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Every provider and manager in medical billing has experienced situations where insurance companies have underpaid them. It doesn’t matter what kind of provider you are. There are many examples of these. So the question is, “How many are there, and how many are you aware of?” Why ask this question? In short, because the payers are not transparent about this. They will blatantly communicate something false in an ERA or EOB so that it appears as though the payment amount was correct.

Check for fraud

The interesting question is, “Are they mistakes? Do insurance companies mistakenly underpay you?” because that certainly is their assertion: these are accidents. They underpay you accidentally. The question of intent is essential because this is a necessary component of fraud, that they did it intentionally.

Logic might tell you that the simplest solution is not that insurers made a mistake. Still, they’re intentionally trying to underpay you since they have a substantial financial incentive to do so. The question is, “How do you prove that?” without access to their systems to be able to show that they’re doing it intentionally or that there are policies. We assert that it is, in fact, fraud since we believe it was done deliberately based on the data, which we will discuss below.

Verify employee insurance

Some of our employees had worked for insurance companies in the past prior to working with us. They had recounted that some payers have quotas. For creating problems so that they did not have to pay the claim.  They were told to make some claims disappear or they had to throw away / delete them, or were told to deny claims for no good reason intentionally in order to meet certain thresholds. We realize that this is hearsay effectively and not definitive proof of this specific question of whether underpayments are intentional.

Understand the data

Data can tell quite a story. In this case, it would help us identify whether or not these were accidents or whether they were intentional underpayments, which would support a case of fraud. When you look at behavior in the natural world, if something is random and there is no deliberate thought or action, data follows a certain pattern. This is what you would call incidental or “accidental.” If you look at whether or not insurance companies underpay you or overpay you, you would expect to see a somewhat normal distribution around overpayments and underpayments. That means about half of the payments are underpayments, versus half of them are overpayments when they pay you incorrectly.

A normal distribution means that you would expect the most significant deviations from correct payments would be small, but some smaller number of outliers where there are apparent overpayments or underpayments. These are known as the “tails.”

There are two parts to the analysis of whether there is intent on underpaying on payers. The first is, “What does the pattern of payment look like?” In other words, what shape does it follow?

In practice, we see the overwhelming majority of the incorrect payments are UNDERPAYMENTS and just a very small number of overpayments, like the following chart.  This should be symmetrical.  While we might expect some payers to have better or worse systems and processes that result in a higher proportion of mistakes or incorrect payments, we should still expect that regardless of the number or percent, that these are distributed close to normal if they were random. 

This clearly shows that this is not accidental behavior; that there is some intent there to underpay, regardless of whether it’s by payer policy or by system design.  It is clear that since it’s so lopsided with more underpayments than overpayments that this is not random or accidental. It is intentional.

Associate data with refunds

The other critical proof of the intent to defraud that you can see in the data relates to refunds. In the rare event where a health insurance company makes an overpayment, it typically asks for a refund of that overpayment. Often it does not ask for a refund but withholds a corresponding payment amount in the next batch of payments sent to the provider.

How many of you have experienced that? All hands are going to go up. It’s 100%. Everybody has had an insurance company come back and say, “Hey! We overpaid you. Now, we’re just basically taking the money back.

Ask yourself the next question – how many of you now have experienced the opposite situation, where a payer contacts you proactively and says, “Hey! By the way, we underpaid you last month. Here’s some more money.” I’m guessing no hands are going up at this stage. Coincidence?

Look for evidence

Suppose you think through that process that the insurance company must undergo to find where it overpaid a provider. In that case, it must mean that they have a quality control process where they go through systematically and analyze all transactions to determine whether or not the payment was correct. This means they can do contract compliance and ensure payments are accurate.

That small percentage of claims that were overpaid, they come back and take back the money. It is not possible to only analyze the claims that were overpaid. That is statistically impossible. They must investigate all claims to identify which were overpaid.

That means if they’re identifying all incorrect payments, they can determine whether all of those were underpaid, as well. They are not contacting you and paying you when they underpay, which means there is clear intent to underpay providers. Even if one includes all the overpayments which result in refunds into the data distribution, it is still nowhere near a normal distribution.

Insurance companies are intentionally systematically underpaying or at the very least they are knowingly underpaying, and then they’re deliberately catching the overpayments and making sure they get those back and not notifying you of underpayment.

The data very clearly shows that there’s intent to defraud providers. We are not in a criminal law case, but if anyone brought a fraud case against health insurers, this data would support intent.  However, it is a fairly sophisticated concept for a judge or jury to accept so it might be hard to convict even though we can accept without a reasonable doubt that payers are crooked.

Create an action plan

What do you do with that information? I think the important thing is recognizing why we want to know whether it is intentional or unintentional. If it were involuntary, then you would expect a random or normal distribution. You would expect the overpayments and underpayments roughly balance and that the payer would come back and pay you for the underpayments, just as they would find and recover the overpayments. It would basically all even out, and you shouldn’t have a problem. Therefore there would be nothing to do as a provider to ensure financial health and complete reimbursement.

Once you know for sure that it is intentional and that they’re doing it willfully, then that means you need to make sure you have a program in place to catch the underpayments because they’re not going to do it for you. There’s going to be many of them with some payers. For example, Anthem is notorious for this. It would help you financially if you did something about this. That’s the net effect.

Final thought

If you don’t have a contract compliance program in place, it’s worth investing in one, although that’s the subject of another article.  Stay tuned.

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