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Millions Lost To Contractual Underpayments, and How My Cable Bill Can Help

Karen Minich-Pourshadi, for HealthLeaders Media, June 21, 2010

About four years ago I had a problem with my cable bill. You see, for the longest time I just assumed that my cable bill cost what it cost and I was auto-paying it. That was until I was taking my annual inventory of expenses, and I noticed that every few months my bill seemed to go up just a little bit. I wasn't buying a lot of on-demand movies, so it gave me pause.

I called the cable folks and they started rattling off a litany of reasons for my bill "adjustments"—there were tax increases, rate increases, promotional channels (that I'd never declined and thus were added automatically)—all because I wasn't paying attention. I should've. I estimated that I lost about $150 that year with all their shenanigans, but it was all completely legal and it was my fault for missing it. Needless to say, now I check my cable bill every month and I will likely never autopay that one again.

Keep my cable bill tale of woe in mind because I'm about to offer you a hard pill to swallow; as many as 40% of your payers are likely underpaying you AND they aren't doing it intentionally AND they aren't violating your contracts. In fact, what's happening is actually your mistake and it's costing hospitals and practices approximately $1.5 billion, or roughly $300,000 annually per hospital.

IMA Consulting, a Chadds Ford, PA firm, offers some insights on what mistakes hospitals are making that cause losses through contractual underpayments in Manage Your Payer Contracts to Optimize Collections. The fact is that payer contracts are complex and with healthcare reform taking effect, your contracts are likely to become much more complex in the next several years. Some hospitals and health systems are already using contract tracking software and that's very useful in preventing underpayments—the thing is the software is about to be outpaced by these new and improved payer contracts. So your contract software "failsafe", if you've been fortunate enough to have one in place, is about to give way.

Now, missing one or two contract payments isn't much money, but missing a lot can add up to hundreds of thousands to millions over time. What makes this area so confounding is that contractual underpayments are difficult to identify—they simply aren't obvious, not only to the hospital but also to the payer—which is why I say this isn't intentional on their part. After all, most payers are also using older systems and software, but even if they did discover that they were underpaying you, do you think they would alert you to it?

Robert Sutton, partner at IMA Consulting and co-author of the article looking at this problem offered his strategies for remedying this situation.

  1. Negotiate simple contracts. Sutton suggests that these contracts be clear and concise and simple enough that your biller can understand them. This will also make the contract more likely to work with your existing contractual management software.
  2. Assemble a team. This group will work on the negotiations together—including representatives from each department that will be impacted by the contract (e.g., the CFO, patient accounting, patient access, HIM and legal). This group, which should also include key physicians on the staff, should be responsible for reviewing not only proposed contracts but also modifying the existing ones or those about to expire. They should also be in charge of monitoring any rate changes in the contracts and alerting the rest of the staff. Sutton recommends that this group create a matrix to track the different dates and key distinguishing details of the contracts. Be sure to make note of any provision that deviate from the hospitals standard contracts.
  3. Make technology top-priority. It's not about having some contract tracking software in place, Sutton says, it's about using that technology to the fullest. "The contract updates have to make it into the system in a timely manner and they need to be checked regularly," he says. "The person who does this needs to be a part of the contract negotiation team and they need to fully understand all the different pieces of each contract." Eventually the contract software will catch up with the new payer contracts that are likely to unfold in the coming few years, but until it does, this person is a linchpin for ensuring facilities are fully reimbursed. Moreover your patient accounting contract management system or module should be configured to determine reimbursement for each level of service; this will help you collect your A/R at the time of billing.
  4. Take time to educate. It seems like taking the time to educate your staff is the last thing you have, well, time for. Fact is, you must make the time to educate everyone who is involved with these contracts or you will continue to see your net revenue reduced. Depending on how many contracts you have and how frequently they change, you should set up regular meetings with your teams to review any and all adjustments to these contracts. Use the matrix you developed as a starting point, but don't allow that matrix to be the only training tool you use. By getting these folks in the same room, they will educate one another and you can be sure that all the correct information is disseminated simultaneously.

These strategies can mean the difference between unaccounted for net losses in revenue and your hospital bringing in thousands more this year. What my cable bill taught me a few years back is this: when you rest on your laurels, you lose money. It's unfortunately but no one is going to point out where your hospital is losing money, it's up to you to find the problems and fix them.


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Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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