CMS acts to help providers with Medicare Advantage claim denials
More claim denials from Medicare Advantage (MA) plan patients could spell trouble, but the Centers for Medicare & Medicaid Services (CMS) is giving providers revenue cycle relief.
Healthcare provider revenue cycle leaders likely won’t be surprised by statistics showing increased enrollment in MA plans and higher MA plan claim denial rates.
CMS recently took two regulatory actions that should help hospitals, health systems, and medical practices deal with the revenue cycle challenges that accompany claim denials.
In January, CMS published a final rule that streamlines the prior authorization (PA) process used by MA plans and other health plans offered under federal health insurance programs. Effective Jan. 1, 2026, these health plans must:
Make PA decisions for urgent provider requests within 72 hours and within seven days for standard or nonurgent requests
Disclose to the provider a specific reason for a denied PA request
Publicly report PA decision metrics on their websites
In February, CMS sent a memo to MA plans that sets limits for their use of algorithms or artificial intelligence (AI) to make member coverage determinations. For instance, CMS said plans can use algorithms or AI-based tools to help them make medical necessity coverage decisions for individual patients based on a patient’s medical history, physician recommendation, or clinical notes. However, MA plans should not use algorithms or AI-based tools to make individual medical necessity coverage decisions using larger data sets and applying those general rules to individual patients.
Matt Szaflarski, director, revenue cycle, at Kodiak, discussed the backstory behind these two regulatory actions, how they will help revenue cycle departments, and the revenue cycle key performance indicators (KPIs) to watch as these actions take effect.
Kodiak: Matt, what was happening in the market that prompted CMS to publish a final rule on MA plan prior authorization practices?
Szaflarski: The privatization of Medicare has been one of biggest trends in healthcare. More seniors are joining or switching to MA plans over traditional Medicare. MA plans enrolled nearly 31 million people in 2023, which is 51% of all Medicare. The challenge for hospitals, health systems, and medical practices – to put it bluntly – is reimbursement. According to Kodiak Revenue Cycle Analytics benchmarking information, MA plans pay providers about the same rates as traditional Medicare but deny claims at the same rate as commercial insurance plans. The denial rate of commercial plans is about four times higher than traditional Medicare.
| Initial Denial Rate | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 |
|---|---|---|---|---|
| Commercial/All Managed Care | 13.43% | 13.27% | 13.76% | 13.10% |
| Medicare--Managed Care | 10.18% | 10.46% | 9.96% | 9:34% |
| Medicare--Traditional | 3.77% | 4.16% | 3.98% | 4.27% |
Kodiak: So, commercial health insurance companies are applying the same claim determination criteria they use for their commercial health plans to MA plans that they offer to beneficiaries on behalf of the Medicare program?
Szaflarski: We can’t tell if the criteria are the same, but the results are the same when we look at denial rates. And the margin on Medicare claims is much smaller than on commercial claims. With a higher denial rate for MA plans, providers are working harder on claim appeals to get fewer dollars. The return on investment just isn’t there; providers are spending dollars chasing pennies.
Kodiak: How does the new rule rectify that situation?
Szaflarski: The CliffsNotes explanation is this: The rule makes commercial insurance carriers use the same claim determination criteria for their MA plans as they use for traditional Medicare.
Kodiak: Can you give us an example of how this would work?
Szaflarski: Sure. Traditional Medicare uses what’s called the two-midnight rule to determine whether a patient is an inpatient or an observational patient. If the stay is longer than two midnights, or 72 hours, the patient is an inpatient; shorter than two midnights, the patient is observational. Traditional Medicare pays a higher rate for inpatient stays than for observational stays. Commercial plans applied their own convoluted and always-changing observational-versus-inpatient criteria to their MA plans. Providers felt that the goalpost was always moving on them, they often didn’t meet an MA plan’s inpatient criteria, and they got paid less for an episode of care that the plan considered observational. The new rule stops that from happening.
Kodiak: How will the new rule affect patients, patients’ financial responsibility for their medical bills, and providers’ success in collecting patients’ share of medical bills?
Szaflarski: Potentially, the new rule could have a big impact on patients, depending on the benefits they have under their MA plan. Typically, patients have higher patient responsibility for outpatient care than they have for inpatient care. An observational stay is considered outpatient care. If those observational stays become inpatient stays because MA plans are using the same two-midnight rule as traditional Medicare, patients potentially will pay less out of pocket for that episode of care. That also means providers will have less to collect from patients.
Kodiak: How will revenue cycle departments know if the new rule is working as intended? What KPIs should they be watching to see if the new rule is moving the needle in the right direction?
Szaflarski: The first KPI to check would be initial claim denials, which should drop for inpatient stays on MA plans. Second, we should see aged MA plan accounts receivable over 90 days go down. This decrease would be because of fewer initial claim denials and faster and more successful claim appeals for medical necessity as MA plans must disclose the reason for a medical necessity denial. Third, we should see bad debt write-offs go down as patients have fewer big, outpatient out-of-pocket expenses to pay.
Kodiak: Let’s switch gears and talk about the CMS memo on algorithms and AI. What’s the backstory here? What concern is CMS trying to address?
Szaflarski: The assumption here is that payors are leveraging automated processes to deny claims without any manual review. A machine is making blanket decisions for all patients instead of one person making an individual decision for one patient. I’m not sure how much evidence there is to back that up, though.
Kodiak: What does your instinct tell you?
Szaflarski: Like many companies, payors likely are looking for opportunities to work smarter and leverage automation. Claims processing is a high-volume task that could be a strong candidate for automation prior to the claim being under review by a human representative. That first level of review likely is an automated process. Payors are using technology to work smarter. My hope is that payors are doing that for routine claims. When it’s a complex claim or a high-dollar claim, I do hope they have a human looking at it.
Kodiak: Are there any revenue cycle KPIs in the Payor Market Intelligence database that could shed light on what’s happening?
Szaflarski: One thing you could look at is just the sheer volume of denied claims – not just the volume of claims, but the volume of denied claims. There are just too many denied claims to think that a human is looking at these and making so many decisions. It’s just not likely.
Kodiak: In theory, if this CMS memo works as intended, the denial rate should come down as payors stop using algorithms and AI to make blanket claim denials, right?
Szaflarski: In theory, the denial rate should come down. Along with the new rule, we should start seeing initial denial rates dropping by a noticeable amount. The KPIs will tell the story.
Learn more about Kodiak Solution’s Payor Market Intelligence tools and the impact of these two CMS actions at this year’s Kodiak Healthcare Summit to be held Sept. 22-25, 2024, in Nashville, Tennessee, and virtually.
