After receiving a claims submission CMS can issue an additional documentation request letter. A new CMS policy updating the annual ADR limit went into effect Jan. 1.
Jeff St. Vrain, solutions owner at Edinburgh, Scotland-based healthcare revenue cycle management company Craneware, explains the new policy and how it could affect healthcare providers and the denials process.
Editor's note: The interview has been lightly edited for clarity and concision.
Question: Could you describe CMS' new ADR limits policy?
Jeff St. Vrain: The annual ADR limit has been lowered from 2 percent to 0.5 percent of the provider's total number of paid Medicare claims from the prior year. This number is split across eight ADR cycles, as auditors can request records every 45 days and is the maximum number of claims that can be requested by auditors each cycle.
ADR limits have also been diversified across all claim types, based on type of bill. So, there is now a separate record limit for an 11x bill type, a 13x bill type and so on.
Finally, and possibly most importantly, CMS has also instituted a rule that will raise or lower a provider's ADR limit based on their denial rates. Providers with low denials rates will have their ADR limit decreased, while providers with high denial rates will have their ADR limit increased. The nuts and bolts of how this will work is not yet clear.
Q: How does this policy affect healthcare providers?
JS: The good news for providers is the number of records requested of them has been reduced from 2 percent to 0.5 percent of the previous year's volume. Coupled with the diversification across claim type, the ADR limit has been dramatically lowered for some hospitals. There is some confusion among providers, however, as some auditors are reporting the new limits for hospitals, but it's not always clear if it is the total number that they can request, or if it is the total for a given bill type. Several of the auditors are working to get these numbers posted on their provider web portals to help clear up any confusion, but this is a work in progress.
It remains to be seen how the denial rate adjustments will be implemented. The overarching goal is to reward providers that are compliant with Medicare rules. Providers that have a lower number of adverse determinations will have their ADR limits reduced even further. While this is something that most hospitals want, there are questions about the validity of the sample size. If only 0.5 percent of Medicare claims are being audited, that means that 99.5 percent of claims are not. If a hospital's ADR limit drops to a considerably small number, which it has for many, the severity of a denial has just gone up. If a hospital's ADR limit is 10 for example, denials on just two claims mean a 20 percent denial rate. How will this impact their ongoing ADR limit? This is yet to be seen.
Q: What kind of safeguards and strategies should healthcare providers have in place to prevent denials?
JS: The best way to avoid denials is first to ensure that the Medicare rules are well understood throughout the provider organization. It doesn't take much for something to be coded or billed incorrectly, so making sure all the people who are involved throughout the process along the way are educated is essential. Having well-defined processes and technologies in place to help with accuracy is key to preventing errors from getting out the door. Software solutions that are able to identify and highlight areas of concern allow providers to proactively put corrective actions into place.
But, providers also have to continue to play the cat and mouse game with CMS and be sure they keep up with the ever-changing rules and regulations as CMS continues to tweak their audit programs. This is an industry segment where the goal posts seem to continually be moving, and it requires that providers be attentive and nimble in order to keep on top of it.
Q: Do you think denials management strategy will have to evolve over the next few years?
JS: As a result of these new rules, there will need to be more of a focus on tracking denial rates. Previously, high denial rates meant more dollars at risk for a provider. While that remains true (even if the volume is lower), high denial rates now also creates more risk for providers in that it will contribute to the problem getting worse. More denials means more ADRs — a potentially vicious cycle. Conversely, if hospitals can understand the root causes of their denials and fix the problems that lead to them in the first place, denial rates will continue to go down and ADR limits will go down. This means that properly managing and addressing denials is an important lever in an ongoing continuous improvement program to protect revenue and improve margins.