High cost of billing complexity: Up to $54B in physician office revenue challenged every year

Every year, physician offices may deal with as much as $54 billion in revenue being challenged by insurers, with fee-for-service (FFS) Medicaid being “the most challenging type” of payer to bill, according to a study published in Health Affairs.

Led by Joshua Gottlieb, PhD, associate professor of economics with the University of British Columbia, the study examined administrative costs for billing physician visits between a group of practices and both private and public payers. The analysis included claims in five specialty categories: cardiology, internal and family medicine, obstetrics and gynecology, orthopedics and pediatrics. In all, claims from 68,000 physicians and more than 37 million physician visits from 2015 were included.

What Gottlieb and his coauthors found was certain payers were harder to bill than others. FFS Medicaid had the highest claim denial rate, coming in 17.8 percentage points above the denial rate for FFS Medicare. While Medicaid managed care had a lower denial rate—only 6 percentage points above FFS Medicare—Medicaid claims as a whole took longer to be processed and paid and were denied more frequently, even though Medicare and private insurer claims seemed to include more complex visits.

Medicaid claims were also more likely to be challenged—at a rate of 18 percent, 10.7 percentage points higher than the share seen in FFS Medicare and 12 percentage points higher than private insurance.

“While some of these payment disputes are likely due to legitimate factors, such as fraudulent claims or insurers’ utilization controls, the magnitude of the amount challenged clearly indicates that billing practices are important for physicians across all insurer types,” Gottlieb and his coauthors wrote. “Claims for fee-for-service Medicaid exhibited significantly more billing complexity than those for fee-for-service Medicare or private insurers.”

The involvement of private payers didn’t always equate to fewer challenges and denials. Medicare Advantage, for example, had a higher share of challenged claims and similar share of denials compared to FFS Medicare. Private insurance was found to be more likely to deny claims (1.3 percentage points above FFS Medicare).

Among the largest private insurers, Cigna and Humana had the highest share of challenged claims at close to 9 percent. Anthem, Cigna and UnitedHealthcare all challenged claims at lower rates than FFS Medicare.

“We used the estimates of share challenged to determine that the contested amount nationally was $54 billion,” Gottlieb and his coauthors wrote. “If the share challenged were reduced to the minimum share that we observed in the data, the total challenged amount would be $11 billion lower. Although the challenged amount and administrative costs are different concepts, our estimates are similar in order of magnitude to previous estimates of administrative costs. Our overall estimate of $54 billion is near the high end of those previous estimates.”

While FFS Medicaid took the longest of any insurer to pay claims, it did show improvement during the study period, with the time for payment declining from 101.2 days to 53.6 days between 2013 and 2015. Medicaid managed care show similar improvement, with time to payment falling from 72.7 to 36.6 days. In contrast, time for payment in FFS Medicare, Medicare Advantage and private insurance showed little change over the study period.

The results may be troubling for Medicaid, with Gottlieb and his coauthors writing the extra billing complexity, when coupled with the program’s already lower reimbursements, could lead physicians to turn away from Medicaid and reduce access to care for those beneficiaries.

The drop off in average time for payment in Medicaid, however, showed billing complexity can and has been reduced—which researchers said offered hope for the U.S. healthcare system to cut administrative costs which factor into the country spending more on healthcare than other high-income nations.

“Easier billing processes reduce staffing needs and billing expenses, which could raise physicians’ incomes or free up resources for patient care,” Gottlieb and his coauthors wrote. “Savings that accrued to insurers could be used to reduce premiums. Using the methods and data we introduced, future analyses will be able to determine whether the benefits that the current billing system provides justify the resources it requires.”