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The True Cost of Auto-Adjudication

Healthcare costs run up when imperfections occur in the system


Is Auto-Adjudication Boxing You In?Auto-adjudication was initially thought to be a boon to healthcare cost-controllers looking to process a high volume of claims at a low cost, but as average claim costs, claim volume, and claim complexity increase, the imperfections inherent in the auto-adjudication process are starting to cost payers quite a bit of money, here’s why:

Slow Reaction to Changing Realities

The complexity of claims is increasing at a geometric rate. On one hand, you have increasing complexity coming from advances in medicine. On the other, you have increasing costs across the board. Auto-adjudication technology has not been able to match this rise in complexity.

Take specialty drugs, for example. Specialty drugs are used to treat less common conditions present in only a small fraction of subscribers. A decade ago when total specialty drug costs to insurers were low and software systems were relatively new, losses due to auto-adjudication were insignificant because the number of specialty drugs available was only a dozen or two and specialty drugs only accounted for about 10% of total pharmacy expenditures.

Now, thanks to advances in pharmaceuticals (and the relative profitability of specialty drugs), the number of specialty drugs is in the hundreds, with many more still in development. Costs have risen end-over-end, and now specialty drugs account for nearly 25% of all pharmacy expenditures, and may account for half or more of all pharmacy costs by 2019 if trends persist. The average claim for specialty drugs: around $2,000, nearly 25x more than a non-specialty drug claim. That is a hugely significant margin, but not necessarily significant enough to be flagged in many auto-adjudication setups. Furthermore, many auto-adjudication systems were not built to handle the rising complexity of specialty drug claims, and even the most diligently maintained systems are not being updated as quickly as changes occur.

This is just a small sample of changes that increase the cost of auto-adjudication. Institutions commonly and quickly change their billing methodology – changes that can lead to off-the-rails cost increases for nuanced events like inpatient stays.

Little Oversight

Auto-adjudication attempts to find patterns and flag claims for review often based on incomplete or inconsistent data. Even the best, most updated auto-adjudication setup is going to miss things.

In high-cost claims for complicated health situations like inpatient stays, auto-adjudication assumes that all costs are (A.) Necessary, and (B.) Truthful, but that is not always the case. For example: No patient is ever immediately discharged from the ICU; their level of care is appropriately downgraded to less intensive and less costly levels as their health improves. Yet consistently claims are filed that do not accommodate this level of care, requesting reimbursement for an ICU stay until the moment of discharge, and many auto-adjudication programs miss this. Billing codes and diagnosis codes match, and preauthorization may have been obtained, so the claim passes auto-adjudication, even though it is unlikely to have occurred as billed.

Or, returning to specialty drugs, a lack of information may make auto-adjudication inefficient. Unlike traditional drugs, which are processed through specialized pharmacy claim systems, specialty drugs are often administered by provider’s in-office and fall under the medical benefit instead of the pharmacy. Eventually, the medically processed specialty drug claims make their way through outdated claim systems that are unequipped to deal with the nuances of pharmaceutical administration. Often, payers have little insight into how these drugs are being used by patients or doctors.

Many adjudication programs simply do not allow for the kind of scrutiny that should be applied to specialty drugs or inpatient stays. Systemic abuses or misuses often go unnoticed because there is no apparatus in the auto-adjudication system to replace the rigor of a trained professional.

Human Error

Filing and adjudicating a complex claim is a manual process that introduces a large potential for human error. A transposition of digits or decimals could trigger massive overpayments through auto-adjudication systems, which often go unnoticed or cause waste in the recovery process when they are identified. About 47% of all inappropriate payment for Critical Care is due to coding errors.

Even smaller errors add up. Hospitals often bill inconsistently for the same service across a claim, or bill more than once for a repeatable service (that wasn’t actually repeated) and auto-adjudication software is not built to notice such errors consistently.

On the adjudication end, failure to update adjudication software to reflect the most recent costs and standards of medical acceptability, or to account for inconsistencies in provider billing and coding, often trigger overpayments or, on the other hand, flag claims unnecessarily.

The True Cost?

The true cost of auto-adjudication would be difficult to measure. Industry estimates place overpayment on specialty drug claims between 3% and 10%, and inappropriate payment on critical care to be almost 23%. None of this includes money spent on recovery, manual examination of systemic auto-adjudication problems, provider services costs, and the myriad other tangential expenses that cascade from commonplace auto-adjudication failure.

These are just two aspects of an ever-complicating industry. Imagine what the cost of auto-adjudication is elsewhere.

These problems will only be exacerbated as healthcare costs increase, medical technology advances, and healthcare reform strains claim processing systems. Fast, reliable, expert manual review in lieu of auto-adjudicated claims will only become more important, and the need for payers to be able to accurately predict costs so that payment discrepancies can be noted will grow more apparent.

In these delicate situations, having an impartial review from an outside party could provide the political insulation necessary to adjudicate a politically sensitive claim fairly and with lower risk of repercussions.

Advanced Medical Strategies provides physician-led claim auditing, medical review, and diagnosis cost prediction services to the healthcare payor industry. Contact us today to learn more about our tools to help your claims processing team spot and eliminate wasteful overpayment.