6 worst paying trends hindering electronic medical billing software and service performance

Health insurance business continued to boom in 2006, largely to the detriment of both providers and patients. A review of recent trends in the health insurance industry helps identify six payer activities that will impact medical billing and healthcare provider revenues in 2007.

Two major aspects dominated the business background of insurers in 2006. They

  1. Must meet stricter profit margin benchmarks. For example, United Healthcare saw its profit increase by 38% in the 3rd quarter of 2006 alone. United Healthcare will need to outperform in the 3rd quarter of 2007 to continue to grow the value of the stock.
  2. Approach the limit of their ability to grow bounties. In 2001-2006, premiums rose significantly above inflation and employee wage growth. For example, health insurance premiums rose 65.8% between 2001 and 2006, while inflation rose 16.4% and employee wages rose 18.2% over the same period.

Therefore, insurance companies will continue to pay less in 2007 according to the following six main strategies:

  1. Add new refusal reasons and increase costs of medical billing services and software due to increasing complexity. In January 2007, thousands of doctors found they were having trouble getting Medicare to pay for services billed under codes 99303 and 99333. new 99304-99306 codes in an up-to-date CPT codebook. Codes 99331-99333 were also removed in 2007. Check out the new codes, 99324-99328. The payer-related component of the medical billing process costs an average of 8% to 10% of the healthcare providers’ collections. It includes claims generation, scrubbing, electronic submission to payers, payment booking, denial identification, follow-up and appeal. By complicating the process, payers increase the likelihood that the payment will fail and the subsequent appeal will be won. Providers face the choice between costly upgrades to the medical billing process or forfeiting declined payments.
  2. Reduce allowable costs. The average physician reimbursement of billing to Medicare and commercial payers decreased by 17% in 2002-2006. From 2005 to 2006, allowable amounts for E&M-only visits fell 10% nationally, 27% in the Northeast, and 20% in the Northwest.
  3. Pay too little. Partial denials cause the average medical practice to lose as much as 11% of its revenue. Denial management is difficult due to the complexity of the causes of denial, the variety of payers, and the volume of claims. For complex claims, most payers pay the full amount for one line item, but only a percentage of the remaining items. This payment approach creates two possibilities for underpayment: the order of paid items and the payment percentage of remaining items. In addition, temporary restrictions often cause payment errors due to the misapplication of restrictions. For example, claims submitted during the global period for services not related to the global period are often rejected. Similar errors can occur at the beginning of the fiscal year due to misapplication of deductible rules or outdated tax schedules. Payers also differ in their interpretation of CCI bundle rules or coverage of certain services.
  4. Increase influence over providers through consolidation. It is more difficult to drop a contract with low allowable amounts if there are fewer payers left. Consolidation in the insurance industry reduces competition among payers for physician services, resulting in payers paying less to providers. Today, 73% of the insured population is covered by only 3 plans: the top ten health plans cover 106 million lives, while three plans, namely United, WellPoint and Aetna cover 77.7 million lives combined. In 2006 the pace of consolidation accelerated. For example, United Healthcare Group bought 11 subscriptions in 2006, including MetLife, PacifiCare and Oxford. Declining a contract offered by a payer that controls such a large portion of the population results in the forfeiture of significant medical billing revenue. Providers face the lose-lose choice of seeing fewer patients or accepting lower rates.
  5. Drive providers to networks (which offer lower allowances). United Healthcare has announced a new national policy to stop paying medical bills directly to out-of-network providers. As of July 1, 2007, United Healthcare will send out-of-network benefit checks to the insured member instead of to non-participating providers under the “pay the enrollee” program. This policy forces the providers to choose between chasing the patients for payments or joining the payer’s network. In any case, the provider loses part of the income earned. Oxford Health Plans, a United Healthcare Company, implemented the Pay the Enrollee policy on April 1, 2006. According to the announcement on the Oxford website, Oxford may refuse to honor the allocation of benefits for claims from non-participating service providers on the grounds of language in the certificate of cover. If enrollees choose to receive out-of-network treatment, the claim reimbursement may be sent directly to the enrollee. In such cases, the non-participating provider will be instructed to bill the covered patient for services rendered.
  6. Return for refunds and penalties. The Justice Department recovered a record $3.1 billion in refunds and fines in 2006. It is the largest amount ever recovered in one year. Providers invariably deny their exposure and insurers are quick to reassure them. They will tell you that medical billing audits are an unfortunate but necessary tactic to control fraud, implying that honest providers have nothing to worry about. But insurers are not crusaders for truth and justice. Providers need to understand that the payer’s motive is money, the resource is a giant statistical database, and every provider is an opportunity. Healthcare finance industry insiders call this a Big Brother system, and aside from the melodramatic implications of such a name, it’s easy to see why. While executives have a soft spot for fancy charts, the real power of such a system is its ability to drill into the data and find outliers (when talking about this type of tool, information systems specialists use jargon such as data mining and online analytical tools). Processing, or OLAP for short). The system automatically designates providers that are “easy audit targets” because they:
    • Do something other than the pack,
    • Lack of infrastructure for systematic follow-up of refusals,
    • Lack of compliant medical notes.
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Insurers have acquired the resources to cost-effectively target providers and have begun the hunt. It behooves providers to arm themselves with powerful electronic medical billing software and fight back for better revenue.


  1. Neil Weinberg, “Envy Engines,” Forbes, March 14, 2005
  2. “Fraud Statistics – October 1, 1986 – September 30, 2004,” Civil Division, U.S. Department of Justice, March 4, 2005
  3. Capra, Lirov, and Randolph, “The “Business” of Healthcare Provider Audits – How Payers Get Away With Practice Killing,” Today’s Chiropractic, January 2007, pp. 60-62.
  4. P. Moore, “Power to the payers – Consolidation puts insurers in charge,” Physicians Practice, January 2007, pp. 23-30.