Ingenix is a subsidiary of one of the country’s largest insurance companies, UnitedHealth Group.  In the private health insurance industry, Ingenix has been the predominant source of information about the market price of medical services. Despite this, the industry has long represented the “usual and customary” estimates of medical charges compiled by Ingenix as “independent” and objective. Moreover, the insurance industry both contributes medical charge data to Ingenix and purchases Ingenix’s products. This close, conflicted business relationship between Ingenix and the health insurance industry existed for more than a decade before industry officials publicly acknowledged that it created the appearance of a conflict of interest. The method of calculating usual and customary costs has always been a sore spot for physicians and hospitals because of the total lack of transparency and therefore credibility by payors.

In 2008 New York’s Attorney General Andrew M. Cuomo conducted an industry-wide investigation into this scheme by health insurers to defraud consumers by manipulating reimbursement rates.   At the center of the scheme was Ingenix. 

The six-month investigation found that Ingenix operates a defective and manipulated database that most major health insurance companies use to set reimbursement rates for out-of-network medical expenses. Further, the investigation found that two subsidiaries of United (the “United insurers”) dramatically under-reimbursed their members for out-of-network medical expenses by using data provided by Ingenix.   .

The United insurers and many other health insurance companies relied on the Ingenix database to determine their “reasonable and customary” rates.  The Ingenix database used the insurers’ billing information to calculate a “reasonable and customary” rate for individual claims by assessing how much a similar type of medical service would typically cost, generally taking into account the type of service, physician, and geographical location.  However, the investigation showed that the “reasonable and customary” rates produced by Ingenix were remarkably lower than the actual cost of typical medical expenses.

UnitedHealth Group settled (in 2009) buy saying that it would pay $350 million to customers and medical providers for out-of-network medical services going back nearly 15 years. They also agreed to provide $50 Million to fund a new independent database to determine reimbursement rates.

So now Ingenix buys EHR, a company that works with hospitals to determine medical necessity compliance. They also do provider appeals. Ingenix, therefore United Healthcare, will have access to their vast database of appeals and audits. This seems to be more than just an appearance of a conflict of interest.

Well maybe the picture is getting a bit clearer. The FDA is considering revoking its approval of the drug Avastin for use on women with advanced breast cancer, leading to accusations that it will mark the start of ‘death panel’ drug rationing. This will delay consideration of the colon-cancer drug Avastin as a treatment for breast cancer. A decision to rescind endorsement of the drug would reignite the highly charged debate over health care reform and how much the state should spend on new and expensive treatments. Breast cancer is the second most common cause of cancer death among US women, with 40,000 last year.

Avastin, the world’s best selling cancer drug, is primarily used to treat colon cancer and was approved by the US Food and Drug Administration in 2008 for use on women with breast cancer that has spread. The FDA advisory panel has now voted 12-1 to drop the endorsement for breast cancer treatment. The panel unusually cited “effectiveness” grounds for the decision. But it has been claimed that “cost effectiveness” was the real reason ahead of reforms in which the government will extend health insurance to the poorest. When reviewing drugs for approval the FDA is only charged with looking at their health risks and benefits, not cost effectiveness. It usually follows advisory panel recommendations. A final decision will be announced on Sept 17.

In Berwick’s beloved British system, NICE is eighteen months away from reviewing Avastin for treatment of women. John Reid, Britain’s former health secretary, stated that doctors should not be stopped from prescribing a drug simply because it had not been reviewed by Nice. However, the socialized system does not pay for it. Avastin, which has been shown to extend life by at least 20 months, has passed all its clinical trials and is readily available in other European countries – yet only three British patients have so far been able to get the drug on the NHS.

If the approval of the drug is revoked here then insurers would likely stop paying it when prescribed for women with advanced breast cancer. David Vitter, the Republican Senator for Louisiana, said the FDA decision amounted to rationing health care.

“I shudder at the thought of a government panel assigning a value to a day of a person’s life,” he said. “It is sickening to think that care would be withheld from a patient simply because their life is not deemed valuable enough.

“I fear this is the beginning of a slippery slope leading to more and more rationing under the government takeover of health care that is being forced on the American people.”

 The reality of ObamaCare is setting in.

During the three-year RAC demonstration project approximately 40 percent of all improper payments identified stemmed from medical necessity; for inpatient hospitals this figure was 62 percent. The revenue impact of these denials was $513 million in just three states. This should be of great concern to hospitals.

 CMS has stated that RACs cannot review cases that they already have audited (for MS-DRG validation for example) and issued a decision. They can however audit cases that they already have but have not issued a decision on for medical necessity and also for MS-DRG validation simultaneously.

Hopefully hospitals have prepared for this long ago. Strategies to mitigate this risk include  “mining the 835 data to determine areas of vulnerability so that appropriate changes can be made going forward to avoid audit exposure and also having targeted medical necessity audits performed either internally or by a specialty firm to help identify issues.

Yes: 622,546 71% of the vote

No: 250,190 29% of the vote.

This referendum is consistent with the polls which show that Americans overwhelmingly reject Obama Care. It also demonstrates that Americans value their liberty and will not easily surrender it. Several states’ Attorneys General have filed a lawsuit against the bill.  Many more states have enacted statutes in opposition to federally mandated health insurance and penalties for paying for care out-of-pocket.  A small handful of states have proposed constitutional amendments to that effect.  All these votes are to take place in November.  Hopefully this is just the beginning of Americans taking back their liberty.

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Preventive medicine and health care reform: Importance of root cause analysis in the RAC audit process

By Yomi Faparusi, Sr., MD, JD, PhD

Editor’s note: Yomi Faparusi, Sr. is Director of Medical Review & Research at Intersect Healthcare, Inc. in Lutherville, Maryland. Yomi may be contacted by telephone at 410/252-4343 ext. 17 or by e-mail at

ofaparusi@intersecthealthcare.com.

The health care reform bill finally passed and the last signing of any related bill was done by President Obama on Tuesday, April 30, 2010.[i]  While the debate continues and there is still immense attention focused on peripheral intricacies, such as procedural rules like “reconciliation” and “deem and pass,” the aftermath is getting even uglier as the details of the bill begin to unfold and are scrutinized by scholars. Today, many who work with and ensure that health care systems are financially viable are aware that a metaphoric “freight train” is coming fast down the tracks.

The proposed bill is expected to cost more than $900 billion over the next ten years while Medicare is expected to see cuts over $500 billion over the next decade.[ii] Thus, the mathematics is simple—the trimming of Medicare is the key fiscal foundation of the new health care bill. As if that does not suffice as an administrative nightmare for the chief financial officer (CFO) or the chief compliance officer (CCO) for example, the gradual expansion of Medicaid will complicate a clogged up bureaucratic process.

There is no doubt that Medicare should be made more efficient and there should be a drive towards correlating health outcomes to the amount spent. Even taking a step further and from a theoretical perspective, the status quo fee-for-service (FFS) program has to transition into a pay-for-performance (P4P) scheme. However, there are often salient and overlooked issues that will make or break many health care institutions. When it pertains to Medicare and, in particular, to the Recovery Audit Contractor (RAC) program, an organization needs to look at its approach to these audits. Many of us in the health care compliance industry need to be more proactive rather than reactive in our overall organizational strategy.

Preventive medicine–the enigma of modern medicine

In the 1980s, medical malpractice claims began to increase and a new watchdog was created to monitor the art and practice of medicine. The response of the medical world was to start the practice of defensive medicine, whereby many physicians treated patients with care but, at the same time, were cautious about the unfortunate reality that every contact could spur a lawsuit. This era created the clinical practices of over-treatment and the need to specify what is medically necessary and what is not. In the case of RAC audits, the propensity has been towards the business of medicine by reining in the excessive payments. With the passage of the health care bill, that face of medicine has forever been changed.

Many literature reviews of the entire RAC program have focused on the “what” “when” and “why” but the “how” appears to be getting limited attention. One needs only to  surf on the Internet to see a multitude of information on what to do in response to an audit, but sparse articles on ways to prevent your facility from being a target for RAC audits. There is a real cause for concern here, because it seems that prevention lacks an interest that is innate to other fixative-cum-curative approaches employed by many health care providers.

To quote Desiderius Erasmus (loosely) “Prevention is better than cure because it saves us the problem of being sick.” Many institutions are putting together a system or work flow to handle the current RAC audits; however, there are glaring opportunities in the realm of designing preventive mechanisms. Take, for example, ten years ago many hospitals did not have compliance officers or RAC coordinators, but in today’s health care industry, a large hospital system would be grossly unwise not to have a Compliance division. Thus, it is implied that the compliance team should start looking at ways of preventing audits and the unbudgeted expenses of defending adverse audit findings.

At this juncture, therefore, it is important to emphasize that preventive medicine reaches beyond the colloquial prevention of diseases. It encompasses the health care policy and health care management concepts that overall lead to the best quality of health at the most affordable price. However, the principles are the same as those used in disease prevention or public health: “A stitch in time saves nine.” To achieve a value-based health care system, hospitals have to tackle the root cause of their financial bleeders.

Pre-emptive extrapolation – the payment database is a gold mine

“The past informs about the present and heralds the future.” Reliable audit and denial-management software consists of claims and remittance data, most of which, in many health care organizations, lie in intellectual dormancy and are not studied for the information they could offer. Fortunately, some hospitals are catching on to the science of data mining as a forecasting tool for assessing the dollars at risk. This is done usually by using straightforward statistical concepts applied in, for example, public health research. The ultimate goal is to identify outliers and implement corrective reviews prior to making a Medicare claim or, more importantly, before an adverse RAC audit finding.

To maximize the value of an organization’s database, it must understand the mindset of a RAC auditor through the prisms of two concepts: extrapolation and pre-emption. Extrapolation is currently a stealth weapon of a RAC auditor in that, while it was not used in the demonstration audits, it is expressly permitted by the RAC Scope of Work.[iii]  Extrapolation involves using statistical probabilities from a random sample of claims to estimate or project an overall pattern of overpayments. For example, assume 45 of 100 cases of a particular diagnosis-related group (MS-DRG) reviewed from a particular hospital were overpayments, and the average error rate from one of the benchmark datasets for that MS-DRG is 22%. Based on the 45% error rate at the index hospital (significantly higher than the average of 22%), the RAC auditor can extrapolate that 45% of all the claims for that MS-DRG would be overpayments!

The importance of being pre-emptive is obvious: internal reviews, and thus internal extrapolations, are less stressful than external reviews. Ironically, understanding the strategy a RAC auditor would employ may be the easiest thing to do when analyzing your payment data. (Figure 1)

The entire process is about finances and the contingency agreement between the audit firm and CMS only increases the fervor with which these auditors would seek overpayments. Thus, there are three common variables that should get the attention of any compliance officer who is looking for areas of potential red flags: treatment location, amount paid, and length of stay (LOS).

A good approach is to use descriptive statistics to show a summary of a facility’s payment data and these reports can immediately reveal worrisome patterns, such as a disproportionately high number of one-day stays or procedures that are mostly performed as outpatient but billed as inpatient. Other important findings include the number of claims re-billed and duplicate billings. After the initial set of analyses, it is advisable to benchmark the LOS and remittance data against datasets such as the Medicare Provider Analysis and Review (MEDPAR) data and the Program for Evaluating Payment Patterns Electronic Reports (PEPPER) data.

The use of inferential statistics is slightly more complicated, but if implemented as part of the Strength, Weakness, Opportunity and Threat (SWOT) analysis, would be of immense benefit to the financial status of a health care facility. In the inferential analyses, the goal is to draw a conclusion based on specific queries that target key outliers, such as those claims where the amounts paid are higher than the claim submitted. It is very important not to fall into the common trap of assuming that outliers are synonymous with relatively longer LOS or disproportionately higher amount paid for a claim. The fact that a case has an unusually short LOS or significantly lower payment compared to a benchmark average will equally alert an auditor that there is a strong likelihood that the MS-DRG is not what it was purported to be, and thus was improperly coded. Therefore, these query reports will give the compliance staff and the CFO an estimate of the amount of dollars potentially at risk.

Root cause analysis and corrective action plans

Although it is very important to defend every dollar that is in dispute, it is equally important to identify what is going wrong, why it is occurring, at what point in the workflow, and, most importantly, how to fix the problem. Unfortunately, the decision model used by many health care organizations is fatally flawed, because too much emphasis is placed on inaccurate probability algorithms that attempt to determine which overpayment cases have the surest chance of being overturned at the different levels of appeal. Furthermore, there is a trend among hospitals of having appeal policies that do not include the treating physician, and thus no real possibility of improvement.

Using the selective approach described above for deciding which cases to appeal is essentially “cherry picking” and could potentially add to the error rate and justify the application of extrapolation. This is because the chances of reviewing a case that would not be appealed are minute-to-none and what many health care facilities see is just roughly one fifth of the picture. This limited insight can,  therefore, not serve as the foundation of a corrective action plan, because there are numerous benefits to reviewing the entire dataset. For example, the compliance team could identify patterns such as a high prevalence of overpayments in a particular unit, particular shift or day of the week, or with a specific coder or treating physician. Thus, root cause analysis would help direct the resources to the appropriate areas and will factor in the choice of corrective action programs such clinical documentation improvement (CDI).

Conclusion

Whether these figures, vis-à-vis the estimated cost of the health care bill and the cuts in Medicare will become reality is not the point of this article. The bigger message is that the feasibility of these numbers will not bar the federal government from striving towards its goal of cutting Medicare expenditure over the next decade. Moreover, unlike much key legislation that is passed with the details to be worked out in the future, the RAC reviews are already well established after three years of engaging in a demonstration program. The question for you and me is this: Will our business practices make us the poster child for Medicare waste and recovery?

References:

[ii]Congressional Budget Office: (H.R. 4872), Reconciliation Act of 2010. Cost estimate for the amendment as a substitute for H.R. 4872, incorporating a proposed manager’s amendment made public on March 20, 2010. Available at http://www.cbo.gov/ftpdocs/113xx/doc11379/Manager’sAmendmenttoReconciliationProposal.pdf

[iii]Center for Medicare and Medicaid Services: Statement of Work for the Recovery Audit Contractor Program,Extrapolation- § F.4.c. See http://www.cms.hhs.gov/RAC/downloads/Final%20RAC%20SOW.pdf 

Note: Original reference #3 was incorporated in to the main text.

“I cannot believe that the individual health care consumer can enforce through choice the proper configurations of a system as massive and complex as health care. That is for leaders to do.”

“You cap your health care budget, and you make the political and economic choices you need to make to keep affordability within reach.”

“Please don’t put your faith in market forces. It’s a popular idea: that Adam Smith’s invisible hand would do a better job of designing care than leaders with plans can.”

“Indeed, the Holy Grail of universal coverage in the United States may remain out of reach unless, through rational collective action overriding some individual self-interest, we can reduce per capita costs.”

“It may therefore be necessary to set a legislative target for the growth of spending at 1.5 percentage points below currently projected increases and to grant the federal government the authority to reduce updates in Medicare fees if the target is exceeded.”

“About 8% of GDP is plenty for ‘best known’ care.”

“A progressive policy regime will control and rationalize financing—control supply.”

“The unaided human mind, and the acts of the individual, cannot assure excellence. Health care is a system, and its performance is a systemic property.”

“Health care is a common good—single payer, speaking and buying for the common good.”

“And it’s important also to make health a human right because the main health determinants are not health care but sanitation, nutrition, housing, social justice, employment, and the like.”

“Hence, those working in health care delivery may be faced with situations in which it seems that the best course is to manipulate the flawed system for the benefit of a specific patient or segment of the population, rather than to work to improve the delivery of care for all. Such manipulation produces more flaws, and the downward spiral continues.”

“For-profit, entrepreneurial providers of medical imaging, renal dialysis, and outpatient surgery, for example, may find their business opportunities constrained.”

“One over-demanded service is prevention: annual physicals, screening tests, and other measures that supposedly help catch diseases early.”

“I would place a commitment to excellence—standardization to the best-known method—above clinician autonomy as a rule for care.”

“Health care has taken a century to learn how badly we need the best of Frederick Taylor [the father of scientific management]. If we can’t standardize appropriate parts of our processes to absolute reliability, we cannot approach perfection.”

“Young doctors and nurses should emerge from training understanding the values of standardization and the risks of too great an emphasis on individual autonomy.”

“Political leaders in the Labour Government have become more enamored of the use of market forces and choice as an engine for change, rather than planned, centrally coordinated technical support.”

“The U.K has people in charge of its health care—people with the clear duty and much of the authority to take on the challenge of changing the system as a whole. The U.S. does not.”

If American’s want a socialized health care system then so be it. But a hearing should take place and his remarks should be made available to all, and Congress should have to go on the record for the appointment.

I don’t think that most hospitals desire a socialized healthcare system like Great Britain or Canada. Anyone who pays attention to current events (other than through the three “mainstream” networks, MSNBC, CNN or most newspapers) knew that Obama is a big fan of socialized healthcare. Although when confronted about that he denied it he told the SEIU union in a speech that government controlled healthcare system is his goal but “we can’t get there overnight”.

I am never surprised when the AMA endorses candidates like Obama. The AMA represents less than thirty percent of physicians and most physicians that I know are not in favor of socialized medicine. But AHA’s endorsement seems like pure political pandering to me. The AHA supported Obama’s healthcare reform as well.

The AHA should take principled stands on healthcare issues and quit worrying about their image. Socialized medicine would be the end to quality healthcare and there will be no going back.

The White House said that the recess appoint is necessary because there is much work to do to implement the healthcare reform law. This is a little fishy because the Senate is in recess for less than two weeks and senators were still waiting for Dr. Berwick to submit responses to some of their requests for information from his April Nomination.

Dr. Berwick, a pediatrician, is president and co-founder of the Institute for Healthcare Improvement, a nonprofit organization in Cambridge, Mass. He is also a professor at Harvard Medical School and the Harvard School of Public Health. As a professor of health policy Dr. Berwick has championed the interests of patients and consumers. However, at the same time, he has spoken of the need to ration health care and cap spending, has supported efforts to “reduce the total supply of high-technology medical and surgical care” and has expressed great admiration for the British health care system. For these reasons he was facing an uphill battle for nomination. Because he is a “recess” appointment, his term will expire at the end of the next session of Congress, in late 2011.

This sneaky appointment to someone who is philosophically aligned with Obama’s ultimate desire for total socialized medicine is quite scary. Many of us were worried that Obama’s “reform” will result in rationing. This seems to validate that thought. A review of the British’s health care system that he loves is quite informative.  Britain’s National Institute for Health and Clinical Excellence (NICE) provides guidance, sets quality standards and manages a national database to improve people’s health and prevent and treat ill health.

NICE believes in rationing. On its website http://www.nice.org.uk/  it explains that “choices have to be made.”  Thus, “It makes sense to focus on treatments that improve the quality and/or length of someone’s life and, at the same time, are an effective use of NHS resources.” NICE uses method to compare different drugs and measure their clinical effectiveness: the quality-adjusted life years measurement (the ‘QALY’).  A QALY gives an idea of how many extra months or years of life of a reasonable quality a person might gain as a result of treatment (particularly important when considering treatments for chronic conditions). A number of factors are considered when measuring someone’s quality of life, in terms of their health.  They include, for example, the level of pain the person is in, their mobility and their general mood. When a decision is made to treat or not to treat, the cost effectiveness is considered.  Cost effectiveness is expressed as £ / QALY.

Dr. Berwick is an academic with no real experience as an administrator or chief executive. This does not bode well for providers or consumers in my view.

“Intersect Healthcare continues to play a key role in assisting hospital and health systems through the Recovery Audit Contractor (RAC) program and is working with national associations like the AHA to make the data collection process more fluid,” said Brian McGraw, CEO. “This advanced compatibility provides our hospital customers the ability to convey RAC reporting and transactions directly to the AHA on a quarterly basis – paving the way for better awareness and advocacy in the future.”

VERACITY™ is a comprehensive all-payer audit and compliance management system that coordinates the inner workings of the RAC Response Team within a hospital. VERACITY™ provides critical support for an integrated, automated and thorough RAC case flow and response process.

AHA developed the RACTrac web-based survey in an effort to collect RAC information from America’s hospitals on a quarterly basis. Data collection begins in January for organizations that experienced RAC activity in 2009 and will be expanded as RAC activity ramps up throughout 2010. RACTrac will allow the AHA to identify trends in reasons for denials across regions and at the national level. This information will then be used to educate the field, CMS and Congress on necessary changes needed to the program.