Case Study 1 — Two Digits After the Acquisition: A Composite

Constructed. The organizations, the patients, and the figures are not real. The failure — a practice that changed what it was without changing what its claims said — is ordinary, and it is the clearest demonstration in this book that a claim can be perfect in every respect and still be wrong.

Background

Section 23.5 said two things that this composite is the collision of:

The place of service code on the claim selects which practice expense value applies.

11 versus 22 is the distinction that costs organizations the most. A practice acquired by a hospital and converted to a provider-based department changes place of service from 11 to 22, and the physician's payment drops because the facility now bills separately.

The composite

Constructed.

A four-physician specialty practice is acquired by a regional hospital system. The transaction is ordinary and well run: the physicians become employed, the practice keeps its location and its staff, and — after a period of work by people who understand these things — the site is converted to a provider-based department of the hospital.

Which means, from the day of conversion:

• The site is a hospital outpatient department
• Two claims are generated for each encounter — professional and facility (Chapter 16 §16.1)
• The professional claim's place of service becomes 22, not 11
• The physician's payment drops, because the facility expense is now on the facility's claim
• And the patient's cost-sharing changes, generally upward (Chapter 16 §16.9)

Everyone involved in the conversion knew all of that.

What did not change

The billing system's default.

The practice management system had been configured, years earlier, with place of service 11 as the default for every encounter at that location. Correct then. Not correct after the conversion.

Nobody changed it, for a reason that is worth stating precisely: the conversion was a project owned by finance, legal, and hospital operations, and the professional billing configuration was owned by a practice management system administrator who was not in those meetings.

The facility claims went out correctly. A new facility billing process had been built for the conversion, and it worked.

The professional claims went out with place of service 11, for months.

What that produced

Three consequences, and they are not all the same kind of problem.

Overpayment on the professional claims. Place of service 11 selects the non-facility practice expense value, which is higher. Every professional claim was paid at the office rate for a service performed in a hospital outpatient department. (Constructed.) Across four physicians and several months, a substantial sum.

Duplicate payment of practice expense. The facility claim was paid for the facility's overhead and the professional claim was paid at a rate that includes practice overhead. The same expense was paid twice, which is exactly what the two practice expense values exist to prevent.

And the patients' cost-sharing was wrong. (Constructed.) Patients paid coinsurance computed from professional allowed amounts that were too high, and separately paid facility cost-sharing. They were overcharged on one of the two claims for every encounter.

Why nothing caught it

The claims were perfect.

Every code was correct. Every modifier was correct. The diagnoses supported the services. The edits passed. Nothing denied. Nothing rejected. Nothing appeared in a work queue.

The remittances reconciled. Payments matched the expected allowed amounts — for place of service 11, which is what the system expected because it is what the system had submitted.

The metrics improved. Revenue per encounter on the professional side went up, because the non-facility rate is higher. Chapter 23 §23.10's warning applies directly: a favorable trend is a question, not an answer, and this one was reported as a result.

And the two claims were reconciled by different people. Facility billing confirmed facility claims were correct. Professional billing confirmed professional claims were correct. Nobody compared them to each other, and the error is only visible in the comparison — a facility claim and a non-facility place of service code, for the same encounter, on the same date.

That comparison is one query and it is the entire detection.

How it surfaced

A payer noticed.

(Constructed.) A commercial payer's analytics identified professional claims with place of service 11 from a location its own records showed as a provider-based department — information the payer had because the hospital had told it, during the conversion.

The hospital had disclosed the change correctly to the payer and had not implemented it in its own system.

What it cost

(Constructed.)

Repayment of the overpaid professional claims, which was arithmetic and was not disputed.

Corrected claims and patient refunds, which was the expensive part operationally — identifying which patients had been overcharged, on which of the two claims, and by how much, across several months of encounters.

And Chapter 5 §5.1's sixty-day rule, which attached on identification and governed the timeline.

Total cost of the prevention: changing one default value in one system, on one day.

What it shows

First, a claim can be perfect and wrong. Every field a coder controls was correct. The error was in a field that describes the organization rather than the service, and no amount of coding skill touches it.

Second, this is an organizational change that nobody translated into a system change. Chapter 20's Case Study 2 was a practice that acquired a regulatory identity without noticing. This one noticed — the conversion was a deliberate, well-run project — and the notice did not reach the system that needed it. That is arguably worse, because the knowledge existed inside the organization the entire time.

Third, the two claims were each verified against themselves. Facility billing checked facility claims. Professional billing checked professional claims. The error lives in the relationship between them, which is exactly the kind of thing that falls in a seam — and Chapter 17's Case Study 2 said the same about two organizations that could not see each other's claims. Here it was one organization and two departments.

Fourth, the metric moved in the pleasant direction. Revenue per professional encounter rose. Nobody asks why a good number got better, which is why §23.10 argues that a favorable trend deserves the same scrutiny as an unfavorable one.

And fifth — the payer knew before the organization did, because the organization had told it. There is something worth sitting with in an entity being informed of your own status change by you, and then having to inform you that you did not implement it.

The lesson

When an organization changes what it is, somebody has to change what its claims say — and that person is usually not in the room where the change was decided.

Four carry-forwards:

Put billing configuration on the conversion checklist. Place of service, provider enrollment, billing entity, tax identification number, and fee schedule. These are not afterthoughts; they are the mechanism by which the change becomes real.

Reconcile the two claims to each other. For any encounter generating both, a facility claim and a non-facility place of service code cannot both be right. One query, run monthly, and this class of error cannot survive.

Treat a favorable metric movement as a question. Revenue per encounter rose for a reason. Find out what the reason was before reporting it as a result.

And ask, at any organizational change: what do our claims now say that is no longer true? Chapter 20's Case Study 2 asked "what have we become?" This is the same question pointed at the claim file.

Discussion questions

1. The conversion project was well run and the configuration was missed anyway. Design the checklist item and say who owns it. Why is that person usually not in the conversion meetings?

2. The error is visible only in the relationship between two claims. Write the query in plain language. What would make it hard to run in a real organization?

3. Patients were overcharged for months and the practice found out from a payer. What should the organization say to those patients? Draft the first two sentences.

4. Revenue per professional encounter rose and was reported as a result. Is it reasonable to expect an organization to interrogate good news? What would make that a habit rather than an aspiration?

5. Compare this with Chapter 20's Case Study 2, where a practice acquired a regulatory identity without noticing. Here the organization noticed and the notice did not reach the system. Which failure is more troubling, and which is easier to prevent?