Hospitals are in a world of denial

Hospital and insurer contract negotiations are often framed as an industry gauntlet, a defined period of time with an objective outcome where big talk does not translate to money. But reimbursement rates secured in new contracts are only one piece of hospitals' payer-induced headaches.

Traditionally, a health system and commercial insurer would occasionally run into a wall in the contract negotiation process. This could play out into a dispute palpable enough to consumers that it warranted headlines. These impasses generally lasted a matter of weeks with no significant disruptions before outside pressure drove the parties to compromise. 

Over the past five years or so, the nature of provider-payer conflicts intensified and may be on the cusp of unprecedented severity given health systems' financial pressures. At the same time, agreed-upon reimbursement rates are only the tip of the iceberg when it comes to payment health systems can expect from commercial insurers, who have many more defensive plays in their playbook. 

They boil down to a classic line from a 1968 movie: deny, deny, deny. 

Russ Johnson is CEO of LMH Health, a 102-year-old, independent, nonprofit health system based in Lawrence, Kan. The $350 million organization is anchored by a 174-bed hospital. As he puts it: "We're not tiny, but we're not very big."

Mr. Johnson has spent 37 years working in healthcare, holding senior leadership positions in hospitals and health systems in rural communities and large cities. It's difficult to identify many things going well when it comes to provider-payer relationships, but Mr. Johnson told Becker's that it's the payer movements beneath the reimbursement rates that are worsening and causing greater pain today.

"The part that's getting worse is the practices behind and underneath the contracts — the sophistication and implementation of pay practices, information systems, artificial intelligence and computer algorithms that are just denying claims by the thousands every month," he said.

The reimbursement rates secured in contracts are what you can see above water. Beneath, health insurers are moving faster and kicking harder. Throughout the first three months of 2023, about one-third of inpatient and outpatient claims submitted by providers to commercial payers went unpaid for more than 90 days, according to an analysis from Crowe. 

"So many more claims are now surfacing with some kind of a fallout on a denial, a downcoding or a pre-authorization — you know, the proverbial dotting the i's and crossing the t's, sometimes. But what is abundantly clear is it is not fundamentally about a clinical difference," Mr. Johnson said. 

Denials were once reserved for a sliver of expensive treatments and have now become common occurrence for mundane, ordinary medical care and treatments such as inhalers or familiar medications for chronic conditions a patient has managed for years. The administrative burden is something close to a requirement to prove residency every month to receive electricity or verifying eligibility to work in the U.S. every week for a paycheck — redundant, time-wasting activity for ordinary, essential things. 

"For our business office to keep up with what I frankly think is mischief by the payers in terms of denials, pre-authorization, DRG downcoding and a completely unengaged experience trying to negotiate — or to have our physicians call in and do a peer-to-peer conferences about clinical necessity — it's demoralizing, frankly," Mr. Johnson said. "Dealing with denial from our payers is one of the biggest dissatisfiers our physicians face."

Authors of the 2010 Affordable Care Act worried that provisions to expand health insurance access — such as barring health insurers' refusal to cover patients with preexisting conditions — could cause them to ratchet up other tactics to make up for the change. With this in mind, the law charged HHS with monitoring health plan denial rates, but oversight has been unfulfilled, leaving denials widespread. 

Data and numbers on denial rates are not easy to find, but some examination paints a picture rich with variation. An analysis of 2021 plans on conducted by KFF found nearly 17 percent of in-network claims were denied, with rates varying from 2 percent to 49 percent. The reasons for the bulk of denials are unclear. About 14 percent were attributed to an excluded service, 8 percent to lack of pre-authorization or referral and 2 percent to questions of medical necessity. A whopping 77 percent were classified as "all other reasons." 

Adding to the inconsistency is the fact that health plan denial rates fluctuate year over year. In 2020, a gold-level health plan offered by Oscar Insurance in Florida denied 66 percent of payment requests; in 2021 it denied 7 percent.

There is much to learn about the ways AI will shape healthcare, and its potential to further expedite and increase denials is concerning. Cigna faces a class-action lawsuit alleging it bypassed requirements for claim review before denial by having an algorithm — dubbed "PXDX" — complete review before having physicians sign off on batches of denied claims. The lawsuit followed a ProPublica report on the practice, which said Cigna physicians denied more than 300,000 claims over two months in 2022 through the system, which equated to 1.2 seconds of review per claim on average.

AI is often touted as a potential, looming replacement to hardworking healthcare professionals, but in the day to day it exacerbates the administrative burdens that already bring them down.  

"Nobody becomes a physician because they hope to feel like a cog in a factory," Michael Ivy, MD, deputy chief medical officer of Yale New Haven (Conn.) Health, told Becker's. "However, between meeting the demands of payers for referrals, denials of payment and increased documentation requirements in order to assure proper reimbursement and risk adjustment, as well as an increasing number of production metrics, it can be difficult not to feel like a cog."

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