Denials By Bots: Why Providers Need to Keep an (Even Closer) Eye on Claims

Denials By Bots: Why Providers Need to Keep an (Even Closer) Eye on Claims

Providers and payers are arguably the most important stakeholders in our healthcare ecosystem, yet the two groups have a long history of acrimony. While it’s tempting to point the finger at contentious contract negotiations, the events that occur after a contract is signed play just as big a role in perpetuating ongoing conflict as the negotiation process itself.

The majority of provider organizations that we work with at Unlock Health – and our clients run the gamut from small, independent hospitals to physician groups to large health systems – are telling us that they’re experiencing increasingly significant delays in payment by their insurer partners, as well as significant upticks in claims denials.

What’s behind this trend of more aggressive pushback on reimbursing care? Yes, payers have been using automated edits and algorithms to process claims for some time. However, as AI has become more prevalent in the healthcare industry, they’re not only seeking out more sophisticated tech – alarmingly they also appear to be decreasing the role that humans play in the decision-making loop. As we head into 2024, here’s what your organization needs to know about how payers are using technology to process claims.

A History Of Escalating Denials

As healthcare spending has continued to increase – according to the Commonwealth Fund’s October 2023 article “High U.S. Health Care Spending: Where Is It All Going?”, the U.S. spends twice as much per person on health as “peer nations” – so has the pressure to contain costs. It makes sense that health insurers would scrutinize claims more closely in this environment, but we believe that the pendulum has swung too far. Here are a few proof points that illustrate the trend. An OIG report published in July 2023 titled “High Rates of Prior Authorization Denials by Some Plans and Limited State Oversight Raise Concerns About Access to Care in Medicaid Managed Care”, assessed Medicaid denials in 37 states and found that in 2019, Medicaid MCOs denied approximately 12.5% of prior authorization requests, with denial rates as high as 41% for some. In 2021, at the peak of the pandemic, KFF found that health insurers on the Exchange denied 17% of all in-network claims, according to the article “Claims Denials and Appeals in ACA Marketplace Plans in 2021” published in February, 2023. Finally, on the commercial side, MedCity News reported in a May 2023 article titled “Commercial Payers’ Rising Claims Denials Rates Are Exacerbating Hospitals’ Financial Woes”, that during the first quarter of 2023, commercial payers initially denied 15.1% of inpatient and outpatient claims.

Despite states enacting hundreds of laws related to what insurers must cover, health plans have been in violation of these laws at least a dozen times in the last five years alone, according to an analysis from ProPublica in November, 2023, titled “Health Insurers Have Been Breaking State Laws for Years”. Why? Because the legal penalties for these violations are simply a drop in the bucket when compared to the enormous profits that the companies are making. While many hospitals continue to struggle financially, United is doing so well that it actually beat its own guidance in Q3. And on top of that, according to Yahoo! Finance in the October 2023 article “UnitedHealth Beats on Q3 Earnings, Raises View: ETFs to Gain”, their Q3 results “mark the company’s seventh consecutive quarter of double-digit revenue increase.”

What’s Different As We Look to 2024?

Delayed reimbursements and aggressive claims denials are unfortunately nothing new to most of our clients. But payers’ increasing reliance on technology to adjudicate claims – as opposed to entrusting these decisions to professionals who are trained to determine if care is “medically necessary”– marks a change. To be clear, automating claims processing is not exactly new, but the apparent absence of humans in the loop is. Case in point, Cigna supposedly spends an average of just 1.2 seconds on each claim determination, according to an investigation from ProPublica titled “How Cigna Saves Millions by Having Its Doctors Reject Claims Without Reading Them” in March 2023.

No one disputes the fact that there’s an opportunity to improve efficiency across the healthcare system, including how claims are processed. Just look at the number of businesses that exist to address these inefficiencies, including United’s own offering through Optum and other long-time payer partners like Zelis and TriZetto. Newer players are emerging as well; Lyric Health raised $90.9 million this year alone to support its payment accuracy service, LyricIQ, according to Technical.ly’s August 2023 article “Looks like KOP-based AI healthtech company Lyric raised $90.9M”. Notably, Lyric’s CEO, Raj Ronanki, is a former Anthem executive, while Gene German, Lyric’s Chief Product and Technology Officer, comes from Optum.

No one is faulting payers for seeking out these solutions, nor is it inherently problematic that executives in the payment processing space have a history of being employed by insurers. However, it is concerning that both Cigna and United are currently facing class action lawsuits related to their use of AI in determining denials.

The Allegations Against Cigna & United

In July, multiple media outlets reported on a class action suit against Cigna that accuses the company of using its PxDx (“procedure-to-diagnosis”) tool to reject hundreds of thousands of claims at a time. The lawsuit was filed in California, and alleges that the tool helps Cigna circumvent the state’s requirement that physicians review all claims, according to a July 2023 summary from Fierce Healthcare, titled “Cigna hit with a class action alleging it used an algorithm to reject claims”. A similar class action suit was filed in Connecticut in August 2023, alleging in the complaint that “Cigna has leveraged its sophisticated infrastructure and automated intelligence capabilities to systematically defraud its consumers by denying medically necessary claims en masse without appropriate physician review, in violation of state and federal consumer protection laws.”

While Cigna claims that denials from PxDx only account for 1% of its total claims, the same March 2023 ProPublica analysis that found that the payer takes just 1.2 seconds to review a claim, also states that PxDx was used to reject more than 300,000 requests for payment in just two months in 2022.

And Cigna is not the only major insurer being accused of leveraging AI and automation to deny medically necessary claims. Following an investigation by STAT in November 2023, titled “UnitedHealth pushed employees to follow an algorithm to cut off Medicare patients’ rehab care”, a similar class action suit was filed against United in Minnesota, home to the insurance giant’s headquarters. This case is potentially even more concerning, given that it centers on Medicare Advantage denials of seniors’ post-acute facility stays. The plaintiffs allege that United used its “nH Predict” AI algorithm to adjudicate these claims, despite the fact that the algorithm has a known 90% error rate, from a November 2023 CBS News report titled “UnitedHealth uses faulty AI to deny elderly patients medically necessary coverage, the lawsuit claims”. That’s right, 90%.

What’s Next?

Patients are not the only ones who are questioning how AI and automation are being used by payers. Following initial reports on the problems with Cigna’s algorithm this spring, a May 2023 Fierce Healthcare report titled “Senators press Medicare Advantage insurers over claims denials”, wrote that the Senate’s Permanent Subcommittee on Investigations sent letters to the three largest Medicare Advantage plans (United, Humana and Aetna) requesting information on how they determine denials. Less than a month later in June 2023, the American Medical Association put out a statement titled “AMA adopts policy calling for more oversight of AI in prior authorization”, calling for “greater regulatory oversight of insurers’ use of AI in reviewing patient claims and prior authorization requests.”

Those who use AI in healthcare will continue to face scrutiny – and, we hope, consequences when that technology is activated inappropriately. That being said, it will take time to put all the appropriate guardrails in place. In the meantime, the cases against Cigna and United highlight the importance of providers having processes in place to track denials, file timely appeals, and monitor decisions to systematically challenge harmful payer policies and reimbursement edits. The cases also help quantify the financial impact and administrative burden denials have on a system, which is useful data for provider organizations to reference in upcoming contract negotiations.

While the above tactics are critically important, as we head into 2024 the most strategic action your organization can take to protect revenue and keep doors open for patients is to develop a proactive payer relations plan. Thankfully, hospitals and health systems do not have to go it alone. We have partnered with systems across the country and have created best practices for developing these plans. So don’t wait until it’s time to renegotiate your payer contracts – reach out to Unlock today to connect with our experts and protect your business.