October 30, 2012

Pay Attention to the Details: Your Payer Contracts

By Deborah Grider, CPC, CPC-H, CPC-I, CPC-P, CEMC, CPMA, COBGC, CPCD, CCS-P, CDIP

As expected, commercial payers started working on ICD-10 readiness several years ago and are integrating very specific contract language addressing ICD-10 and the potential impact on payment differentials.

It is imperative as part of your ICD-10 implementation planning to include a review of all your managed care and commercial payer contracts. New contract language is very precise on audit and review processes, with most payers intending to “neutralize” reimbursement should new codes cause claims to pay outside of a 1 percent threshold.

What we are seeing in some of the language changes is specific detail regarding ICD-10. For example, a few contracts state they agree to “raise rates if necessary, to reach a financially neutral position.” But what does that really mean? They do not clearly define “financial neutrality.” We can assume it means reimbursement will not be impacted in either direction. Most contracts I have reviewed indicate they intend to reimburse at the stated contracted rate post ICD-10 implementation. “Rates will be adjusted for any applicable contract year inflator or quality incentive if applicable and then neutralized for any positive or negative impact from implementation of ICD-10 coding.” Any reimbursement revision will be adjusted either up or down for any applicable contract year inflator or quality incentive, and then neutralized for any positive or negative impact from ICD-10 implementation.

Also, contract adjustments will be implemented BEFORE any adjustments are made for ICD-10 impact.

Language in most contracts state that a formal review of the impact of the ICD-10 coding changes may be initiated if any such ICD-10 coding changes have a financial impact in the aggregate on the agreement between the provider and payer. One contract I reviewed stated: “Financial Impact” shall mean a change equal to or greater than one percent (1%) of the total amount paid by the Plan to Facility for Inpatient and Outpatient Services.”

This is the good news. Now for the bad news.

The formal review will be at the expense of the provider if you feel you were underpaid, or at the expense of the payer if they feel you were overpaid.

Payers who are promising to maintain financial neutrality should make a good-faith effort to determine the financial impact of ICD-10 within a reasonable time frame, but some payers are writing language into the contracts that four months of claims must be submitted before you can even request a review. In addition, in most cases you must analyze the previous 12 months of facility claims using ICD-9 codes prior to ICD-10 implementation.

This means either party (provider or payer) may, at its own expense, initiate a review of the impact no sooner than four (4) months but no later than twelve (12) months post-implementation of ICD-10.

This spells out EIGHT months to INITIATE an impact review, which could impact the organization financially in a significant way.

If after the review it is evident that the financial impact was attributed to case mix changes caused by ICD-10, as opposed to a true case mix change, the provider would need to notify the payer in writing, and is some cases resolution would be made or a decision made within 30 days, but in some contracts it does not appear that there is a specific timeline—only a promise of a good-faith resolution.

You should perform your own analysis early after implementation to determine your financial impact and approach payers with your findings immediately, as the window for initiating a review can be as little as eight months in most contract language.

In one contract we reviewed, the language stated: “If the provider does not demonstrate to the payers’ satisfaction that there has been a Financial Impact attributable to a case mix change caused by ICD-10 code implementation (or vice versa), an independent accounting firm or consultant, with experience and expertise in health care analytics will be selected to review an agreed-upon statistically valid random sample of records and to generate a report regarding the auditing party’s analysis.”

The language in many contracts as they are released will most likely get into great detail on third-party case mix financial impact audits. Carriers may assume there will be some payment disputes and is protecting its interests via such extensive language. Again, it would benefit providers to perform their own audits, preferably by a third party, to demonstrate any case mix or financial impact.

Eight Strategic Steps

Now for my eight strategic steps for pre- and post-ICD-10 implementation, related to contracts:

  1. Develop an audit process to monitor claims post-ICD-10 implementation, both to test payment parameters and demonstrate due diligence in commercial and managed care payment validation.
  2. Review language in all your facility’s commercial and managed care contracts for language specifically addressing ICD-10 that will impact operations or revenue.
  3. Develop alternate language suggestions for payer consideration, enabling both parties to conduct operation and adjudicate claims in a timely manner.
  4. Create language stating that reimbursement will remain the same post-implementation; variances by either party will be refunded or reimbursed as they are determined.
  5. Add contract language to existing agreements providing for a 90-day turnaround on pended or appealed claims.
  6. Reserve 15 to 20 percent of annual revenue for delayed claim payment.
  7. Redirect resources post-implementation to accommodate an accelerated denials management process.
  8. Implement corrective processes discovered with rejected or denied claims immediately.

These steps should bring clarity to your organization to address any potential issues and present opportunities to preserve your revenue stream integrity.

About the Author

Deborah Grider, an AHIMA-approved ICD-10 trainer and an American Medical Association coding author, is a senior manager of the revenue cycle with Blue &CO., LLC. She has more than 30 years of experience in coding, reimbursement, practice management, billing compliance, accounts receivable, revenue cycle management and compliance across many specialties. Her specific areas of expertise include medical documentation reviews, accounts receivable analysis and coding and billing education.

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