Common Causes of Improper Healthcare Claim Denials
One of the most common aspects of patients interacting with the healthcare system is health insurance. Generally, a health insurance policy provides that the insurer will pay for certain healthcare services covered by the insurance policy.
A somewhat similar arrangement often confused with health insurance is an employer-sponsored self-funded ERISA plan, discussed elsewhere on this site.
Payment difficulties often arise because people routinely do not fully understand the terms of their coverage. They often think they have much more coverage than they actually have.
Payment difficulties can also arise when insurance company representatives give the Provider erroneous upfront “verification of benefits” information (“VOB”) describing coverage that supposedly is available but in fact other terms apply.
These scenarios can lead to misunderstandings or disagreements between the patient, the Provider, and the insurer as to what coverage is actually available.
Healthcare Benefit Restrictions
If a claim is wholly or partially denied, the first thing that needs to be done is to determine whether in fact the claim denial is improper.
Common policy benefit restrictions
All policies have certain restrictions, which may vary significantly. Routine restrictions include the following:
- Co-pay – a specific dollar amount the patient pays each time for a particular service
- Co-insurance – This term can be somewhat misleading because it means a percentage not paid by the policy. “20% co-insurance” means the policy only pays 80% of the total amount owed.
- In-network Annual Deductible – The policy doesn’t pay for services from healthcare Providers that have a managed-care contract with the insurer until the patient has paid this much for services from contracted providers.
- Out-of-network Annual Deductible – The policy doesn’t pay for services from Providers that do not have a managed-care contract with the insurer until the patient has paid this much for services from non-contracted providers.
- In-network out-of-pocket Maximum – This is a cap on co-insurance. Once the insured patient has paid the out-of-pocket maximum for contracted Providers, the policy pays 100%.
- Out-of-network out-of-pocket Maximum – This is a cap on co-insurance. Once the insured patient has paid the out-of-pocket maximum for non-contracted Providers, the policy pays 100%.
- Annual Maximum – A maximum number of visits or tests or dollar amount for particular services that the policy will pay each year.
- Lifetime Maximum – A maximum number of visits or tests or dollar amount for particular services that the policy will pay throughout the insured patient’s life.
- Preauthorization – Except for Emergency Services, the policy will only pay for services for which the Provider obtained pre-approval from the insurer.
- Precertification – The terms preauthorization and precertification are used interchangeably and often shortened to “preauth” and “precert”.
- Exclusions – Conditions, services, etc., not covered by the policy. Services commonly excluded are eyeglasses, bariatric weight-loss surgery, non-corrective cosmetic surgery, on-job injuries, and intentionally self-inflicted injuries not the result of mental illness or psychological, emotional or other behavioral health problems.
- Formulary – Policies may have a formulary, a list of prescription drugs the policy will pay for. Some policies might not pay for a name-brand drug if a generic equivalent is available or might pay only the generic rate for a name-brand drug if a generic is available.
- Non-covered Services – Any excluded service is a non-covered service, but “non-covered” is broader. A service may not be covered because an annual or life time maximum has been reached or because it is covered only if provided by an in-network provider.
Satisfaction of monetary restrictions isn’t portable
In-network and out-of-network annual deductibles, in-network and out-of-network out-of-pocket maximums, annual maximums and lifetime maximums only consider services and payments while the insured patient is a Covered Person under that policy or a renewal of the policy.
So, for instance, if Smith pays $4,000 out of pocket while covered by an insurance policy through Employer ABC and he changes jobs to Employer XYZ, the XYZ policy will consider that he has spent $0 out of pocket and has used up $0 of his lifetime maximum – even if both employers use the same insurance carrier.
Less common benefit restrictions
Additional restrictions less often seen, may include:
- Second Surgical Opinion – To be covered, the patient must obtain an independent evaluation from a second surgeon.
- Referral required – Specialist care is only covered if the patient’s Primary Care Physician refers the patient to the specialist.
- In-network only – A service is only covered if provided by a contracted Provider.
- Carve-out services – Because the insurer has a special contract with a certain Provider, certain services must be obtained only from a particular contracted Provider.
Common Causes of Improper Policy Benefit Denials
Sometimes, after the patient has been treated and the insurer has been billed, a dispute arises between the healthcare provider and the insurer about whether a particular treatment or service is a “Covered Service” under the policy or the amount of the policy benefit. Those issues require examination of policy provisions.
However, improper denial of policy benefits often is the result of a claims adjustor taking shortcuts (perhaps to meet deadlines or “production” quotas) or making mistakes such as:
- working with outdated or incorrect information about the Covered Person’s circumstances (e.g., wrong birthdate, marital status, student status);
- failing to investigate specific circumstances by carrying out review of relevant documentation or asking appropriate persons such as the treating physician for relevant information;
- making incorrect assumptions about the circumstances or policy provisions;
- unfamiliarity with or misunderstanding of details of a medical condition or treatment or events giving rise to the claim;
- misunderstanding a policy provision;
- reading together policy provisions that actually deal with unrelated matters;
- applying an irrelevant policy provision;
- failing to apply a relevant exception to a provision that usually applies;
- looking to the wrong benefit rate schedule (for example, applying or failing to apply a stoploss provision, or using a per case rate instead of per diem);
- applying criteria, policies, procedures, limits, restrictions, etc., created by the insurer or an outside consultant that are not in the policy documents and are contrary to policy terms;
- applying arbitrary maximum prices for particular services or medications based on what some individual at the claims center or some outside consultant “feels” is “reasonable” rather than rates shown by market research;
- deciding “reasonable rate” by looking to government safety-net programs such as Medicare or Medicaid rather than market rates;
- applying rates in the adjuster’s locale rather than the Provider’s location;
- applying an irrelevant statutory provision;
- applying irrelevant court decisions from the adjuster’s home state.
These are just some of the most common errors.
Successful appeal requires the ability to recognize grounds for denial that are in fact erroneous and the ability to show specifically how and why the adjustor’s decision is wrong and what the correct decision should be. Doing those requires knowledge of the relevant medical condition(s) and the ability to research medical, situational and other issues and explain how the applicable standards apply to the specific facts of the denied claim.