Payer Allowed Amounts

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Today, let's talk about payer allowed amounts. Now, before we talk about payer allowed amounts, it's important to understand how to approach this topic. We're going to talk specifically about expected allowed amounts, minimum, and maximum allowed amounts. When we talk about those three things, first, we need to talk about what is the problem or opportunity we're trying to describe. Otherwise, when you talk about this topic, it can become very nebulous very quickly. You can start by talking about contracted rates. You can start by talking about, is it a 10-cent difference or $1 difference. You really want to talk about what is the problem or opportunity we're trying to address.

If we want to look at it as a problem, we can think of a problem like low reimbursement rates, or we can talk about a widening gap between our billed amounts and our collected amounts as it reflects the payer allowed amount. So a way to imagine that, is you have your billed amount here and you have your collected amount here. We know that that number is always different than the billed amount when it comes to insurance because there is a contracted rate, which means you billed something, you collected something as a copay, something might be a co-insurance, you have deductible. All those things come into play.

There's always going to be a billed amount and then there will be an amount the

insurance company will actually cut you a check for. In between there, you have an allowed amount, and that allowed amount is the number that we're interested in, because if we notice that we started with an allowed amount up here, and then we start noticing that it's moving south, this is a trigger for a problem. If we can catch it soon it can be tactical, if we catch it late it becomes strategic, because now we have a strategically falling allowed amount that's causing us long-term damage to the clinic. Right?

So, this is one way to look at this. The other is it's a new year and the opportunity is to look at contracted rates and to find out whether or not I should be expecting more or less. So, in that case, asking yourself should I be going in-network or out-of-network?Let's look at it from the problem perspective first. The problem says that the allowed amount is dropping and we are noticing the allowed amount dropping. So, you can look at that strategically or tactically, which means it's either a big drop or a little drop. Tactical means we caught it quickly. Anytime there's a tactical issue that needs to be resolved, it means that it's small. Once it becomes a large enough problem, it becomes a strategic one because, now, we're worried about long-term effects and how it affects other divisions in the clinic.

The opportunity is actually the easiest opportunity to think of because it's a direct correlation to dollars. We don't need to do the math to figure out how much a visit is worth when we're talking about no-show problems, because a no-show is the number of visits, and then we need to calculate our PVA, and then we can figure out the opportunity loss in rising no-show rates. In this case, it's a direct number. It's a dollar amount that I'm either losing or not losing.

The math that we could do if we wanted to get this to be a little bit more interesting is the allowed amount difference, and we'll call that the change in the allowed amount, times the number of visits if we want to understand how much money we're losing in that reduction in my allowed amounts. So, the difficulty then becomes, how do I actually fix this dropping allowed amount, right? When it comes to dropping allowed amounts, we have to check in-network versus out-of-network. This is one issue.

If we're in-network, sometimes it's easier to address falling allowed amounts, because

when we're in-network, we have a contracted rate, which means the insurance company contracted and agreed to pay a certain amount or to allow a certain amount in insurance visit. Which means if they're changing their number, they're liable for those mistakes. Now, if you're out-of-network, you're dealing with something called usual and customary. When you're dealing with something called usual and customary, what that means is that number might vary a little bit, and so it's important to stay on top of the actual posted allowed amounts in case we start to see larger than usual and customary variations.

The approach should be to divide our understanding and how we're looking at this issue. Now, one way to do that is to look at your payers as out-of-network and in-network to figure out which payers fall under each, and then figure out the different codes that are being billed. Then we need to figure out our minimum, our maximum, our average, and finally our expected allowed amount. This is very important because what we're going to find that there is going to be a minimum, let's say $5, let's say that they've allowed at $1.8, and so we're going to have an average of $6.5.

Generally speaking, if we're out-of-network, we always shooting for the highest possible allowed amount that's reasonable, usual, and customary. So, if they establish an $8 allowed amount, what that means is a billing person or a billing team really should be expecting that full amount each and every time unless there is some kind of extenuating circumstance or some reason being given by the insurance company for why that is not the case and they're establishing that for a given code.

Please note that there's a wrinkle here. This is all defined by a clinician as well. So, not only do you need to look at the code, whether it's in or out-of-network, you also need to look at the clinician themselves. That will directly impact whether they're in or out-of-network. So, from here, we need to understand what the difference is and what we should be expecting. Now, if we're in-network, generally speaking, it's rare to find such a huge difference between these numbers. I really should expect these numbers to be either exactly the same or very, very close, in which case, when this happens, we absolutely want to expect the contracted rate, whether it's $8 or $7.80, right?

We want to understand that so we can set that expectation. Now, this is not enough, because all this has done so far is tell us what is going on, how much money we're losing, why it's not a simple problem. This means we are asking ourselves, why didn't my biller just take care of it themselves, strategically, and follow a very specific framework for what needs to be addressed? The question now becomes, we've addressed the what, now we need to address the how.

Ideally, the way this should work is it should be automated. So, any software that you're using for billing should automatically be calculating your minimum, maximum, and average allowed amounts based on what's being billed. We should be looking at this number. Software should be automatically tracking this based on what you're billing. You shouldn't have to enter these numbers in. The number you should have to enter or your biller should have to enter is your expected allowed amount so that every time something gets processed through the software, if it violates this number, we're gonna automatically kick back that claim for follow up.

This is interesting because, generally, once we get an allowed amount back and then a payment from the insurance company, that claim moves to a paid status by the insurance company. The insurance company considers this a paid claim, even though they violated this allowed amount or this expected allowed amount.

The way that the software needs to intelligently figure this out is it needs to take a paid claim, which has been underpaid and bounce it back to a rejected status. In other words, it needs to be able to be smart enough to recognize a paid claim as a rejected claim, send that back to the biller and tell them exactly why this is a paid claim that is now rejected and that it needs to be followed up on.

So, we start to figure out here that a way to address this problem, the ideal way to address this problem, this is ideal, so approach number one, is it should be automated. The software should automatically be taking your expected allowed amounts, putting that up against the actual posted allowed amounts from each claim, and automatically rejecting those claims to a workbench or to some backlog that allows the staff to go and follow up on those items. That way, your staff isn't spending their time finding underpayments, they are simply spending their time collecting money that's owed.

A second approach would be to do this manually, meaning, somebody has to not only keep track of these minimum, maximum, and average allowed amounts, but also has to go through and mark down their expected allowed amounts. Then, figure out when claims that are paid, so somebody has to be regularly auditing paid claims at 100% audit rate, by the way, because you have to look through everything just in case you miss something, and figure out which paid claims have been underpaid so that they go back into a rejected status or go back onto a queue somewhere and get followed up on.

Obviously, you can tell which approach I favor. I always favor automation whenever possible, because generally speaking, we talked about this in previous sessions, we have a 50-50 rule when it comes to work that can get done in a clinic. You can either spend 50% of your time discovering and 50% of your time solving, or you can automate discovery and spend 100% of your time solving. This is ideal. We want to get to a point where, in our clinic, we're spending as much of our time solving issues as possible and minimizing the amount of time we're spending discovering those issues.