WSJ - Fights Over Health Claims Spawn
a New Arms Race
Insurers and Doctors
Try for Upper Hand;
Firms Help Both Sides
By VANESSA FUHRMANS
February 14, 2007; Page A1
Four years ago, Paluxy Valley Physicians of Glen Rose, Texas,
was struggling to recoup more than $500,000 in denied or
unpaid claims from insurers. Two of its eight doctors left
the practice, while three others had to borrow $100,000
to keep it afloat.
To turn things around, the medical practice turned to Boston-based
athenahealth Inc., one of the biggest of hundreds of companies
in a lucrative niche: helping doctors wring payments from
health plans. Athenahealth's software flagged and corrected
the complex coding for thousands of claims, preventing them
from getting hung up in insurers' Byzantine rules. Today,
Paluxy Valley has whittled its claims outstanding to $179,000
and repaid the bank loan. No longer in a revenue crunch,
its doctors have stopped moonlighting in the emergency room
to make money.
"The insurers outcode us, they outsmart us and they
have more manpower," says Shari Reynolds, the administrator
at Paluxy Valley, which pays athenahealth a little over 3%
of the $2.5 million it collects annually from insurers. "Now
at least we have a fighting chance."
Doctors increasingly complain that the insurance industry
uses complex, opaque claims systems to confound their efforts
to get paid fairly for their work. Insurers say their systems
are designed to counter unnecessary charges and help keep
down soaring health-care costs. Like many tug-of-wars over
the health-care money pot, the tension has spawned a booming
industry of intermediaries.
It's called "denial management." Doctors, clinics
and hospitals are investing in software systems costing them
each hundreds of thousands of dollars to help them navigate
insurers' systems and head off denials. They're also hiring
legions of firms that dig through past claims in search of
shortchanged payments and tussle with insurers over rejected
charges. "Turn denials into dollars," promises
one consultant's online advertisement.
The imbroglio is costing medical providers and insurers
around $20 billion -- about $10 billion for each side --
in unnecessary administrative expenses, according to a 2004
report by the Center for Information Technology Leadership,
a nonprofit health-technology research group based in Boston.
Some companies are profiting from arming both sides. Ingenix,
a unit of UnitedHealth Group Inc., the country's second-biggest
health insurer, sells insurers systems to screen doctor's
claims while promising doctors its software for them will "help
you take a more assertive stance on fair and accurate payment." Ingenix
says it helps smooth the entire payment system by equipping
both insurers and providers with the same information. Diane
Breneman, an attorney representing doctors in the Kansas
City, Mo., area suing several major insurers over claims,
disagrees: It's "like tobacco companies getting into
the nicotine-patch business," she says.
Behind the Scenes
Some patients get dragged into these behind-the-scenes disputes
when physicians try to bill them for what the insurer hasn't
paid. Physicians say state-run Medicaid systems are among
the worst payers: That's a large reason why fewer than a
quarter of physicians in a survey last year by the Center
for Health System Change, a nonprofit research group, said
they were accepting new Medicaid patients.
State Medicaid programs say that with millions of claims
running through their systems, beneficiaries moving on or
off their plans and occasional budget crunches, they're bound
to frustrate some doctors. Some insurers say they are moving
to make it easier for doctors to get paid, not harder. "Every
time we redo a claim, it costs us a lot of money, too," says
Dr. Allan Chernov, a medical director at Blue Cross Blue
Shield of Texas. As of last month, he points out, doctors
using the insurer's software can check beforehand whether
they're about to run afoul of a coding rule.
The denial-management industry's rise shows how much of
medical spending is consumed by propping up and doing battle
over an arcane patchwork of claims systems. Roughly 30% of
physicians' claims are denied the first time around. Sales
of physician-billing and practice-management technology grew
25% to more than $7.5 billion last year, estimates Jewson
Enterprises, a health information-technology research firm
in Austin, Texas.
That's prompting big companies to move into the market.
General Electric Co. last year snapped up physician- practice
management firm IDX Systems Corp. for $1.2 billion. McKesson
Corp. -- which makes the top-selling software system used
by insurers -- announced it would buy a denial-management
supplier, Per-Se Technologies Inc., for $1.1 billion. Cerner
Corp., a big maker of hospital software, also is moving
more into the physician market. Meanwhile athenahealth,
co-founded by President Bush's cousin, Jonathan Bush, has
grown in six years from a client base of a couple dozen
physicians to more than 8,500 doctors.
Two decades ago, insurers did less to stop doctors and hospitals
from racking up bills and getting paid in full. But as they
moved into managed care, health plans tried to control costs
by imposing conditions on payments, such as medical documentation.
To gain access to insured patients, doctors had to join insurers'
networks and comply with their various fee schedules and
What particularly riles doctors, who often still use paper
records, is how insurers' claims-processing software periodically
re-interprets the national standardized coding system used
to file and reimburse medical claims. The set of 7,000 five-digit
codes, each for a different medical service or procedure,
was devised by the American Medical Association in 1966 and
adopted by Medicare. Private health plans followed suit.
The coding system incorporates hundreds of thousands of
payment rules to prevent doctors from claiming for medically
incompatible services or double billing. If, say, a physician
bills for removing a gallbladder and opening and closing
a patient's abdomen, it rejects the second charge because
it's inherent in the first.
Over the past decade, most insurers have adopted code-auditing
software from companies such as McKesson and Ingenix. These
advanced systems include several million coding rules to
guard against overcharging, and are routinely updated with
new rules to which claims must adhere.
In October, for instance, a Paluxy Valley patient came for
her annual physical and an allergy shot. While she was there,
her blood pressure shot up and her doctor and the staff tended
to her for a few hours. The practice submitted a $200 claim
for her physical, the allergy shot, and an office visit for
treating her blood pressure. The payment back from Blue Cross
Blue Shield of Texas: just $18.49 for the allergy shot. Its
software had chopped the other charges out because a routine
allergy shot doesn't require a doctor visit, the insurer
"We filed that exactly the way we're supposed to," says
Ms. Reynolds. Her billing staff included a piece of code
that, under the universal coding system, signifies the charges
were for three separate medical issues, she adds. "They
deny it automatically anyway," she adds. "They
take the chance the doctor won't fight it."
At the Texas health insurer, Dr. Chernov says that its claims-processing
software, made by McKesson, doesn't necessarily recognize
the coding edits that would let a claim pass under the Medicare
system. He adds that in many cases, it would be understandable
to flag or reject part of such a claim because an allergy
shot would so rarely be done together with a physical.
"I recognize a computer software can't read every permutation
or combination of services," he says. He adds that the
insurer hears doctors out and even removes certain coding
rules from the system if they make a good case for it. "But
we're trying to balance being responsible [to our customers]
and making sure we're paying appropriately," he says.
McKesson says it updates its software throughout the year
to reflect changes from Medicare -- and in prevailing medical
practices and technologies.
Physicians first tried to fight the insurers' software in
the courts. A class-action suit in 2001 charged that the
country's biggest insurers were conspiring to use the McKesson
software to systematically bilk them. Aetna Inc., followed
by all but UnitedHealth and Coventry Health Care Inc., eventually
settled, and agreed to contribute hundreds of millions of
dollars into a fund to pay doctors who win judgments from
an independent review board on previously denied claims.
A U.S. district judge inMiami dismissed racketeering claims
from the suit last June, and some medical groups say insurers
have moved away from more egregious practices. But regional
pockets of doctors such as those in Kansas City are still
suing the insurers without the racketeering claim.
Athenahealth got into the business of helping doctors navigate
insurance hassles after its own billing travails. Mr. Bush
and his partner, Todd Park, initially raised $1.6 million
to build a national franchise of birthing centers. But the
fledgling business quickly sank in 1999 under insurance snafus
and payment delays: "We couldn't get out from under
unpaid claims," Mr. Bush says. Mr. Park's younger brother
designed an Internet-based system to navigate their insurers'
claims processors and anticipate such problems.
Now Mr. Bush runs athenahealth out of an old munitions factory
outside Boston, where its staff sifts through 13,000 pounds
of mail per month about claims and feeds all of the data
into its central servers. The company takes an average 5%
cut of the revenues it helps doctors collect, depending on
the type of practice.
Harnessing the collective claims experience of so many doctors
at once lets athenahealth's software engineers spot new "denial
patterns" and quickly program an alert into the system.
Usually the culprit is a new coding rule that an insurer
has introduced into its software.
Paluxy Valley, for instance, administers a special three-in-one
immunization shot to about 40 kids a month. Texas Medicaid
used to pay $5 to administer each shot separately when the
claim was coded using the numbers 90723. Because Ms. Reynolds
says she and her billing staff don't have the time to regularly
check the Web sites of all their public and private insurers
for updates, she never spotted that to get paid for the new
three-in-one shot, she'd now have to add a "u3" to
the code. Athenahealth's system picked up on the pattern
and its staff tracked down the new snag. Its software engineers
built an alert into the system to flag all claims missing
the new code before Paluxy Valley could ever file one incorrectly. "It
would have taken us weeks to figure out," says Ms. Reynolds.
A spokesman for the Texas Health and Human Services Commission,
Ted Hughes, says that every time the state legislature mandates
a new or higher payment, the Medicaid program has to make
a change in the coding to reflect that. "The coding
system doesn't belong to us," he says.
Athenahealth's system also runs reports to let doctors see
when an insurer has chopped out charges or shaved a few dollars
-- no small issue for a practice handling thousands of claims
a month. Doctors' practices have trouble finding these changes
themselves. Insurers often don't disclose their full list
of fees or coding edits, claiming they are proprietary.
When Boro Park OB/GYN, a Brooklyn, N.Y.-based practice,
checked how well one of its private Medicaid plans paid for
prenatal visits, it saw that seven out of 229 claims in December
were paid at $55, or $9 less than it is supposed to get.
The insurer, New York-based HealthFirst, says such mistakes
are the result of human error. HealthFirst switched more
than a year ago to a special set of codes for prenatal visits,
and its system kicks them out to be manually processed. The
insurer says it makes errors on just 2% of claims. "We're
the ones catching the mistakes," says BoroPark's executive
administrator, Fran Schwartz.
Sometimes patients get caught in the mix. Peggy Encinia
of Houston was visiting her daughter near Port Arthur, Texas,
last July when chest pains woke her in the middle of the
night. An ambulance rushed her to the nearby Medical Center
of Southeast Texas, which didn't have a contract with Mrs.
Encinia's insurer, UnitedHealth's PacifiCare. The bill from
her 12-day stint in the hospital and treatment for heart
failure came to more than $104,000. But PacifiCare paid only
$4,100 initially, explaining that because the hospital wasn't
in its network, its policy was to pay only the standard Medicare
Instead of going after Mrs. Encinia for the balance, the
medical center commissioned its claims auditing service,
PPO Check Ltd. of Houston, to fight the insurer. PPO Check
argued that Mrs. Encinia's policy specifically states how
out-of-network claims should be calculated for payment. After
several rounds of appeals and disputes, PacifiCare agreed
to pay an additional $70,000, close to the going rate other
hospitals in the area would get for the same service. "I
could argue this until I'm blue in the face, but I don't
know the rules like they do," says Mrs. Encinia. "When
I told the hospital I'd do my best to sort it out, they said,
'Don't get yourself worked up over this.'"
A UnitedHealth spokesman says it's fairly standard procedure
to pay Medicare rates when a hospital is out of its network
and that it did come to an arrangement with the hospital
to pay the prevailing local rate after listening to its appeals.
Some doctors say they see insurers stepping up efforts to
keep a lid on reimbursements. One increasingly popular tactic
among health insurers is to hire "health-care claims
recovery" teams or software to dig through claims, some
as old as two years, to see if they overpaid and seek redress.
That's partly because more states have been adopting "prompt
pay" laws that require health insurers to reimburse
claims within 30 or 60 days, says UnitedHealth spokesman
Tyler Mason, which sometimes doesn't leave enough time to
review them first. "We need to have a way to still thoroughly
review whether a claim's paid correctly or not," Mr.
Some insurers demand the money back. More, though, simply
deduct it from future claim payments. That forces doctors
to appeal the claim all over again. Recently, Hawthorn Medical
Associates, a Dartmouth, Mass., multispecialty practice with
50 doctors, received a letter from UnitedHealth. One of the
insurer's units, which audits already paid claims, had detected
$8,355 in overpayments on imaging tests for 25 different
patients. Hawthorn says UnitedHealth made a mistake because
it wrongly identified some of its doctors as being out of