Adopting an Integrated Prepayment Process for Overpayment and Fraud Analysis

by Gary Twigg

Identifying fraud, waste, and abuse is a crucial component in the overall strategy to reduce spiraling medical costs. In recent years, Medicare, Medicaid, property/casualty insurers, and private insurers have invested millions of dollars to keep ahead of fraudulent or careless providers to protect the integrity of the industry and the well-being of millions of Americans.

Traditionally, payers have taken a retrospective or "pay and chase" approach to identifying miscoded or fraudulent claims, using separate, distinct tools and processes. That is, payers analyze previously settled claims to identify overpayments and/or fraud, waste, and abuse. Various analytic tools assess such paid claims, which qualified personnel then review.

While effective to some degree, running multiple retrospective claim reviews is extremely costly and time-consuming and rarely results in full recovery. Further, the process can inconvenience honest providers and patients by subjecting them to records review and investigation.

To supplement the traditional approach to overpayment and fraud analysis, payers should look at integrated prepayment or preadjudication solutions. Technology advancements and the adoption of electronic claim standards have made it possible to perform many processes before claims payment and even before claims adjudication — all through one unified claims extract. Developing a new approach to fraud prevention that stresses payment integrity at the beginning of the claims cycle will go a long way both in reducing inappropriate payments and improving overall claims processing efficiency to the benefit of payers and providers.

An integrated prepayment solution reduces inappropriate claims from entering the system while providing additional benefits in efficiency, fairness, and process improvements that retrospective reviews fail to address. Processing claims through a standard extract lays a clear foundation for all subsequent phases and reduces duplicate findings between applications.

Clinical editing, predictive modeling, and other technology-based functions can now be performed accurately in real time or near real time. After completing these tasks — but still before payment is made — automated case management tools can flag and route suspect claims requiring additional review to clinicians or nurses.

Claims editing involves checking for correct claims coding to avoid common errors such as duplicates, improper bundling and unbundling of services, and inappropriate modifier use. It is an ideal first step in an integrated prepayment process. A claim may be miscoded due to a lack of attention, a misunderstanding, or an intentional deception. Claims editing will catch miscoding regardless of the cause.

Editing checks are crucial since, according to The Medicare Recovery Audit Contractor (RAC) Program: An Evaluation of the 3-Year Demonstration, June 2008, "most overpayments occur when providers submit claims that do not comply with Medicare's coding or medical necessity policies."

After claims are edited to ensure proper coding, the same claims data examined to identify overpayments can serve as the foundation for uncovering provider fraud through the use of predictive modeling, provider profiling, trend analysis, and variance reporting. Predictive modeling applications rank or score providers based on indicators that reveal whether providers are engaging in abusive or fraudulent practices. Indicators identify aberrant behavior in procedures, visit levels, place of service, units, and other pertinent data to pinpoint where problems may occur.

Integrating clinical editing with predictive modeling enhances both processes. An integrated prepayment solution also lends itself to transparency and openness to all participants in the claims cycle. Through the use of web services, information can now be displayed through payer portals, practice management systems, and clearinghouse gateways.

Providers will know immediately if a claim will be paid or the reason for denial. Improperly coded claims can be quickly corrected for acceptance, which shortens the time to payment. Payer customer service staff can likewise have readily accessible information to address provider queries. This should reduce appeals and customer service support calls and engender a sense of trust between payers and providers.

In addition, data shared through a portal can be used as an effective education and outreach tool. Information about common coding errors or medical necessity guidelines could be built into the claims process as part of a feedback loop to reduce denials.

There will always be a need for post-payment review as part of a responsible and effective oversight process. However, an integrated prepayment process is a better approach. This model offers the payment integrity the system demands while providing additional benefits in terms of efficiency, fairness, and process improvements that the retrospective approach does not address.

Gary Twigg is president of Bloodhound Technologies.