"When Payment Adjustments Keep Coming Back"

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"When Payment Adjustments Keep Coming Back"

Place constraints on retroactive adjustments before they wreak havoc on your monthly financials.

by Gil Weber, MBA
Contributing Editor

Reprinted with permission of the publisher.
Skin & Aging, Volume 10 - Issue 9
September 2002 - pages: 76-78


Everyone has experienced it at some point. Your monthly check from the HMO, IPA, or third-party administrator arrives with an attached reconciliation report. That report lists several retroactive adjustments -- take-backs -- deducted from your current month's payments because the plan has decided you were overpaid or improperly paid for prior services. You were expecting a certain amount of reimbursement this month but the adjusted check is for some significant amount less.

It's not so much that the payer is telling you that there were some overpayments in the past. If that's true and if you were overpaid, then it's understandable that the payer wants to recover that money. Rather, it's the timing and heavy-handed manner in which everything is done.

Ancient History

In the most aggravating scenario, a plan wants to take back money months or years after it's confirmed eligibility and authorized services. Belatedly, it has discovered that its data were flawed back when it gave the O.K. to your staff. Although you provided the care in good faith and reasonably relied on the information given to you by the payer, and though your staff jumped through all the right hoops prior to rendering services, that payer now wants to put the financial problem squarely in your lap rather than admit that the problem was on its end.

And so, the payer simply deducts the money and whittles your current payments and cash flow -- perhaps without providing complete explanation and documentation, perhaps despite your full and exemplary documentation in the medical record, and with nothing more specific than stating "patient ineligible," the money is gone.

And the payer's answer is always the same: The patient is responsible; bill the patient. Good luck collecting months or years after the fact.

No matter the circumstances, these types of situations are unpleasant, frustrating and infuriating, especially if these adjustments are ongoing events. Managing your receivables is enough of an accounting challenge without rude surprises.

But there are ways to lessen the adverse impact of retroactivity by creating protocols limiting the timing and extent of financial adjustments. I'll discuss some of these protocols and share the specific wording you could include in a legal document that you can show to your attorney and use as the boilerplate for crafting an agreement specific to your needs.

Get It In Writing

As with so many practice management problems, successful resolution comes down to what's written in your provider agreement. Whether the issue is a surgical claim denied 60 days after it was paid, or capitation retroactivity going back 6 months when an HMO belatedly reconciles membership reductions, the agreement should control how, and when, and through what protocols a health plan or third-party administrator can attempt to recover prior payments. If there are no specifics written into your provider agreement, then the payer is essentially free to do as it chooses. And therein is the likelihood that your practice will suffer all sorts of financial grief.

Points To Cover

You'll want to include several key issues when negotiating these matters with a payer. These should be written in proper "legalese" and inserted into the provider agreement. Since adjustments can involve both over- and underpayments, the terms should be bilateral. Generically, you'll want to include, but certainly not limit yourself to, these points:

Notice. Both sides should have the right to request an adjustment.

Look-back period. Both sides should have reasonable but limited time after the alleged over or underpayment occurs in which to send notice.

Cooperation. Both sides should agree to work cooperatively to document the disputed amount(s) and to expeditiously resolve the matter.

Reconciliation. Both sides should agree that following resolution of any disputed amounts payment will be made promptly to the other party (i.e., within "X" days).

Obviously, each practice will have different priorities, but for me the key provider issue is the look-back period -- how far into past payment history the payer is allowed to venture. You simply can't allow the payer to have an unrestrained ability to take back monies paid far in the past. If you allow that, then here's an example of what might happen.

Financial Drain = Financial Pain

Let's say you obtained proper authorization and confirmed eligibility, and then performed a covered procedure on Mr. Smith. Everything went well, you submit a claim and eventually receive payment of $625 for the procedure and several follow-up visits. Your staff "books" the revenue.

Then, 4 months later you receive notice from the HMO that it's retroactively denying the claim after determining Mr. Smith wasn't eligible on the dates of service. Further, the $625 payment is being deducted from your current check. As far as the HMO is concerned, it's a slam-dunk. You get no chance to comment; you get no chance to dispute; you get nothing but notification and a check with a large bite missing.

Now, let's complicate it further. Say that you used part of the $625 to pay an employed dermatologist for certain services she rendered as part of Mr. Smith's care. Well, it's bad enough that you're out your own fees -- taken back by the health plan. But you're also out the (production) compensation you've paid to your employee, and you may not feel comfortable asking for that back.

So now not only have you personally worked for free, but also the "authorized" care to Mr. Smith has actually been provided at a loss to the practice when the payer takes back that money.

Compounding The Problem

Claim by claim this can be a real headache. But imagine the impact on a practice or group if there's a system-wide problem involving hundreds, perhaps thousands of patients. Here's a nightmare that's happened many times to physicians in various specialties.

Let's say you're part of a group that's capitated to provide dermatology services to 18,000 managed care subscribers and dependents in an area covering several counties. The HMO is in turmoil -- financially unstable and rumored to be:

  • closing
  • merging with another HMO
  • under scrutiny by the Department of Insurance for falling below mandated risk reserves.

Furthermore, several employers, including key, statewide companies start dropping the HMO as an insurance option for their employees. The plan starts losing membership, but it has so many interrelated problems including staff turnover and regulatory audits that it can't keep up with the enrollment changes. As such, it's months before these defecting memberships are deleted from the eligibility and capitation databases.

One day you receive notice that the HMO is taking back capitation payments on 7,200 members disenrolled at various times over each of the previous 5 months. Now we're talking some real dollars, and we're talking about impacting multiple physicians and practices.

Suddenly, not only is your "current" capitation check only about 60% of what it had been before the membership losses, but your check is also being dinged to reconcile a considerable sum from the past. I've actually seen retroactivity so volatile that the current capitation check was reduced to zero.

How Many Days Are Reasonable?

In my opinion a 90-day window for retroactivity is more than reasonable. (I'd prefer a 60-day limit.) That is, a payer should not have the right to go back and retroactively adjust more than 90 days from the date of service or from the most recent capitation payment date.

You'll need to decide how wide a retroactivity window you can tolerate. And, of course, it will depend on the payer. Is it willing to negotiate, or will it only play hardball?

Whatever timeframe you conclude is appropriate, your bottom-line concern is that the payer can't be allowed to take back money so far after the date of service that it then precludes you from pursuing an alternative payment source. For example, if 6 months after your original (now denied) claim, you identify that the patient was covered by another insurer and submit a bill to it, that insurer might state that your "new" claim is submitted too far after the date of service and is, therefore, invalid. Then you're stuck with no means to secure payment.

Note: If a payer tells you it won't negotiate any limits on its ability to take back payments, then you're being shown a bright yellow, perhaps red, warning flag. That payer is reserving the right to stick it to you anytime, for any reason, even if it's at fault.

Getting The Lingo Down

In the sidebar "What to Include in Your Agreement" below, I've included the sample language I promised. This is a great way to start thinking about developing protocols to manage fee-for-service or capitation retroactivity.

But remember this sample is only a starting point. Before discussing these issues with a payer, be sure to show this text to an experienced managed care attorney. You'll want to customize it to the specific circumstances of the contract in question. In all cases, it's essential that you go to the payer with a document that won't clash with any mandated federal or state language.


What To Include in Your Agreement

1. Request for adjustment of payment. Either party shall be entitled to request an adjustment of payment if, within 90 days from the date of payment, it notifies the other party in writing of the overpayment or underpayment and provides documentation substantiating such claim.

2. Payment disputes. The parties shall work cooperatively and in good faith to resolve payment issues on an informal basis within 90 days of the first notification of a request for an adjustment of payment, pursuant to the paragraph mentioned in section one above. If this is unsuccessful, then any disputes concerning claims of overpayment or underpayment shall be resolved in accordance with the plan's grievance and appeal process referenced in plan's provider manual.

3. Payments final. Except for those payments that have been submitted to the grievance and appeals process in accordance to the foregoing, all payments shall be final.

4. Paying adjustments. If the parties determine that the plan has underpaid the provider, then the plan shall pay the underpaid amount to provider within 45 calendar days of said determination. If the parties determine that the plan has overpaid the provider, then the provider shall reimburse the plan for overpayment within 45 calendar days of said determination.

5. No offsets or deduction without permission. In no event shall the plan offset overpayments against, or deduct overpayments from, any other payments it owes the provider unless the provider expressly permits the plan to do so.


Gil Weber, a contributing editor for Skin & Aging, is a nationally recognized author, lecturer and practice management consultant to physicians and the managed care industry. He has also served as director of managed care for the American Academy of Ophthalmology.

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