A just-released report by the Office of Inspector General of the U.S. Department of Health & Human Services shows that most coverage denials from insurers and plans in the Medicare Advantage program were flat-out wrong.
In reviewing hundreds of contracts, the HHS OIG discovered that the plans “overturned 75% of their own denials during 2014-16, overturning approximately 216,000 denials each year.” The total rate is even higher because of additional reversals by independent reviewers and also because the study did not encompass many contracts with in-network providers.
The biggest victims are the providers. The study found that 82% of the wrongful denials arose from appeals by providers for payment for services already rendered. While that is not surprising in a third-party payor system, what is surprising is the failure of insurer trade association AHIP to treat it as a significant issue.
"It also is important to distinguish between patients getting needed care and providers receiving payment for services delivered, which the OIG reports in a combined fashion," spokesperson Cathryn Donaldson stated about the report's findings. "A denial does not necessarily equate to patients not getting the care they need."
Since these plans are reversing more than 75% of their own denials, why don’t they just pay more claims up front? The answer is obvious: even with a high reversal rate, health insurers profit from excessive denials. The report reveals at least two reasons why.
First, most wrongful denials are not appealed. Only 1% of denials were appealed during the three years in the HHS OIG study. The rate is low because the process is cumbersome and confusing and, for providers who deal with thousands (or millions) of claims a year, can be prohibitively expensive.
The HHS OIG did not undertake the massive task of reviewing the 100 million denials that were not appealed over the three years to see if they were wrongful as well. If a significant number were—which is extremely likely—then the savings to the insurers from these wrongful denials could be staggering.
The second reason why these plans profit from excessive denials is specific to the Medicare Advantage program's capitated payment model. Since MA insurers are paid a fixed sum no matter how much they spend, the HHS OIG found that they have “an incentive to deny preauthorization of services for beneficiaries, and payments to providers, in order to increase profits.”
This epidemic of wrongfully denied claims drags down the entire healthcare system. As the HHS OIG notes: “Because Medicare Advantage covers so many beneficiaries (more than 20 million in 2018), even low rates of inappropriately denied services or payment can create significant problems for many Medicare beneficiaries and their providers.”
The numbers are huge. In 2016 alone, the study encompassed 448 million requests either for prior approval of services (24 million) or for payments for services already rendered (424 million). Thirty-seven million were denied: one million for “pre-authorization” and the other 36 million involving non-payments or underpayments for services rendered.
For patients and providers, the path is clear. File more appeals! Yes, it is unfair for health insurers to force patients and providers to endure this cumbersome process. Yes, insurers are breaching their contracts every time they wrongfully deny claims. And yes, the federal and state governments should be correcting this problem, rather than pushing it downstream.
But none of that matters to providers who cannot stay in business without payment or to patients who need services that have been prospectively, and wrongfully, denied. The HHS OIG report makes clear that they each need to turn to the arrows in their own quivers. And while some of those arrows provide for long-term relief, like filing lawsuits to deter insurers from future wrongful denials, virtually all of them start with the simple act of filing appeals.
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Rhonda D. Orin and Daniel J. Healy are partners in the Washington D.C. office of Anderson Kill, a national law firm that represents policyholders, including hospitals and physicians, in disputes against insurance companies.