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How to identify and deal with payer overpayments
"It's always a struggle to allocate resources to a process that doesn't bring cash back to the organization," says Ken Kemmish, chief financial officer of Physicians Clinic in Omaha, Neb.
But as cumbersome as resolving credit balances and refunding overpayments can be, not doing so just isn't an option. Aside from the desire to maintain ethical business practices, Medicare requires the refunding of overpayments, as do some managed-care contracts. State laws also come into play, according to Mickey O'Neal, president of the O'Neal CPA Group in Sugarland, Texas.
"Medical practices are subject to abandoned property laws, which require them to be proactive in seeking out and paying patients for overpayments, credit balances, uncashed checks, and the like," says O'Neal.
"If the individuals can't be located in a certain number of years, the practice must revert the funds to the state. Except for banks, almost nobody complies with these laws, but most states have them."
To be sure, identifying, documenting, and refunding overpayments from patients and insurers takes time and focus away from revenue-generating activities. "It's seen as a bothersome process," Kemmish adds. "But from our standpoint, it's the proper accounting that needs to take place."
One of the most common causes of overpayments is incomplete insurance information at the time of billing. "It happens when the patient is not sure of his insurance or the practice can't establish eligibility. The practice then collects full or partial payment and only later learns that the patient was covered," explains Vickie Jackson, administrator and chief executive officer of Southern Orange County Pediatric Associates in Lake Forest, Calif.
Patients also fail to make practices aware of secondary insurance. In this instance, the practice collects a deductible or copayment from a patient, only to discover later that another payer is responsible. Or, the patient files a claim separately to the secondary insurance, and the two payers fail to coordinate benefits properly.
Slow claims processing is yet another culprit. "Occasionally, when an insurance company has not paid, we assume a claim may have been lost, so we send in another. In the meantime, the insurance company pays both claims," says oncologist Cary Presant, president of California Cancer Medical Center in West Covina.
Misunderstood or unclear contract terms can also result in overpayments. Be careful with infertility treatments, for example, which may not be well-covered -- at least initially. "We've seen a trend of insurers initially denying coverage, then the practice charges the patient high, non-contract rates. Later, the insurer agrees to cover the service after the patient complains. The practice then has to pay the higher fee back to the patient and accept the lower contracted amount from the insurer," says O'Neal.
Your practice staff will do you a big favor by asking patients at each visit whether there have been any changes in their employment status or insurance coverage. Also, ask about secondary insurance coverage and whether the visit is related to an accident, to determine if there is third-party coverage.
These are questions that most practices either fail to ask or don't report, according to David Kolton, head of customer service for the Mid-Atlantic and Northeast regions of Aetna. Overpayments to and refunds from providers "are the number one drivers of our having current information on employment and insurance status. And if you look at our claims from medical practices, more than 90 percent of the time, the boxes are left blank for other insurance coverage and the service being related to an accident."
Refunds to commercial payers and patients are tricky enough, but refunds to Medicare present a double-edged sword.
If you are aware that Medicare has over paid you -- especially if overpayment resulted from incorrect coding -- you must refund the money. In fact, The Centers for Medicare and Medicaid Services has proposed a rule that would require physicians to return Medicare overpayments within 60 days. If the rule sticks, many providers will have difficulty telling if and when they were overpaid, let alone explaining why.
Nevertheless, from the government's perspective, failure to report overpayments once they have been detected constitutes fraud and abuse. Unfortunately, that means letting Medicare know that you overcharged them and, in essence, submitted a false claim.
Some health care attorneys argue that this could violate the Fifth Amendment privilege against self-incrimination, according to Jeremy Miller, an attorney with the Miller Health Law Group in Los Angeles.
If the physician concludes that he or she needs to report an overpayment, the next question is to whom the report should be made. In a "routine" overpayment situation, where there is no evidence of fraud and abuse, it may be appropriate to write a refund check to the Medicare carrier along with a brief explanation of the reason for the refund, says Miller.
In more egregious situations, the matter may need to be reported to federal and/or state criminal authorities such as the Department of Justice or the Office of Inspector General (OIG). Recently, the OIG of the Department of Health and Human Services produced its annual report on fraud in Medicare. In 2001, Medicare spent $12.1 billion on "improper" payments, according to its records. That means providers should be very rigorous about refunding overpayments.
Physicians should also be aware that if they (or their staff) discover even innocent overpayments, and the physician fails to report the matter, the physician's staff may do the reporting for him. In fact, this is how many "whistle blower" actions get started, Miller warns.
Have a game plan
Whatever your approach in dealing with overpayments, consistency is the name of the game, advises Jane Rager, administrator of ENTAA Care, an allergy and otolaryngology practice based in Baltimore. "It's like dishes and laundry. You have to do it all the time, or it just gets away from you."
An organized procedure -- backed up by a written policy and ongoing supervision -- will keep the process on track. Most practice management systems can produce an aged trial balance report on accounts with credit balances, both as a routine report and on demand. Smaller practices should check these at least monthly; larger operations should check weekly.
Assign staff to work through the report, concentrating on older accounts. "We focus on the accounts 90 days out. This gives time to clear out credits that occur before all the charges are posted, and, in some instances, it gives the insurer time to make a request for repayment," explains Kemmish.
If it allows for date-of-service payment posting, your practice management system can simplify the identification of overpayments. Ideally, it will notify the person doing cash posting that a payment has just created a credit. At that point it's easy to pinpoint the transaction that led to the overpayment.
If your practice uses family billing, which consolidates the accounts of individual family members into a master bill, the approach to credit balances will be slightly different. Staff priorities shift from processing refund requests on single accounts to transferring credits to open balances on related accounts. Kemmish's clinic uses this approach and is able to clear more than 60 percent of credit balances through transfers.
Be sure your billing staff members understand this process is a priority for them. "They're trained to bring money in, so you have to reassure them that this, too, is an important part of their job," says Rager.
What payers want
Documentation that substantiates the overpayment and the need to process a refund is important for internal controls. It may or may not be necessary for the payer. According to Kolton, for example, all Aetna needs is the name of the primary insured, the policy identification number, and the relevant date of service. All this information is printed in the notes section of the refund check.
Apparently, other payers aren't so sure about the process. "We've sent letters [to insurers] explaining that we owe money back, along with a copy of the explanation of benefits, and have had them send it all back because they don't know what to do with it," says Jackson.
Whether very small overpayments -- for example, under $5 -- should be refunded can be a gray area, except when it comes to government payers. "As far as I know, every amount is material. Although I would hope that common sense would prevail, there have been instances when the OIG went after a claim ultimately determined to be worth $8," says Elizabeth Hogue, a healthcare attorney in Burtonsville, Md.
Practices might consider implementing a policy of only issuing refunds that exceed the cost of processing them. "You wouldn't be in strict compliance, but the risk of sanction would be outweighed by the cost savings," says O'Neal. For many practices, that threshold is about $5. Be certain to check your individual payer contracts before implementing a policy that limits refunds.
Some contracts obligate providers to refund overpayments; others are silent on the issue. Insurers are unlikely to conduct an audit solely to find overpayments. However, if they identify overpayments in the context of a broader audit, they may request repayment.
Government-reimbursed accounts are another matter. "We've been seeing some wild audit activities with Medicaid programs," says Hogue. "They've been very aggressive, unlike anything I've seen in a long time. It's related to their resources being taxed more and more. So if you're involved in Medicaid, you need to be careful in your documentation."
To be prepared in the event of an audit and keep your credit balances in check, it pays to act, says Kemmish. "The longer those accounts sit there, the further away they get to being settled. So getting on them quickly is important."
Gina Rollins can be reached at email@example.com.
This article originally appeared in the May/June 2002 issue of Physicians Practice.