For the past couple years, Martin Jensen has been sounding an alarm, shouting to doctors and hospitals about the biggest danger they probably don't know about. As an independent information technology consultant to hospitals, Jensen warns that health insurers are increasingly devising more sophisticated means of denying services either upfront or sniffing out money they believe to have "mistakenly doled out."
Busting crooks is one thing, but Jensen says the computer programs used to review claims often wrongfully deny doctors for legitimate services, leaving patients in many cases to pick up the bills. Last year, health insurers — and government payers through Medicare and Medicaid — likely recovered close to $1 billion this way.
At least some of that money, Jensen argues, should have been paid.
He calls the computer programs "denial engines."
"They are designed and sold for stripping dollars to providers," said Jensen, who consults for the Healthcare IT Transition Group and blogs for its HIT Transition Weblog. "They're designed to deny."
A recent case against Ingenix, a software-auditing vendor owned by one of the nation's largest for-profit health insurers, UnitedHealth Group, suggests that Jensen may be on to something. In February, New York Attorney General Andrew Cuomo leveled charges against Ingenix for allegedly manipulating the payment rate for out-of-network providers. As a result, UnitedHeatlh often paid doctors less money than they charged while the remainder of the bills fell on patients.
Other insurers used the software, too. On March 6, Cuomo issued subpoenas to Aetna, Cigna Corp., UnitedHealth Group and WellPoint, among others.
These auditing programs work by finding technicalities in all billing codes that doctors, hospitals and clinics, among others, submit in order to get paid. The programs use data-mining technology with a level of scrutiny that veteran claims-review specialists could never match by hand. They even can be tuned to revenue goals in order to capture just the right amount of return, Jensen said.
The software might find a sizable share that is downright fraudulent or clearly incorrect, but it's the automatic denials for minor technicalities that most frighten doctors.
In just the past three to four years, this software niche has grown into a midsize industry behind such companies as Bloodhound Technologies and Fair Isaac (already the dominant name in credit scoring). And they play both sides — most offer software to beat health insurance denials as well, toward which hospitals spend millions.
Jensen likens what's happening in the billing world to an arms race, with providers of health care services on the losing end more times than not.
Ingenix says that it "helps payers prevent inappropriate medical expense payouts." On its Web site, the company boasts of dropping 2 to 5 percent off total medical expenses. Another software vendor, TC3 Health, on its Web site says, "payers can reduce their paid claims costs by up to 10 percent without changing benefits or costly claim-system upgrades." Repeated attempts by Miller-McCune.com to contact officials with Ingenix, TC3 Health, Bloodhound Technologies and McKesson were made, but none responded.
Computer programs are a vital part of fraud prevention, said Alex Johnson, head of the special investigative unit at The Regence Group, which runs leading BlueCross BlueShield plans in Utah, Oregon, Washington and Idaho. "Otherwise you're shooting in the dark," he said.
Before Regence started using IBM's Fraud and Abuse Management System in 2001, it recovered $1 million. In 2007, along with other programs and a fraud investigative team, it recovered $8.5 million. That's still a small fraction of what it should be capturing. National statistics suggest the U.S. is defrauded of 2 to 10 percent of the $2 trillion we spend on health care each year — a price tag of $60 billion to $100 billion.
Software programs only tell fraud investigators where to look. "It's not a magic bullet. You still need to do your homework," Johnson said. In most cases, that means requesting medical records.
Hospitals are familiar with audits, but often even the largest hospital systems in America are not up to date with the latest software — called denial management programs — to match what insurers are wielding. Small hospitals, community clinics and small physician offices can be the least prepared. "Their software is so archaic that it can't compete," Jensen said.
Several officials of large hospital systems contacted for this story were unfamiliar with electronic claim reviews. They forwarded calls to the American Hospital Association, but it also didn't have anyone who could speak on the subject. The California Hospital Association and the Florida Hospital Association knew about the auditing programs only in terms of Recovery Audit Contractors under Medicare, a different beast but with direct similarities.
For the past three years, Medicare has used auditing contractors to recover payments in California, Florida and New York. They used a combination of data mining as well as requests for medical records. In all, the contractors recovered $371.5 million in 2007, the Centers for Medicare and Medicaid Services announced in February. More than $120 million came from California alone, where PRG Schultz International focused on inpatient rehabilitation.
The efforts bore fruit: The auditing firm rejected more than 90 percent of the claims they reviewed and led the Rehabilitation Institute in Santa Barbara, Calif., to the brink of bankruptcy. Hospitals cried foul. And they all have backing of two California members of Congress — Lois Capps, D-Santa Barbara, and Devin Nunes, R-Tulare/Fresno — who have proposed a bill to stop the audit contracts before they can roll the program out nationwide later this year.
The Medicare RACs made a combined $71.2 million in 2007, roughly 19 cents of every dollar recovered. And that's just in three states. In addition, those contractors were paid on contingency regardless of whether decisions were overturned, which has happened to a large degree in California.
Jensen sees what's happening in Medicare to an endorsement of the type of tactics commercial insurers are adopting. UnitedHealth Group recently announced that it will post higher-than-expected profits despite its legal trouble. Aetna, another large for-profit health insurer, announced that it had secured additional profits by lowering its medical expenses. In essence, what executives are saying is that they have brought in more profits by denying more services.
Are you on Facebook? Become our fan.