sign below. You will agree not to balance bill the patient any difference, and we will pay you in 48 hours.
--Your Friend, The Insurance Company

We never sign this, and we get the full fee for our doctors every time. On one rare occasion, this request was sent directly to our client’s office, and the new office manager signed the agreement. The insurance carrier paid nothing because the patient had a high deductible. The patient did not pay the bill, and the claim went to collections. After the collection agency reported the patient to a credit bureau, the patient paid the reduced fee (which the office manager agreed to), and our client received that amount less the collection agency fee. What do you think would have happened if the office manager had not signed the agreement?

Unlike traditional claims, workers’ compensation (WC) claims are governed by different laws, and the provider (by law) may not balance bill the patient. In the Northeast United States, only New Hampshire and New Jersey do not have WC fee schedules. A fee schedule is a pre-determined fee that encompasses all CPT codes and is approved by the state. If you do business in a state that does not have a WC fee schedule, read on about a ruling in New Hampshire that questions Ingenix validation process and rules that Liberty Mutual’s reduction for “usual and customary” is arbitrary.

In New Hampshire, RSA 281-A:24 governs Payment for Reasonable Value of Service. The statute states in part:

281-A:24 Payment for Reasonable Value of Services.

I. The employer or the employer's insurance carrier shall pay the full amount of the health care provider's bill unless the employer or employer's insurance carrier can show just cause as to why the total amount should not be paid. Effort shall be made to resolve any dispute as to the reasonable value of service prior to applying to the commissioner for resolution of such a dispute.

To see the full RSA online go to:

http://www.gencourt.state.nh.us/rsa/html/XXIII/281-A/281-A-24.htm

Instead of sending a request for reduced payment like the previous example, many WC payors just pay a reduced fee. If the charge submitted by the provider is above the "usual and customary" fee determined by the WC payor, the difference is denied. We recently appealed several WC claims that had been denied as "above usual and customary". The State of New Hampshire Department of Labor concluded that the 80th percentile used by Liberty Mutual was arbitrary and that the data supplied to them by Ingenix was potentially flawed.

On November 7, 2005 the State of New Hampshire Department of Labor rendered a decision on an appeal for the denial of claims for above "usual and customary". The appeal submitted on behalf of several ProClaim (medical billing service) clients was for nine claims totaling over $30,000. These claims had been reduced significantly by Liberty Mutual. Of the nine cases, eight involved just the cost of the claim, and one case involved a coding issue in addition to the cost. The decision stated, “Based on the evidence presented, it is determined that Liberty Mutual Insurance Company has failed to meet its burden of proof that the charges billed are unreasonable.”

The findings of fact revealed that Liberty Mutual Insurance Company has contracted with Ingenix of Salt Lake City, Utah for a proprietary payment system that calculates statistical data provided by Ingenix. The system calculates the mean, median and mode, meaning the average, middle and most commonly occurring charge for an identical medical procedure within a set geographic boundary called a Geozip. Liberty Mutual has the ability to pay charges based on a percentile of the various amounts billed, and Liberty Mutual has chosen to pay claims based on the 80th percentile.

A witness from Ingenix stated that they have contracts with various third party payors (insurance companies) for raw data collection for non-discounted fee for services for professional services sorted by insurance code. The data is divided into geographic areas. Ingenix has a proprietary validation process. They collect over one billion charges in the course of a year nationwide. The witness testified that Cigna/Healthsource is a contributor of data and that Anthem Blue Cross/Blue Shield is not. No Medicare or Medicaid data is provided to the database. The witness could not say they were receiving charges for professional services from every provider performing a particular procedure within the Geozip area. Furthermore, although the validation process requests and requires the non-discounted fee for services, the witness was able to offer no evidence that the providers were not submitting to Cigna/Healthsource their contract rate rather than their full charge. It was unknown what type of validation process and/or screening the third party payor may perform before sending it to Ingenix.

There was additional discussion about the zip code data. It was noted that as a billing company, ProClaim uses its own address on the claims for payment purposes, thus making the zip codes used by Ingenix incorrect by not being where the actual procedure took place. ProClaim has clients all over New Hampshire, including Berlin, Nashua, Portsmouth, Concord, Woodsville, Plymouth, Lebanon, New London, Claremont and other towns throughout the state.

Another witness testified that the 80th percentile used by Liberty Mutual seemed to be arbitrary and provided no specific reason as to why Liberty Mutual chose that rate. The fee schedules used by my clients are purchased each year, and the providers each chose to set those fees at the 90th percentile (rather than the next lowest percentile of 75%) from a PMIC publication called Medical Fees in the United States. It was noted that the Ingenix fee schedule and the PMIC fee schedule were similar. It was noted that Liberty Mutual adheres strictly to the codes and reimbursement amount provided by Ingenix. However, in rare cases, they appear to consider arguments by physicians who have higher billing rates due to their skill level, the difficulty of the operation, complications, etc. There is no real appeal procedure for providers to argue for full payment of their services, besides a Labor Department hearing.

ProClaim’s clients whose cases were being reviewed were established surgeons. One was a general orthopedic surgeon with 18 years experience, and another specialized in knee surgery performing over 100 procedures in question per year, both believing that their experience and specialized service deserved a higher charge. I argued that any reduction in my clients’ bill should be disallowed and that the prices charged for the specific cases are reasonable based on the experience of the physicians and the fact that there is no fee schedule or set price within the statute.

The Department of Labor made the following findings.

1. Ingenix was not prepared to provide or did not provide the sources of their data for use in New Hampshire.

2. It was not known whether all providers performing a particular orthopedic procedure in the state were represented in the data.

3. It was not known if the various providers had been classified in the correct geozip area for comparisons.

4. The division of the state into only two geozip categories was too broad of a comparison.

5. Liberty Mutual Insurance Company’s choice to pay in the 80th percentile was an arbitrary choice.

6. The “validation process” is flawed. It appears that Ingenix is dropping the lowest charges and highest charges from review. This narrowing of the measurement area may create a downward bias in the statistical analysis.

The Department of Labor ordered Liberty Mutual Insurance Company to pay the difference between what they already paid and the charges submitted by ProClaim on behalf of their clients. It is important to note that the fees ProClaim’s clients used were not an arbitrary number such as a multiple of Medicare allowables. It is important to set your fees using a method that will hold up under scrutiny.

For more information, contact us.