Medical Necessity and the Revenue Cycle

by Stefani Daniels, Managing Partner
Published on Aug 07, 2015

Too often, the scope of utilization review specialist is on the application of InterQual or MCG guidelines and whether the available medical documentation reflects those guidelines. If the documentation does, the assumption is made that the patient is eligible for hospital admission. Unfortunately, that is not always the case.


As operating costs continue to rise, payments nosedive, and regulatory changes add new complexity to the revenue cycle, the role of utilization review specialists (URS) has become critical to preserve revenue integrity in the new value based marketplace..  

By now, our readers know that healthcare reimbursement is changing. By 2020, value based  payments  (bundled, capitation, etal) are projected to represent 83% of the hospital's revenue—up from 43% today and 14% in 2010.  Ensuring that the hospital gets paid under these multiple payment systems is a complicated process made even more complicated because revenue is managed by multiple departments, all of which operate in silos. From patient access to the business office and everything in between, revenue is affected by many departments and touched by multiple systems that typically don’t talk to each other.  Key to this progressive cycle, is to get it right at the outset.  And that's where the URS plays such an important part. 

Patient Access is the front-end of the revenue cycle and typically includes information captured during the patient registration and payment clearance processes. But it does not often incorporate the medical necessity component which, as anyone working denials and appeals will tell you, is essential in order for the hospital to get paid in today's value based world.  

The process is pretty straight-forward. The hospital will generate a claim form with all the information captured during registration and with multiple codes describing the diagnoses requiring care and services provided to the patient.  Assuming the demographic information is correct (informal surveys taken at our client hospitals indicate that demographic information is incorrect between 40% - 60% of the time), the diagnostic codes (ICD) and service codes (CPT) will go through the payer's claim processing methodologies which include coding conventions - 'rules' - or payer specific edits that the electronic system will use to identiy questionable claim forms based on the codes submitted.  For example,  an edit would cause a claim form that designates a male patient with an obstectrical service code to 'fall out' resulting in a remittance telling the hospital billing office that something is incorrect on the claim form and has to be resubmitted.  A more relevant example for the URS would be the patient admitted as an inpatient for unspecified (786.50) chest pain and, among other services, received a treadmill stress test (93015) - a service that could have been provided as an outpatient. The electronic edit would identify this claim as not appropriate for an inpatient admission and would be denied.  And so begins the process of re-work to try to recoup the payment.  Nine times out of 10, that re-work lands in the lap of the URS.  

However, if the URS was an integral component of the Patient Access process, that case would have been identified before the patient even made it to patient care unit.  In a successful Patient Access program, and depending upon the size of the hospital, the URS would be either physically located with the other Patient Access team members and review each request for an inpatient bed; co-located between Patient Access and the ED; or, as in large hospitals, dedicated to the ED while a URS colleague would be part of the Patient Access team to address medical necessity of transfers, direct admissions, and electives.      

Too often, the scope of URS is on the application of InterQual or MCG guidelines and whether the available medical documentation reflects those guidelines.  If the documentation does, the assumption is made that the patient is eligible for hospital admission.  Unfortunately, that is not always the case.  If guideline parameters are confirmed in the physician's documentation, all it means is that the patient immediate medical needs probably warrant hospital level of care....but whether as an inpatient or outpatient (observation) is not always apparant. Which is why we always recommend following this 4 step documentation review by the URS:  1) Does the patient's immediate medical needs require hospital level care?  2) Does the treatment plan include interventions that can ONLY be safely provided in a hospital setting?   3)Does the physician expect that the care will surpass 2 midnights; and 3) are there any risks that can be anticipated if the patient is not hospitalized?  We have found that if physicians use these 4 simple steps as a template for admission medical necessity and continuing stay documenation, they will be able to withstand the scrutiny of oversight agencies.  If the documentation is less than complete, the first thing the URS must do is speak with the admitting physician and offer information and advice on the content of the documentation. Only if the admitting physician resists any coaching should the URS consider referring the case to the physician advisor and notifying the business office of the probable denial.      

Without a Board and executive team committment to get it right the first time, every time, back-end rework will continue to plague the integrity of the revenue cycle. Consider too, that as value based reimbursement expands, other factors may need to be evident to the payer (eg: patient centered outtcomes) in order to receive payment. Preserving the revenue cycle isn't the reason most healthcare professionals choose to practice in hospitals, but it could be the reason they loose their jobs as the hospital's risk of bankrupcy, acquisiton, or closure goes up as revenue goes down.