In This Issue: Authorizations and Claims Adjudication

Issue summary and other notes...

Article 1 Claim Authorizations and Referrals. How do claims Authorizations and referrals impact the claims process and how best to minimize that impact.

Notes

"For every problem there is a solution that is simple, elegant, and wrong" H.L. Mencken

The real danger is that our national obsession with universal coverage will lead us to neglect reforms -- such as enacting a standard health insurance deduction, expanding health savings accounts, and deregulating insurance markets -- that could truly expand coverage, improve quality, and make care more affordable. Michael Tanner and Michael Cannon

The Agony of Authorizations

Claims process best practices and authorizations.

Authorizations and referrals have figured prominently in the tools healthcare payers have applied (or attempted to apply) to manage medical cost increases. In some cases authorizations facilitate care management (e.g. inpatient care), however they do come with a price. Authorizations are administrative overhead, adding steps and back- end rework to the claims process. Overall, the relationship between an authorization and a claim has never been a happy one.

There are many 'flavors' of authorizations.  Whether they're called authorizations, pre-certifications, or referrals, most fit within the following template: a member has to get 'permission' for a particular type of service and that ‘permission’ must then match with the subsequent claim in order for that claim to be paid.  The services, and hence claims, that require an authorization vary widely by payer.  Some payers require an authorization for inpatient stays while others require an authorization for outpatient services and/or specialty services provided in a physician office. 

Whatever the range of services, an authorization requirement adds steps to the claims submission process for a provider as well as adding steps to the adjudication process for a payer.  On the payer side there are two significant authorization related steps:

1. Inputting the authorization .
2. Matching the authorization to the claim.

Inputting the authorization can be a complex task depending upon the technology and processes in place.  In our experience, 25 to 50% of authorizations (inpatient, outpatient, and professional) require at least one manual process intervention to be input.  Many payers have moved towards automated web and telephone based systems to capture authorizations and have added the back end systems to process them.  HIPAA transactions have certainly helped in this regard.  Efficiencies aside, these applications require resources for support and maintenance.

The second authorization related claims process step, matching the

authorization to a claim, involves applying a set of match criteria to the authorization and the claim.  The authorization/claim match criteria vary by payer and by claims platform with four common outcomes:

1. Exact match a single authorization.
2. Partially match an authorization.
3. Match multiple authorizations.
4. No match.

Despite the sophistication of many claims systems, the simple fact remains: Getting an authorization and a claim to find each other, exactly match, and pay correctly is a difficult task.  In our experience, only 25 to 50% of claims that require an authorization exactly match one.  Claims that do exactly match a single authorization typically continue through the adjudication process.  The 50 to 75% of claims that do not match an authorization are significant service and cost drivers.      

What happens to a claim that doesn't match an authorization and how does it drive cost and service issues?  There are two authorization match process outcomes.  The first and least common is to automatically deny claims without an authorization.  The more common outcome is to route claims which do not exactly match a single authorization to a manual review.  Manually reviewing claims to match an authorization is expensive, (as much as $3.00 per claim), and tends to adversely impact payment accuracy.

In addition to being costly our surveys and experience have found that generally less than 5% of the authorization holds/pends that are manually reviewed are denied.  Very few claims that do not cleanly match an authorization end up denied for no authorization.  For many payers the implicit processing rule for claims without an authorization is as follows: "This was probably an authorized service and somehow our systems failed to find, match, or present the authorization; we’ll pay the claim."  If the outcome is 'pay' for better than 95% of the time, it begs a simple question: Is the authorization process really managing care? 

After working with many payers and their authorization processes, the following two common approaches have emerged:

Revise the authorization policy. Many payers have moved to remove a significant portion of the authorization requirement from their benefit plans.  A simple rule of thumb is to consider removing the authorization requirement for any procedure with an average paid amount under $1,000.  The cost benefit analysis required for an authorization policy change is as follows: compare what is denied because of a missing authorization, against the manual cost to process authorizations.  Depending upon the procedures included or excluded, there is typically a cut that enables a significant reduction in authorization requirements. 

Improve the authorization matching criteria.  Authorization match criteria can be enhanced either by focusing in on a few match criteria and aggressively managing provider submissions for those criteria or broadening the match criteria in terms of accepting partial matches as authorized.  Whichever of the two approaches, payers must still deal with the claims that require an authorization but don't have a match.  Auto denying these claims will change provider submission behavior and reduce manual match work, however 75% of denied claims end up resubmitted. 

In our experience, the simplest way to tackle authorization related administrative costs is to remove the authorization requirement.  Many payers have taken precisely that path and significant reduced authorization related administrative cost and service issues.  We’d like to hear more from you about how you’ve tackled authorizations in your operation.  Please email me with your feedback. All responses are kept confidential. (rkobs@datamethod.com).