Claims Wasteland: Reducing Incorrect Payments Between Payers & Providers

by Jared Lorinsky, Senior Vice President of Business Development


Health insurers have improved claims payment accuracy in recent years. According to a 2013 article from the American Medical Association, “Health insurance companies have reduced error rates from nearly 20 percent in 2010, to 7.1 percent in 2013.” Greater administrative and financial information technology (IT) investments and process improvement initiatives have helped decrease this rate, but the remaining errors still cause massive under- or over-payments to providers. With millions of claims processed, it is hard to celebrate that more than 7 out of 100 claims are paid inaccurately. This is especially perplexing given these payments are pre-determined by Medicare, Medicaid, and other governmental programs, or through payment methodologies and fee schedules negotiated between payers and providers. Why isn’t the payment accuracy rate nearly 100 percent, with only infrequent and minimal payment rate errors stemming from unforeseen exceptions? There are combinations of factors, including providers submitting inaccurate and duplicate claims that cause administrative errors. Additionally, enrollment and prior authorization checks can cause manual reviews and inaccurate payment calculations.

This article identifies claims pricing accuracy as a continual concern in today’s fee-for-service (FFS) claims processing landscape. It also proposes it is an even greater concern as more data sources (e.g., claims, encounters, enrollment forms) need to be reconciled to accurately pay fee-for-value (FFV) methodologies such as the payment bundles and shared savings programs being implemented nationwide.


Some 15.6 percent of the nation’s population is covered by Medicare and 17 percent by Medicaid—where payment policies and fee schedules are predetermined based on claims coding or, when necessary, a member’s claim history for payment reconciliation. Additionally, commercial in- and out-of-network payment arrangements are often based on Medicare payment methodologies like RBRVS, MS-DRGs, APCs and/or other prospective payment baselines like third-party case-mix groupers. Thus, most claims paid by health insurers are based on pre-determined rates and payment policies. While complex, these can be operationalized with the right internal and/or third-party solutions.

The industry should further examine best practices for managing Medicare and Medicaid prospective payment frameworks (payment methodologies, policies, rates), which can be subject to change almost daily. The fluctuations put a demand on health insurers and their technology partners to manage frequent changes they are not typically equipped to handle.

For example, Medicare’s Coverage Database is updated weekly with National and Local Coverage Determination (NCD and LCD) policies.4 NCDs and LCDs establish services that are reasonable and necessary, and therefore covered as Medicare benefits.5 Noncompliance with these weekly updates may result in paying providers for services no longer covered (e.g., no longer deemed medically necessary), or not paying for services that have become covered.

Additionally, CMS publishes daily transmittals to communicate new or altered policies, rates and other specific modifications.6 These can include retroactive changes to claims payment rules dating back months or years. If payers must reprocess claims, how do they correct prior payments that are suddenly incorrect? Why does the timing of claims correction matter? Millions of identified under- or overpaid dollars are waiting to be reclaimed by the overpaying payer or the underpaid provider, creating disputes and time-based fees and penalties.

A combination of technology, design and strategic business partnerships is necessary to achieve “payment integrity” the first time, at the right time as well as facilitate payment reconciliation.

To clarify, payers and their business partners are used to complexities. Even fee-for-value (FFV) arrangements, while designed to promote financial efficiency and higher quality patient outcomes, are not necessarily bringing complexities the industry hasn’t seen. Throughout the past 30 years, payers adapted their systems and processes to accommodate Medicare prospective payment systems (i.e., DRGs and APCs), 837 EDI and other industry mandates. Increased scrutiny by way of data transparency and Medical Loss Ratios (MLR) requirements have also driven change, as the government has declared the status quo of operational efficiency unacceptable. However, accommodating daily changes to policies, methodologies and rates will require strategic investments in technology and new operational processes to remain financially viable as a health insurer.

Let’s examine three investment areas that improve claims payment integrity:


Handling rapid government updates and their impacts on the decision-making process within a claims system requires new ways of operating to ensure accurate claims payments. Traditionally, the burden has been on the payer’s internal IT and business operations to implement government updates and/or third-party software updates to ensure compliance with changes. Executing a change process internally can range from 3 weeks to 6+ months depending upon the organization, which even when efficient, puts the organization at odds with paying claims accurately (remember those daily CMS transmittals).

Subscribing to a Software-as-a-Service (SaaS) delivery model has become more accepted as a basis for handling change in healthcare efficiently. As of July 2014, Forbes reported that 66.9 percent of healthcare IT executives already use SaaS-based applications.7 SaaS is a delivery model in which software is licensed on a subscription basis and is centrally hosted in a secure data center. SaaS reduces internal IT costs and scales computing resources “up” or “down” based on business demand. Less obvious is the capability of SaaS providers to deliver ever-evolving CMS updates virtually “just in time” versus the months spent waiting for implementation in-house. With SaaS, organizations can dramatically increase first-pass claims payment accuracy with constant CMS compliance.

The right SaaS solution can also provide workflow efficiencies unavailable within core claims systems to achieve specific business objectives. Something as basic as claim routing information, in addition to the “claim price,” can help insurers avoid inappropriate adjudication and high “pended” claims counts. Integrating the claims system with a SaaS model through a variety of industry-accepted technologies (e.g., Web Services) enables meaningful information to be returned to claims systems efficiently.

However, the industry needs to be wary of SaaS solutions from vendors whose software and internal Software Development Life Cycle (SDLC) are not designed for rapid change and scalability. Often, these third parties will “host” their legacy (installed) software and advertise SaaS delivery models. A hosted solution may alleviate health insurers’ IT burden; however, the claims adjudication process will still be subject to slow software update cycles (due to vendors’ infrequent updates) and limits performance scalability since the software architecture is not designed to leverage data centers’ resources.


Steve Jobs said: “Design is not just what it looks like and feels like. Design is how it works.” 8 Healthcare payers are in the process of upgrading/augmenting legacy claims systems to meet government mandates and change the information being passed to providers and business partners.

For claims payment inaccuracies, the industry must examine exactly what it takes to achieve 100 percent accurate payments. This includes:

  1. Medicare, Medicaid and other government program fee schedules and policies in production prior to their effective dates—so that operational and financial impacts can be analyzed and managed
  2. Negotiated reimbursement terms with providers configured accurately in the core claim system or third-party systems
    Automation of claims payment maximized, avoiding the costs of manual rework and manual errors
  3. The ability to retroactively modify claims payments
  4. The ability to analyze areas of current or potential waste —analytics and decision support—as the basis for new payment-related practices

Which of these requirements is a challenge for your organization?

  1. Are you unclear if your payment integrity processes and software are “regulatory compliant” and what a potential audit would reveal?
  2. Do you have high auto-adjudication of claims, with poor first-pass claims payment accuracy?
  3. Are your over/under payments to providers not being identified, leading to appeals, disputes and provider relations issues?
  4. Are your third-party vendors/partners not aligned with your company goals?
  5. Do you have ineffective or inefficient integration with your other software solutions and poor user experience?

It is imperative to design systems and processes to make claims payment both accurate and efficient. Many health insurers are determining that they cannot manage these requirements internally and are issuing RFPs to third parties for assistance. The insurer must then assess not only who has the right functionality, but also the design that most easily accommodates evolving functional requirements and user workflow needs.

A well designed system can serve payment integrity and end user needs quicker and more affordably than heavily-promoted, cobbled-together alternatives. Insurers shouldn’t focus too much on whether certain functionality is “in production” at the time of RFP selection because if a system is well designed, functionality can be added easily during implementation and beyond.

Business Partners

Many third parties—consultants, point solution vendors, integrated (single-source) solution vendors and business process outsourcers (BPOs)—provide claims payment accuracy solutions.

Assessing your company’s strengths and weaknesses will help determine what type of partner and solution is needed. However, keeping the analysis process one-dimensional may lead you to a partner that has the right solution, but the wrong culture to adequately provide day-to-day improvements to your business. Selecting partners offering the best solutions with the highest value and ROI for the evolving payment environment will provide a competitive advantage in the end. It’s imperative to eliminate the fear, uncertainty and doubt (FUD) that often clouds judgment and drives organizations to the perceived “safe” choices, when they may not be optimal, more cost-effective or efficient. 9


100% payment accuracy in the face of constant regulatory updates and data reconciliation remain a challenge. As claims payment rules change and the industry adopts more FFV concepts and new payment models, we must prepare for fluctuations in claims payment accuracy rates. It is critical to focus on the right technology, workflow design and business partners to ensure continued payment integrity. Only then can we say, with confidence, that we are on the road to eliminating 99+% of the incorrect claims payments between providers and payers.

Jared Lorinsky serves as the Vice President of Product Management for Burgess. On a daily basis he engages with clients on a variety of next generation solutions for the healthcare industry, including new payment models, government informatics and transparency systems.


  1. AMA 2013 health insurer quote:
  2. Percentage covered by Medicare in the U.S.A.: http://www.statista.com/statistics/200962/percentage-of-americans-covered-by-medicare/
  3. Percentage covered by Medicaid in the U.S.A.:
  4. Medicare’s Coverage Database: http://www.cms.gov/medicare-coverage-database/overview-and-quick-search.aspx
  5. NCD/LCD Definition: http://www.apta.org/Payment/Medicare/CoverageIssues/LCD/About/
  6. CMS Transmittals: http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/index.html
  7. 66.9% SaaS quote: http://www.forbes.com/sites/louiscolumbus/2014/07/17/83-of-healthcare-organizations-are-using-cloud-based-apps-today/
  8. Steve Jobs quote: http://www.homeideashq.com/2015/06/30/steve-jobs-quote-on-design/
  9. FUD: https://en.wikipedia.org/wiki/Fear,_uncertainty_and_doubt