" Insurance recognizes every payment under the policy as a business loss on the books"
It's a War, with an armies of soldiers, heavy artillery, tactics and strategies. The fight is between medical laboratories and insurance payers where labs are trying to get paid for the work they have already done and insurance payers are trying to avoid paying using an impressive arsenal of over 250 "Adjustment Reason Codes", "Provider-Level Balance Adjustments" and other advanced deadly weaponry.
It is the war that medical labs cannot win. One of my mentors, Wolfgang Pilon, who single-handedly developed and supported for 30 years one of the first advanced medical billing systems, once told me: "Remember, Insurance recognizes every payment under the insurance policy as a business loss on the books."
This simple truth defines the rules of engagement, and the battlefield is tilted in their favor. The medical lab cannot refuse the test referred by the physician and has to do the work, but payer does not agree to pay for any given test upfront. Instead, it reviews the claim after the work is already done and can deny payment based on various changing complicated payment policies.
If you consider that large diversified reference lab has to deal with thousands of insurance payers, over 800 billing CPT codes, and 16 insurance plans while trying to collect on average $17 per test, you will understand that trying to track all the payment rules is a losing battle
The casualties are severe, mainly on provider and patient side. Clinical laboratories lose 20-40% of revenue due to claim denials, for genetic labs losses may be as high as 50%. For patients, medical bills is a number one reason for personal bankruptcy.
Insurance may lose one or two battles in courts, but they are still winning . in the meantime, the tremendous economic value is lost in this fight making US healthcare model the most inefficient among developed countries, in which we receive 4-6 times less medical services for every dollar spent.
How to win this war?
"Always seek higher ground" - this timeless wisdom from the Art of War script by ancient Chinese military strategist Sun Tzu cannot be more relevant today. The only way to defeat insurance payers is to marginalize them and make less relevant to your business. Labs can achieve this by focusing business relations on directly paying clients and Accountable Healthcare Organizations that pay cash for every test performed.
Labs have excellent value proposition here. Our analysis shows that if lab collects full payment on every test at current Medicare PAMA rate, it will make up to 60% more money per CPT on average. Which means lab can offer 30-40% discount to direct payers and still make more money while not spending on the billing and collection army.
"The enemy of my enemy is my friend"-this is another ancient wisdom that cannot be more relevant today. Another losing party in this war is the patient and labs have to get patients on their side. Today labs collect less than 50% of revenue due from patients and this is not surprising. It would be surprising to expect that people pay a bill that they did not approve upfront from the party they have not heard of before. To get paid labs have to engage patients and give them clear estimate upfront telling that insurance may not pay the claim, telling why, and giving the reasonable amount that patient should expect to pay if the claim is denied. This way patient can have options other than just not paying the bill. They can speak to doctor and insurance company about the necessity of the test and chose some course of action. If patient approves the estimate and agrees with the amount upfront, the lab will have much easier time collecting payment in the end. I know this may sound crazy to people who only worked in medical billing, but this is how it works everywhere else in consumer services.
Use Technology Weapons. Modern warfare is often won with the power of technology and information rather than troops on the ground. While labs cannot match big insurance payers in manpower or change payment policies, they can use the power of Computer Intelligence to predict claim denials at the time of order and make preemptive moves to avoid them. This is the advanced weapon we provide to labs so they can win and get paid for work they have done, every time.