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Navigating the Medical Necessity Battleground When Payers Balk

By Alexandra Wilson Pecci  
   October 08, 2018

When claim denials result from factors like ineligible members and untimely filing, there's often little to argue. Medical necessity, though, is more of a gray area.

Medical necessity is at the heart of a $40.1 million battle between NYC Health + Hospitals and UnitedHealthcare over what the public health system says are wrongfully denied bills. NYC Health + Hospitals says it's seeking to recover that money through arbitration.

When claim denials result from factors like ineligible members and untimely filing, there's often little to argue. Medical necessity, though, is more of a gray area.

"I think the battle ground is in medical necessity," Brian Sanderson, national managing principal, healthcare services at Crowe, LLP, tells HealthLeaders Media.

NYC Health + Hospitals originally announced in May its efforts to recover $11.5 million from UnitedHealthcare for such denials. It recently added new cases, upping the dollar amount it's seeking to $40.1 million.

In publicizing this dispute, NYC Health + Hospitals spotlighted a handful of newly added cases, such as a one-year-old girl who "was admitted to the hospital with an elevated heart rate and a fever associated with an abscess, for which she required surgery consultation for incision and drainage, as well as IV antibiotics."

"It's not uncommon for providers to lead publicly with things like denials for services delivered to children," Sanderson says. "Those things make the news."

A 'Boiling Point'

The fact that NYC Health + Hospitals is announcing its arbitration plans also doesn't surprise Sanderson.

"We talk with so many organizations that struggle with this issue, and they attempt to negotiate it behind closed doors, and it gets to a boiling point," he says.

Sanderson says a combination of three main factors are in play when it comes to denials for medical necessity.

"One thing that we're seeing is an inconsistent application of medical necessity and authorization within payers and across payers," he says.

If seven different payers have seven different applications for medical necessity, providers "can't practice to that level of criteria."

Second, there may be insufficient medical doctor involvement in complex cases. For instance, a former Aetna medical director stated in a deposition that he did not examine a patient's records before deciding whether to deny or approve care, relying instead on information provided by nurses who reviewed the records.

"There may be bunch of doctors on staff," Sanderson says. But "the doctors themselves may not be sufficiently involved with decisions."

Finally, Sanderson says the contractual parameters for what is appropriate and what is not are really unclear.

"A lot of denials that relate to the administrative aspect of it are much clearer than what relate to the clinical aspect of it," he says.

Navigating Negotiations

NYC Health + Hospitals stated that the "$40.1 million reflects care provided and total or partial reimbursement denied in nearly 4,000 cases—or, on average, three newly hospitalized patients each and every day over the course of three and a half years."

Sanderson said the denials had "such a material impact" on NYC Health + Hospitals' margins "that they had to go with a more nuclear option, that is bringing the issue into the public domain."

NYC Health + Hospitals also says it's "reviewing all of its current managed care contracts and denials as it modernizes its financial operations" and "may pursue arbitration against other health insurers or take similar actions to appropriately collect revenue it is due."

As other hospitals and health systems do the same, Sanderson offers guidance to revenue cycle leaders.

"The advice we give revenue professionals is to get very clear direction from the payer as to what the payer believes to be appropriate," he says.

Once they obtain that clear direction, revenue cycle leaders should take two steps.

"First is compare that to what is happening in the industry to determine if that particular payer is out of whack with a standard business practice, and negotiate off of that," Sanderson says.

"The second thing they should do is hold the payer to those standards," he says.

Alexandra Wilson Pecci is an editor for HealthLeaders.


Get clear direction from payers about medical necessity

Determine whether payer expectations meet industry standards

Hold the payers to their own standards

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