Every time Morristown (N.J.) Memorial Hospital fixes an ailing heart, it extracts thousands of dollars in reimbursement from payers' pockets. But hospital officials had no warning of the financial bludgeoning it would take when a 64-year-old New Jersey man with a potentially life-threatening buildup of coronary plaque was admitted last October.
Hours after the man's arrival, doctors removed veins from his leg, cracked open his chest and performed a triple bypass to restore the flow of freshly oxygenated blood to his heart.
Over the next two days of intensive care, hospital clinicians monitored his recovery. On the fourth day of admission, a chest X-ray was performed and pacing wires inserted in his chest were removed. He was released on Monday.
But on the day of discharge, the 517-bed hospital received a stinging message from the man's HMO. The plan called to say a fourth day of hospitalization was not medically indicated. Instead of the usual per-diem rate, the day would be reimbursed at a vastly discounted, skilled-nursing-facility rate.
Since Morristown does not have a skilled-nursing arrangement with the payer, it got nothing for the day. In effect, Morristown was going under the knife, too-a reimbursement knife wielded by the man's HMO. The case set the hospital back several thousand dollars. For competitive reasons, officials did not want to disclose actual pricing data.
Colleen Matthews, director of managed care at Morristown's parent, Florham Park, N.J.-based Atlantic Health System, won't say what plan shorted the hospital. She'd rather protect the HMO's identity than risk plan retribution. But she tells the story to make a point: When a hospital signs a per-diem contract, it expects to get a fair shake when it comes time to pay the bill.
"We certainly do not expect to get paid for days that are not medically necessary," she says. "But a day that is clearly part of an acute-care episode should be paid for as an acute day." In this case, Matthews argues that a fourth day of acute care was warranted and should have been fully reimbursed.
Lately, hardly a day goes by that she doesn't hear about another payment ploy. Matthews' theory is that plans are playing to public sentiment. Dreading another outburst of the magnitude sparked by "drive-through deliveries" and "same-day vasectomies," insurers simply shifted the focus of their cost-cutting practices.
"They're not denying procedures. They're just not paying the provider for it," she says.
Fear of a cash crunch. Across the country, complaints of arbitrary denials, payment lags and short-changing by HMOs and insurance companies are becoming shrill and pervasive. It's more than an annoyance, say providers. They fear the resulting cash crunch could bring some hospitals to their knees.
"I have never in my life seen a chorus of complaints like this by chief executive officers over the absolutely horrible practices of the HMO industry," says Kenneth Raske, president of the Greater New York Hospital Association. "If (HMOs) were considered bad actors before, it has gotten worse."
Two recent examples:
* In New York, claims are languishing an average of 64 days despite a 45-day prompt-payment law.
* In Maryland, another state that mandates prompt payments, days in accounts receivable on HMO accounts rose 28% over the past two years to 78.2 days in 1998.
Across the country, plans are intentionally dragging out the turnaround of claims, waiting 60, 90, 120 days or longer before they'll cut a check, providers say.
"If we get paid in 60 to 90 days, that's a good month," says Howard Gold, senior vice president for managed care at North Shore-Long Island Jewish Health System, a Great Neck, N.Y.-based system of 12
licensed hospitals. North Shore-LIJ's accounts receivable are aging well beyond the 45-day window the state allows for payment of clean claims.
Doctors are getting squeezed, too. Allen Terzian, M.D., an oncologist in a private, hospital-based practice in Philadelphia, has waited as long as nine months for some smaller plans to pay up. "We've been able to absorb the delay as part of the cost of doing business, but a lot of smaller oncologists are getting massacred."
A second, more costly problem, providers say, is the outright refusal by some plans to ante up for days of pre-certified care. HMOs are denying payment after services have been rendered and the patient has either died or been discharged, providers report.
Many hospitals were slow to catch the trend and are just beginning to accumulate evidence.
"Medical denials are a little bit like pornography: tough to define, but people claim they know it when they see it," says one New Jersey chief financial officer, who asked not to be identified. His hospital, the victim of an estimated $1.2 million in questionable denials a year, first noticed an uptick in payment refusals in 1995. "Most hospitals didn't figure this out until six months ago," he says.
HMOs' response. Are providers really the target of a devious new twist of managed care's cost-containment scalpel? Managed-care defenders don't think so. If anything, they say, hospitals are victims of their own incompetence and over-taxed, antiquated billing and collection systems.
They also doubt the accuracy of providers' late-pay and denial statistics. For example, 44% of one plan's denials were because the hospital had already been paid, says Susan Pisano, a spokeswoman for the American Association of Health Plans in Washington.
Aetna U.S. Healthcare, often cited by hospitals as one of the worst offenders, defended its payment practices. "Our claims turnaround overall is within an industry average of 14 to 16 days," a spokeswoman says. Frequently, the company finds many complaints arise from claims that were never received or disagreements over how much is owed. Furthermore, 40% of hospital claims are not even received until 60 days after service has been provided to the enrollee, she adds.
Could it be that hospitals' own contracting and billing mistakes are coming back to bite them?
No doubt that's part of it. Hospitals in New York acknowledge that underinvestment in computer technology made them ill-equipped to manage the demands of multiple payers when the state deregulated hospital rates in 1997. Retaining staff familiar with the varying rules for submitting claims to each payer is a constant challenge, too.
But that neither explains nor justifies the recent glut of payment denials and delays providers are reporting. Why would any rational healthcare system or physician practice intentionally allow costly mistakes to slip through time and time again? The incentives, say providers, are to get it right.
Clearly, HMOs are playing games with providers' money to offset their own fiscal problems, says David Zimmerman, an accounts-receivable consultant in Hales Corners, Wis. But providers got themselves into trouble by not understanding the game rules. Most contracts are written with terms that favor managed-care companies, he says. "The hospital providers need to play a lot more hardball," he says.
Ted Nussbaum, a managing consultant in the Stamford, Conn., office of Watson Wyatt Worldwide, rejects conspiracy theories that the lags and denials are deliberate. The problems providers are witnessing are mostly HMO system capacity problems, he says. The large national players have bought and merged their way into prominence without having invested in billing systems equal to the new tasks.
That's a major problem, agrees Annette Catino, president and CEO of QualCare, a Piscataway, N.J.-based managed-care company owned by 15 hospitals and affiliated physicians. "I think we've underestimated the impact that consolidation has had on infrastructure."
But Catino, through her unique vantage point as the leader of a provider-sponsored managed-care plan, says there's plenty of blame to go around. Every day, for example, her staff sees incomplete, botched and duplicative claims, which only slow payment.
Nevertheless, Catino does believe some plans are overly aggressive. She sympathizes with providers who complain about other managed-care plans' payment practices. "They call us up for advice all the time. They'll say, 'I always get this kind of denial. Why do I get these denials?' "
Fighting back. Providers are retaliating as best they can.
The 220-member Florida Hospital Association has threatened to file class-action litigation or pursue other remedial actions if payers don't shape up. As of Jan. 31, 20% of claims outstanding in the state were more than 120 days old. That's $75.7 million that hospitals have yet to see.
Even Tenet Healthcare Corp., the nation's second-largest for-profit hospital chain, has been plagued by payment delays, contributing to hefty bad-debt write-offs in the second quarter ended Nov. 30, 1998. The Santa Barbara, Calif.-based company now places its own employees in the offices of certain managed-care plans to help expedite payment on problem accounts, says CFO Paul Russell, although he won't identify the plans.
Elected officials are tuned into the late-payment problem. During the 1999 legislative session, 24 states introduced prompt-payment measures, and seven states enacted new laws, according to the National Conference of State Legislatures in Washington.
Georgia has the toughest law in the country. Beginning July 1, insurers have 15 working days after receiving a clean claim to get a check in the mail, deny the claim or request further information. The penalty for paying late is an 18%-per-year interest charge.
A few prompt-pay states have made it known they won't tolerate flouters.
This year, New York state insurance regulators have fined 16 plans-including 10 repeat offenders-a total of $188,000 for violating a 1998 prompt-payment law.
But such laws only go so far. The laws mandate payment of clean claims within a certain time frame, usually 45 days. But every plan has its own submission requirements, making it difficult to define precisely what a clean claim should look like and creating a vast loophole for plans that seek to stretch out payments. Furthermore, employer-sponsored plans covered by the federal Employee Retirement Income Security Act are exempt from state managed-care laws.
The denial issue is even tougher.
Providers say denials run the gamut, from refusals to pay the full per-diem rate for a day of care to flagrant downcoding of DRGs without matching the care given against the medical record. In some cases, HMOs are wrongly rejecting payment on emergency services for lack of pre-authorization.
New York Attorney General Elliot Spitzer recently pressured Health Insurance Plan of Greater New York to rescind a policy requiring emergency room doctors to get clearance before treating the HMO's enrollees and has subpoenaed five other plans for information on their urgent-care policies. Such policies are fueling ER payment disputes between hospitals and HMOs.
Responding to incessant reports of groundless denials, the Florida Hospital Association recently asked members to start gathering "real-life" examples. "We don't want to deal with this from an 'I've heard' situation," says Kathy Reep, vice president of financial services for the association.
Keeping up with the criteria. For hospitals, one of the difficulties is keeping up with HMO rules, says Jim Beck, CFO at All Saints Healthcare System in Racine, Wis. Plans frequently modify the criteria used to screen for unnecessary services, he says.
Clinical criteria published by firms like Milliman & Robertson and InterQual aren't intended to be used for establishing care-payment rates. But that is exactly what is happening, Morristown Memorial's Matthews charges. The upshot is that an HMO can deny partial payment on a four-day triple-bypass case but has to cover four days of care for a healthy young woman having a Caesarean section because that's the law in New Jersey.
If plans are going to use such guidelines to determine payment, they should apply them to the entire case, not just the final day of care, she says. In other words, either pay hospitals the full per-diem for the stay or pay a criteria-based amount for the entire admission, she says.
Financially, Morristown is in better shape than many New Jersey hospitals. In 1997, the hospital recorded nearly $31.6 million in operating income on revenues of $313.9 million, reports HCIA, a Baltimore-based healthcare financial information vendor. The hospital's parent, Atlantic Health, posted $18.9 million in operating income on revenues of $742 million in 1997, says Moody's Investors Service, which maintains an A1 underlying rating on system debt. Data for 1998 were not available.
Still, the reimbursement situation has turned Matthews into a self-proclaimed "squeaky wheel" against abusive payment practices. The heart-bypass case is documented in a thick file of "inappropriate payment denials" she's turned over to the state Department of Health and Senior Services.
Saint Barnabas Health Care System, New Jersey's largest hospital system, is fighting payment abuses, too, but it is taking a different tack. To offset a lag in collections, Ronald Del Mauro, president and CEO of the 10-hospital system in Livingston, has instructed his hospitals to stretch out the number of days they take to pay vendors. In one facility, where receivables averaged 70 days for payment and accounts payable took an average 45 days, payment schedules are being lengthened to match up. "If I don't get the money in, I can't pay it out," he says.
Del Mauro says vendors are cooperating, but at least one local equipment company reportedly pulled business with some system hospitals because of long payment lags.
Currently, the system is owed roughly $100 million from all payers. Half of those claims are 60 to 90 days old. Del Mauro says he's acting from a position of strength-before the cash crunch does any real damage, but he's taken some heat for it.
"If this were any other business but healthcare and that decision (to slow payments) were made, they'd say that's a brilliant business decision."
As for Morristown's 64-year-old bypass patient? As far as Matthews knows, the man has no clue about the loss on the admission. The hospital is prohibited under state and federal hold-harmless laws from billing him for the balance.