Mitigating Health Reform Risk through Innovative Denials Management Suzanne Lestina, FHFMA, CPC

1. Revenue Cycle co-op A Chapter of AAHAM Spring Conference May 8th, 2014 Mitigating Health Reform Risk through Innovative Denials Management Suzanne Lestina, FHFMA, CPC VP, Revenue Cycle Innovation Avadyne Health

2. OVERVIEW Industry Challenges Understanding ICD-10 Risk Impact of ICD-10 on Revenue cycle • Reimbursement • Denials Provider Call to Action

3. Before We Start http://thedailyshow.cc.com/videos/cbbn22/third-world-health-care---knoxville--tennessee-edition

4. Industry Challenges Shifting Reimbursement Methodologies • Reimbursement reductions • Continued Sequestration and Medicare Disproportionate Share reductions • Managing multiple schemes for payment • Lower rate increases from commercial payers Margin Pressures • Declining revenues • Physician-owned practice losses • Budget challenges • Need to react swiftly to changes in revenue growth Workforce Reductions • Healthcare leads other industries in reductions • 59% increase in staff reduction from 2012 Health Reform

5. Reform and the Revenue Cycle Four Different “Buckets” of Reforms Will Impact Hospitals and Their Revenue Cycles Payment Cuts Coverage Expansion New Requirements New Economic Incentives Improve Performance and Efficiency Denials Prevention Eligibility Processes ICD-10 Charity Care Policies & Process Self-Pay Collections Rational Pricing Documentation and Coding Revenue Cycle Imperatives Physician Integration Bundled Payments

6. ICD-10 Implementation ICD-10 Enables Reform… Reform Enabler • Improved data for re-engineering care delivery • Allows for refined evidenced base protocols • Provides detailed data to segment patient population and manage chronic conditions • Supports value-based reimbursement methodologies • Provide stability and predictability in administrative processes …But Comes with Significant Work

7. Delay – Advantage or Disadvantage?

8. ICD-10 New Implementation Date ICD-10 Compliance Date On April 1, 2014, the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. No. 113-93) was enacted, which said that the Secretary may not adopt ICD-10 prior to October 1, 2015. Accordingly, the U.S. Department of Health and Human Services expects to release an interim final rule in the near future that will include a new compliance date that would require the use of ICD-10 beginning October 1, 2015. The rule will also require HIPAA covered entities to continue to use ICD-9-CM through September 30, 2015. .

9. Impact of Delay Catholic Health Initiatives (CHI)  had two big health information technology tasks that couldn't both be done in the time available; • new electronic health-record systems across 89 hospitals nationwide and • meeting the Oct. 1 federal deadline for implementing ICD-10. Action: Spent millions of dollars remediating outdated “legacy” software programs in some hospitals so that ICD-10 coding could be done as they installed new EHRs. • decisions made 18 months or two years ago to do certain things and postpone certain things based on the implement ICD-10 • remediation money may be wasted based on delay of ICD-10 to at least until Oct. 1, 2015, (and maybe longer). Hill Physicians Medical Group, (an independent physician association with 3,800 doctors), had invested $2.1 million in ICD-10 preparations • delay will increase costs by at least 8% to 10%. Hardeman County Memorial Hospital-Quanah (Texas), an18-bed critical-access filed for bankruptcy last May, • the ICD-10 conversion would have disrupted the hospital's reimbursements to the point of forcing closure. • the delay will give it time to build up a reserve.

10. Risks Everyone Talks About ICD-10 transition is expected to cost $1.64 billion over 15 years • 43% of that is cost of upgrading IT systems • Cost is spread across multiple participants—government ($315 million), payers ($164 million), providers ($137 million) and software developers ($96 million) Remaining 57% of costs will mostly impact providers • 356 million – training (lots and lots of training) • $571 million – expected productivity losses

11. Break Even Point Over the same 15 year period, the government estimates nearly $4 billion in benefits from ICD-10 implementation: Accurate payments for new procedures Reduced claim rejections Improved disease management Improved understanding of health conditions and outcomes. Providers won’t see a break-even point for five years.

12. Industry Implementation Status WEDI ICD-10 2013 Survey Results (353 respondents; 196 providers, 98 health plans and 59 vendors.)Providers: 8 out of 10 providers—Do not have all ICD-10-related business changes made and cannot begin testing before Jan. 1, 2014. Vendors: More than 20% of vendors indicated they were either less than or only halfway finished with their ICD-10–related product enhancement and won't be ready until 2014. Health Plans: One in four health plans surveyed had not completed their ICD-10 impact assessments Only about a third of the plans expected to begin or had already begun external testing with other data exchange partners by the end of 2013

13. Where are Providers Today? Friday, March 14th, 2014 HFMA’s Forums Listserve “Has anyone in the forum tried to estimate the financial impact of moving to ICD 10 for their organization.  If so, do you know of a model or tool to use?  Thanks”

14. ICD-10 Testing One of the CMS' Medicare administrative contractors, National Government Services, recommended in June that the CMS perform external, “end-to-end” ICD-10 testing of all participants in the healthcare claim stream—providers, claims clearinghouses and payers. Cathy Carter, director of the business applications management group in the CMS' office of information services, said the MACs will perform rigorous internal testing of their systems before Oct. 1, 2014, but not external testing. She said there was “no money or process or time” to do external end-to-end testing.With time running short, health insurers are picking and choosing who they will test with. “There may be plenty of providers who won't get to test with any plan,” said Stanley Nachimson, a Baltimore-area health IT consultant and ICD-10 specialist. “If you're not one of the big guys, you may have to get your information from others.” *See resource page for resource of this quote

15. CMS ICD-10 Preparedness and Testing CMS’s four-pronged approach to ICD-10 preparedness and testing Internal testing of its claims processing system • Alpha testing, beta testing and acceptance testing Provider-initiated Beta testing tools • NCD’s, MS DRG’s & GEMS, IOCE Acknowledgement testing – Offered to providers the week of March 3-7, 2014 • Confirm that CMS is able to accept claims into their system and send back an acknowledgement End to end testing

16. End to End Testing Cancelled! July ICD-10 End-to-End Testing Canceled: Additional Testing Planned for 2015 CMS planned to conduct ICD-10 testing during the week of July 21 through 25, 2014, to give a sample group of providers the opportunity to participate in end-to-end testing with Medicare Administrative Contractors (MACs) and the Common Electronic Data Interchange (CEDI) contractor. The July testing has been canceled due to the ICD-10 implementation delay. Additional opportunities for end-to-end testing will be available in 2015.

17. ICD-10 Imperatives

18. ICD-10 Impacts Productivity loss – Resource Requirements • estimated 10-50% loss in productivity • Short-term productivity loss will be higher System deficiencies/lack of readiness • ICD-10 IT Architectural Readiness ICD-9 and ICD-10 business process gaps Documentation deficiencies – CDI Payment Policy Changes Payer System Alteration

19. Reality of Change Payer Readiness Variability Necessary Payer Conservatism Inevitable Lender Uncertainty Reimbursement Restructuring Will delay provide opportunity to make transition smoother?

20. This Isn’t Payer Versus Provider ICD-10 challenges both payers and providers There is 2 years of uncertainty after implementation for everyone

21. Payer’s Perspective ICD-9 to ICD-10 is not apples-to-apples Case-mix analysis will include assumptions, adding uncertainty to risk exposure Uncertainty in risk exposure means necessary conservatism to projecting risk This translates to: • Massive IT systems rework • More complex authorizations and adjudication rules • Focus on re-casting contracts and subscriber mix based on new ICD10-based utilization data

22. Payer Readiness Payers have to do extensive modeling themselves • Which will continue after first roll-out They may be technically compliant • But will adjust rules regularly as they learn, “changing the game” on the provider Configuration mistakes can lead to many re-bills • Cash-flow delay, higher administrative costs, etc. Will delay provide additional opportunity to test configuration issues?

23. ICD-10 Words of Wisdom Just because it has a code, that doesn’t mean it’s covered Just because it’s covered, that doesn’t mean you can bill for it Just because you can bill for it, that doesn’t mean you’ll get paid for it Just because you’ve been paid for it, that doesn’t mean you can keep the money Just because you’ve been paid once, that doesn’t mean you’ll get paid again Just because you got paid in one state doesn’t mean you’ll get paid in another state You’ll never know all the rules Author, Oday

24. Configuration Risks ICD-9 to ICD-10 mapping inconsistencies Example: Hypertension ICD-9-CM: • Essential hypertension, malignant – 401.0 • Unspecified essential hypertension – 401.9 • Essential hypertension, benign – 401.1 ICD-10-CM: • Essential (primary) hypertension (includes malignant and benign) – I-10 Issues: Since I-10 does not have a code for ‘malignant’ hypertension, and that diagnosis may be medically compliant, how will payers adjudicate claims with this diagnosis? If a payer crosswalks I-10 back to I-9 what I-9 code with they choose? Will it result in payment or denial

26. Payer Conservatism Increased denial rate – • Payers will be more ready to assume miscoding Cash flow delays – • Payers will be more diligent in validating appeals Tougher preauthorization's – • Payers will be more diligent and require more information Contracts negotiated to payer favor – • Payers will assume worst-case scenario to avoid overpayments or paying on denials

27. Cash Flow Impact Slow down in cash flow – • Increased pressure on cash-on-hand Slip in net revenue – • Increased scrutiny of operating margin Ratings to be more conservative – • Historical trends won’t necessarily apply going forward

28. Preparation Distraction Preparation for implementation • Much of the focus is on coding preparation and training More Global issues to focus on include: • Specialize in denial management while creating a culture of denial avoidance • Talk with your banks • Talk with your payers • Put your vendors’ feet to the fire

29. ICD-10 and the Revenue Cycle

30. ICD-10 Risk to Revenue Cycle DNFB increases • Estimated to be between 20-50% Increased denial rates: • Denials are expected to increase by 25% - 35% Increased Accounts Receivable (A/R) • Decreased and/or Delayed Collections • Days are expected to expand 20-40% Claim error rate increases • Expected to increase from 6-10%

31. Using Data to Manage Risk Quantifying performance improvement across key areas of your revenue cycle will position you to effectively: • Forecast performance • Set goals and objectives • Create ownership of processes • Create efficiencies and improve work flow processes • Trigger corrective action

32. Understand Your Current Performance Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 12 12 12 12 12 12 13 13 13 13 13 13 13 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 July 13

33. Know Your Denial Trends

34. Sample Denial Analysis

35. Percent A/R over 90 Days

36. Claims Activity Analysis

37. Average Touch to Close

38. First Pass Denial Rate

39. Denials Management Effective strategies address two approaches to denials management Denial Avoidance • Accountability process to prevent up-stream denials and improve cash flow. Denial management • Gaining stakeholder buy-in for point of service denial prevention.

40. Denial Action Steps Analyze denial activity by payer Compare denials to recoveries Review type of service volumes • Inpatient • Outpatient (ER, SDS, OBV, Diagnostic, etc.) Analyze root cause of denials • Identify the type and source of denials • Categorize process issues • Internal • External

41. Types of Denials – Volume

42. Types of Denials – Dollars

43. Source of Denials by Worker Area

44. High Impact Denials

45. Revenue Risk Management

46. Contracting – Payer Relations Payer relations is the alpha and the omega point of the revenue cycle Payer relations is charged with: • Strategic development of payer relationships – How will ICD-10 fit into this? • Negotiation of payer contracts – How will ICD-10 fit into this? • Communication across the enterprise regarding contracts and issues –How will ICD-10 fit into this? • Payer policies permeate the outpatient and professional code realms • Hundreds of payers – thousands of policies – where to begin?

47. Track Denials by Payer Identify high volume payers Volume of claims per payer • Number of claims • Dollar of claims Reimbursement averages Type of Denials

48. Analysis by Financial Class

49. Denial Activity by Payer

50. Denied Accounts by Payer