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tim-powellSo you thought you were staying on top of your denials processes? Consider the following scenario.

You look at your cash report for the last month and see that collections were down. You run a report examining individual payers and notice big shortages with payers like “Humana Gold Choice.” You dig a little deeper and ask for a list of problematic accounts. You notice that a large group of accounts have been reversed through electronic transfers. You compare the list to your denials report and find that these accounts are not there. So what happened? Welcome to the world of Medicare Advantage, or “MA.”


The answer to your questions is that MA plans have denied and adjusted claims, taking payments back electronically. MA entities are private, for-profit companies that deal with as much as half of your traditional Medicare population. The Office of Management and Budget is projecting that 27 percent of all Medicare recipients will be enrolled in MA plans by 2017. More than 11 million Americans already are enrolled in MA “replacement plans,” and another 17 million Medicare recipients receive pharmacy benefits from these plans.


RAC “Light”

Essentially all MA plans pay based on the Medicare fee schedule. RAC auditors do not audit payments made by these plans, however these for-profit entities have taken notice of RAC activities and have started to implement the same procedures to recover what they label overpayments. These include:


– Changing the DRGs from the billed DRGs. MA plans have their own “cheat sheets,” and here are some examples from one of our clients:


DRG Description Amount DRG Description Reimbursement Amount
4 Trach w MV 96+ hours or PDX exc face, mouth & neck w/o maj O.R. $65,235 208 Respiratory system disgnosis w ventilator support ,96 hours $13,029
163 Major chest procedures w MCC $28,875 165 Major chest procedures w/o CC/MCC $10,292
227 Cardiac defib implant w/o cardiac cath w/o MCC $29,441 303 Atherosclerosis w/o MCC $3,311
189 Pulmonary edema & respiratory failure $7,841 195 Simple pneumonia & pleurisy w/o CC/MCC $4,135
371 Major gastrointestinal disorders & peritoneal infections w MCC $11,197 372 Major gastrointestinal disorders & peritoneal infections w CC



– Paying inpatient claims as outpatient services. The plans are looking for inpatient claims with location codes of “observation” or inpatient claims with observation charges. Medicare RAC auditors are disallowing these claims entirely, but MA plans are reducing payments on these claims.


Retroactive Disenrollment

Every mid-November you start seeing advertisements on your local television stations for Medicare Advantage plans. These stop abruptly at the end of the year. This is because MA plans only are allowed to enroll members during specific enrollment periods. The “golden hour” for MA plans is the AEP (annual enrollment period) running from Nov. 15 through Dec. 31. Medicare members can elect to change their pharmacy or Part D enrollment and elect a replacement for standard Part A and Part B services during this period. From Jan. 1 through March 31, during the OEP (open enrollment period), Medicare recipients can enroll in an MA plan, but cannot change their Part D enrollment. The vast number of enrollments for MA plans occurs during the AEP.


Following the enrollment period, the average plan loses 15 percent of its enrolled members for a variety of reasons, including:


– The enrollment form was not filed properly;

– CMS did not accept the enrollment form;

– The member (patient) filed a complaint with CMS; or

– The member (patient) was enrolled in another MA plan.

So, what happens to your hospital when an MA plan finds out that one of its members has been “retroactively dis-enrolled?” The plan sends an electronic reversal of the claim. Because these claims originally were paid and the funds then were taken back,  they may not show up on your internal denials report.

Electronic Payment Issues


In the battle of the revenue cycle process, your first lines of defense are your internal systems. The days of a staff member telling you that a stack of denial letters has come in are long over. Once you are connected by electronic transfers and posting, arising issues that are not flagged for your in-house software can become invisible.

While takeback amounts get posted to your accounts, the details of those postings are usually, as the saying goes, “lost in translation.” Your payers can decide to adjust hundreds or thousands of accounts in one month. Unless you monitor the payers’ electronic payments and adjustments posted into your system, these details will just disappear.


Next Steps

The  first step we recommend to our clients is that they consistently parse and review their electronic payment data to find denials and adjustments. You know that your IT department said something to you about the new “5010” record set for electronic claim transmission. Most of the people reading this are not programmers; in all likelihood IT said they needed to implement 5010 to get ready for ICD-10, so you figured IT would handle it. Most IT departments hit the mission-critical issues and ask vendors about posting cash. But can a vendor receive and post cash with the new record set files?  One vendor promised they could, and all seemed well.


This just misses the larger point that, by monitoring these electronic files, you can respond to adjustments or takebacks by the MA plans immediately. While it is all part of preparing for ICD-10 for providers, the big benefit of the new 5010 record set is that it will make payment data more standard and usable.


Our second recommended step is to increase reviews of coding adjustments, then work with your HIM staff to reduce those adjustments. We know most providers have implemented EMR systems. Data from EMR systems increasingly is becoming a line of defense but also a liability as payers begin to use the data to identify additional reasons to deny your claims. Payers are integrating EMR data with “rules of necessity” to adjust payments. This process is going to increase exponentially as payers request more EMR data on an electronic basis instead of via expensive audits of claims.


Our third recommended step is to create processes to make sure that retroactive denials for coverage either are re-billed to the correct payer or disputed under prompt payment rules.



Responding to movement of many of your patients from standard Medicare to MA will require an understanding of MA plan payment methods, plus monitoring the payments received from these plans. This requires educating your managed care team on how Medicare fee-for-service claims are paid and how this affects MA payments. Successful providers will leverage technology tools, including an understanding of EDI, to respond quickly to payment issues as they arise. It is also critical that information about RAC activity be considered in planning for MA payment review. Like the saying that fashions start in New York and then work their way out to the rest of the country, what the RACs are doing today almost certainly will be the MA issues of tomorrow.


About the Author

Timothy Powell, CPA,  began his healthcare career in the early 1980s running audits of some of the largest chain organizations in the country, such as American Medical International and National Medical Enterprises, while working for Blue Cross of California. Tim has consulted,  through his own regional consulting firm and the Big 4 firms for more than 30 years. Tim is an accomplished software developer with 20 years of experience writing and selling applications. In his role at Pyramid Healthcare Solutions, Tim supports a full line of revenue cycle solutions, including unique services centering around electronic billing and claims data.


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