Surmounting the fiduciary risk of rampant medical overbilling

With employee health benefits representing some of the largest expenses in many organizations, the need has never been greater for brokers, third party administrators, plan sponsors and risk managers to deepen their involvement in managing these costs. Reining in these risks will save companies money while making health care more accessible and affordable.

Controlling excessive medical billing has moved to the forefront of risk management in the wake of the employee lawsuit against Johnson & Johnson. The company stands accused of securing an arrangement under which employees overpaid by millions of dollars for some generic drugs designated as specialty medications.

Observers view this first-of-its-kind lawsuit as a shot across the bow to hold self-insured employers accountable for excessive medical costs, and that opens a new front in the battle over price transparency and the cost of employee benefits. In fact a lawsuit was filed only two months after the Johnson & Johnson suit by industrial supply company Grainger, against Aetna, alleging Aetna failed in its fiduciary duty to act in the best interest of Grainger and its health plan participants.

One major culprit in benefit cost inflation, from group health to workers’ compensation insurance, is medical overbilling. It has become increasingly clear that the business of medicine is replete with systemic billing errors, abuses and fraud that go undetected by health plan sponsors and administrators. Single procedures billed at more than $100,000 have become commonplace, when legitimate charges for the procedures are often only a fraction of that amount. JAMA Network Open estimates that medical pricing irregularities, fraud and abuse cost between $289 billion and $324 billion, a sum exceeding the state budgets of New York or California.

Risk-management strategies

Countless examples of egregious billing practices appear regularly in news cycles, underscoring the urgency for innovative solutions to prevent these practices. Perverse billing and a grievous lack of transparency are in the crosshairs of the Consolidated Appropriations Act which lays the groundwork for greater transparency and calls for better due diligence.

In response, major purchasing organizations such as the National Alliance of Healthcare Purchasers Coalition, union groups and large employers are taking action with research efforts, political initiatives and litigation. Moreover, federal regulators have targeted gag clauses between providers and insurers that make the billing for health care services less transparent.

Solutions are at hand for ending overbilling. Risk managers alongside their C-Suite and HR colleagues can employ emerging technology and human expertise for a holistic approach with meaningful results.

That approach starts with a commitment to payment-integrity capabilities that combine advanced technology and physician insight. Proven algorithms, extensive data, AI and machine learning lay the technical foundation. These efforts, though, are only as good as the data that’s made available. It helps immensely, for instance, to know cost-to-charge ratios in hospital procedures as well as geographical cost variations and quarterly inflationary adjustments from the U.S. Department of Labor. Factoring in these costs will help calculate a reasonable profit for each medical procedure as part of a next-generation, legally defensible risk-management strategy.

Another benefit is that using a methodology validated in courtrooms nationwide will help employers avoid litigation associated with reference-based pricing contracts, whose arbitrary use of a Medicare multiplier has proven to be indefensible.

This data and technology must be paired with human expertise. Experienced physicians and surgeons who understand the medicine behind the charges should be reviewing these bills, not non-medical coders or administrative personnel who lack their knowledge and are prone to burnout and high turnover. When medical professionals review bills on a line-item basis, they are easily able to spot redundancies and items that should never require separate billing, as well as abusive billing practices such as upcoding and unbundling procedures and billing them separately. Without that level of physician expertise, there is no true payment integrity or hope of ever paying providers fairly.

Related: DOL defends new fiduciary rule in lawsuit brought by insurance industry group

Now, there is yet another opportunity to shield health plan sponsors and members from any financial liability associated with balance billing: A first-of-its-kind captive insurance solution for group health and workers’ compensation plans. This captive transfers the risk exposure for excessive claims away from payors and members, guaranteeing the recommended payment amount and protecting plans and members in the process. By indemnifying group plans and members from risks involving high-cost claims, the captive establishes a legally defensible strategy to reprice individual medical bills and fully absorb that risk.

This novel approach differs from a single or group captive program, which insures aggregate risk on claims that have not yet occurred. It is a major disruptor to medical overbilling, providing peace of mind to payors and patients by protecting them from balance bills and relieving them from relentless pressures from collection agencies.

Providing indemnification doesn’t eliminate balance billing. However, it relieves payors and patients from financial liability and ensures that providers have been paid appropriately. The availability of this protection represents a viable solution for confronting and overcoming the problematic issues of balance-billing, a practice that occurs in no industry other than health care.

By following these steps, employers and union groups are acting in the best interest of their health plan participants, which is their fiduciary responsibility. Technology and medical expertise support health and welfare plan sponsors, risk managers and their colleagues in meeting these fiduciary responsibilities and helping them to seize opportunities to improve benefits, reduce costs and decrease waste. It’s a winning risk-management strategy that benefits everyone.

Anna Quarum, MA, Chief Operations Officer, WellRithms

William R. Mattecheck, CLU, RHU, National Director of Broker Relations, WellRithms