Prepayment itemized bill audits: What’s the catch? | Viewpoint

Rebecca Falk, left, and Becky Greenfield (Wolfe Pincavage)

Under the guise of saving money, health insurance plans are enforcing and expanding policies that require hospitals to submit itemized bills as a condition to payment.

These itemized bill audits negatively impact hospitals’ revenue cycles by increasing administrative costs and ultimately reducing reimbursement.

A hospital submits a bill that complies with CMS billing standards and all other claim requirements under the parties’ contract. The payor asserts the hospital must submit an itemized bill, and sometimes medical records, as a condition to payment, and the plan pends claim processing until receipt of the same.

When the hospital acquiesces, the plan audits each individual item or service on the bill and significantly reduces the total allowable amount, typically finding services have purportedly been unbundled. In these circumstances, payors argue (in many instances incorrectly) that the hospital billed for items or services separately that should have been billed under a single code including all charges.

Itemized bill audits disrupt the revenue cycle in at least two ways. First, these policies often result in untimely payment of clean claims.Second, plans incorrectly “bundle” services that should be paid separately, resulting in significant underpayments. We discuss how to address each of these disruptors below.

The Threshold Question is Whether Prepayment Audits are Permissible under Both Law and Payor Contract.

Prepayment audits prevent hospitals from receiving timely reimbursement. However, they may or may not be permitted under applicable law and the payor contract.

First, hospitals should analyze whether applicable law expressly discusses prepayment audits. Most likely, it does not.

Second, hospitals should determine whether the payor contract allows pre-payment audits. A contract may expressly permit prepayment audits in some circumstances. Alternatively, a contract may require hospitals to comply with the plan’s audit policies, which may validate payors’ implementation of prepayment policies.

Third, hospitals should recognize that applicable law and payor contracts may permit, or prohibit, prepayment audits through the definition of “Clean Claim.” Usually a claim is considered “Clean” if a provider submits a standard billing form with enough information for the payor to reasonably process the claim.

However, some jurisdictions and payor contracts may define a Clean Claim more broadly. For example, a payor may attempt to expand the definition of a Clean Claim through the contract to require a hospital to provide supporting documentation for the plan to consider, including an itemized bill.

If Prepayment Audits Are Generally Permitted, Consider Whether the Payor’s Prepayment Audits Fit Within the Parameters Set Forth by Both Law and Payor Contract.

Assuming the hospital’s payor contract and/or applicable law does not explicitly prohibit prepayment audits or is otherwise silent on the issue, prepayment audits, under law, may be permissible in certain instances.

Prepayment audits are most problematic where the payor lacks adequate administrative resources to promptly audit the claim or otherwise pends payment of claims beyond the prompt payment requirements under applicable law or contract. Therefore, hospitals should analyze the applicable laws that impose requirements for payors to reimburse providers timely (“Prompt Payment statutes”) and the payor contract to determine which, if any, provisions limit a payor’s actions and when the prompt payment timeframe is triggered.

For example, a contract may define a Clean Claim to include itemized bills but requires payment of a Clean Claim within 20 days of submission.If the itemized bill was submitted, but the payor delays payment past 20 days, the prepayment audit is likely prohibited conduct and should be disputed by the hospital.

Hospitals should be aware of these issues when negotiating and renegotiating payor contracts. Written agreements are the best way to eliminate or restrict prepayment audits. Consider negotiating the following:

• Require payors to pay a certain percentage of the total expected amount before it audits a claim (this can be 100% of the expected amount or lower percentage).
• Define a “Clean Claim” to include only what is required on the UB-04 and HIPAA simplification rules.
• Establish a time limit for payors to conduct audits and limit the number of audits conducted per month (using either a specified number of claims or percentage of total expected volume for inpatient and outpatient claims).
• Include language that prevents audits if the payor’s A/R exceeding 60 days is above a certain percentage.

Even if Prepayment Audits are Permissible, How Do We Defeat Unbundling?

Payors frequently utilize proprietary coding edits that are misaligned with industry standards, including CMS code edits, and seek to bundle items and services that are unique to the individual patient and therefore separately payable. These edits undercut the contracted rate in the parties' agreement.

If a hospital is willing to allow prepayment bill audits, or if it is permitted under law and/or contract, the hospital should include language that requires the payor to follow CMS bundling edits.Alternatively, the hospital may want to consider establishing a charge profile with the plan that sets contractual parameters of what can be bundled and what is separately payable. This should assist with payment certainty and reduce administrative burden resulting from appealing prepayment audit results.

Prepayment itemized bill audits is not a new issue. It is, however, a consequential trend in hospital denials. Payors are enforcing the policies at high volume and expanding the policies to apply to a larger subsection of claims.

Armed with the right tools and a proactive approach to itemized bill audits, hospitals can overcome this common revenue cycle disruptor and get back on track.

Rebecca Falk is an associate attorney at Wolfe Pincavage and Becky Greenfield is a partner at Wolfe Pincavage.