When we think about healthcare, our first thoughts usually involve doctors, treatments, and health outcomes. But, if you’ve ever been on the receiving end of a medical bill or an “explanation of benefits,” you know that, behind the scenes, there's a complex, multilayered system at work. This system ensures healthcare providers are compensated fairly while also preventing unnecessary or fraudulent payments. One crucial aspect of this system is payment integrity. 

To fully understand what payment integrity means, it's important to first explore the health plan claims process and the role payment integrity plays.

Health Plan Claims: The Journey from Service to Payment

When a patient visits a provider, the service they receive triggers a chain reaction that involves several stakeholders: the patient, the healthcare provider, and the health plan. This chain reaction ultimately results in a claim being filed for the services rendered and, ideally, a payment from health plan to provider. Let’s break this process down into its essential components.

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Step 1: Prior Authorization

Before some healthcare services can even be provided, health plans may require pre-authorization. Pre-authorization, also known as prior authorization, is the health plan's review process that determines if a proposed treatment or service is medically necessary. For example, if a patient needs surgery or an expensive diagnostic test, a doctor might need to submit a request to the health plan explaining why the service is required.

Prior Authorization serves two purposes:

• Cost Control: By requiring a check on medical necessity, health plans can prevent wasteful spending on procedures or treatments that aren’t needed and provide the appropriate level of care.
• Quality Assurance: This process ensures that the healthcare provided is in line with industry standards and best practices.

If the health plan approves the request, the provider can proceed with the service. However, approval isn’t a guarantee of payment—it just allows providers to render care to the patient.

Step 2: Creation & Submission of the Claim

After delivering a service, the medical billing department creates a claim to submit to the health plan. To create the claim, the provider submits medical records to the billing department who then translates the medical record into standardized codes, such as ICD-10-CM for diagnoses, ICD-10-PCS for facility (hospital) inpatient procedures, CPT/HCPCS for physician services, and all other service types. The claim is basically a bill for the service provided, itemizing every procedure, service, and medication given to the patient. 

A claim usually includes:

• The service or procedure codes (e.g. CPT codes)
• Diagnosis codes
• Costs of services rendered
• Provider information

The health plan then reviews the claim to ensure the services provided align with the patient’s benefits package.

Step 3: Pre-Payment Review

Once the claim is submitted, the health plan enters the pre-payment review phase, also known as “pre-pay.” This is where payment integrity plays a role, even though it's often done quietly in the background. During pre-payment review, health plans look for any red flags that might indicate errors, overbilling, or potential fraud. 

Health plans may ask:

• Were the services medically necessary?
• Was the claim coded properly?
• Is there any duplication in the services?
• Are the items billed payable based on the health plan’s reimbursement policy?

If the plan identifies certain discrepancies the claim may be paid at a reduced rate, or the health plan may request additional information to perform a more complete review to determine the appropriate payment amount. Claims that pass the pre-payment review move forward to payment, but the story doesn’t end there.

Step 4: Post-Payment Review and Recovery

Even after a claim has been paid, health plans don’t close the book. They may still conduct a post-payment review, also known as “post-pay.” This involves a more thorough audit of claims and can happen months—or even years—after the initial payment (dependent on state-by-state look back requirements and contractual guidelines). The goal here is to identify any improper payments that slipped through the pre-payment review.

During post-payment audits, health plans may discover instances of:

• Duplicate billing
• Services not covered by the patient’s plan
• Coding errors or misrepresentations
• Fraudulent claims

When an issue is found post-payment, health plans typically initiate post-pay recovery. This could involve requesting that providers return overpayments, correcting the payments to reflect accurate service costs, or withholding future payments to resolve previous overpayments.

What is Payment Integrity?

Now that we’ve reviewed how claims are processed, let's focus on payment integrity—a key component that ensures the financial side of healthcare is managed appropriately.

Payment integrity in healthcare refers to the processes, systems, and strategies that ensure accurate and appropriate payments are made for healthcare claims. It spans the entire lifecycle of a claim, from the initial pre-payment review to post-payment audits and recovery efforts.

Payment integrity ensures that the health plan is paying only for necessary and accurately billed services, preventing fraud, waste, and abuse.

The Importance of Payment Integrity in Healthcare

It sort of goes without saying that a proper payment integrity strategy is important for business success. But, to break it down a bit further, here are some reasons why payment integrity is critical. 

1. Cost Control 

One of the primary benefits of payment integrity is cost control. Often, health plans will hire vendors to help them comb through claims and identify errors—at a price, of course. With the right payment integrity strategy in place, health plans can reclaim control and reduce overall expenditures, which may also help keep premiums lower for policyholders.

2. Reduce Fraud, Waste, and Abuse 

Healthcare fraud, waste, and abuse (FWA) cost the industry billions of dollars annually. In fact, according to Deloitte, “one study found that fraud, waste, and abuse account for about 25% of the total cost of health care.” Effective payment integrity programs play a major role in reducing these costly issues, ensuring that healthcare dollars are spent wisely.

3. Provider Accountability

Payment integrity helps to hold healthcare providers and health systems  accountable for their billing practices. It’s a system of checks and balances to make sure nothing—theoretically—slips through the cracks. It ensures that providers are being reimbursed appropriately for the services they deliver while preventing overbilling. 

Claims auditing, which is a part of payment integrity, for example, requires providers, if selected for audit, supply additional information to support the care they provided or the codes they used. 

4. Improved Patient Experience

The last thing a patient wants to deal with after a medical treatment is a complicated billing experience. When payment integrity is functioning well, patients benefit from smoother claim processing, fewer billing disputes, and, ultimately, less out-of-pocket spending. Payment integrity helps resolve errors both before and after payment to help remediate any issues that could trickle down to patients. 

5. Compliance with Regulations 

Healthcare is one of the most regulated industries in the world. Payment integrity helps both health plans and providers stay compliant with federal, state, and local regulations, reducing the risk of fines or legal actions. For example, under the False Claims Act, providers who upcode (input the code for an incorrect, more expensive treatment), are subject to high fines and jail time. 

Challenges of Maintaining Payment Integrity

While it might be a no-brainer to maintain payment integrity, there are reasons why health plans may struggle with it—it’s not always the easiest thing to do. The healthcare system is notoriously complex, and as new treatments, technologies, and payment models emerge, so too do new opportunities for error or fraud. 

1. Evolving Fraud Schemes

Fraudsters are constantly coming up with new ways to exploit an already complicated system. To combat the constant evolution of fraud, payment integrity programs need to evolve too and stay one step ahead by using sophisticated algorithms, machine learning, and artificial intelligence to spot suspicious activity.

2. Data Complexity

With millions of claims processed every year, managing and analyzing this vast amount of data is no small feat. Effective payment integrity programs rely heavily on advanced data analytics and technology to identify patterns of misuse or improper payments. Oftentimes health plans’ IT departments find themselves wanting to improve their payment integrity programs, but become understandably overwhelmed with the amount of data and integrations that may be required to move forward. 

3. Coordination Across Multiple Stakeholders

Payment integrity requires close collaboration between health plans, providers, and patients. There are a lot of moving parts. Ensuring that everyone is on the same page can be difficult, especially when dealing with complex cases involving multiple providers or overlapping coverage. 

4. Balancing Accuracy and Efficiency

While payment integrity is essential for catching improper payments, it’s also important to avoid unnecessary delays in processing claims. This avoidance of delay has historically forced a focus on post-pay, rather than catching errors in pre-pay. Striking the right balance between thoroughness and efficiency is a constant challenge for health plans.

The Future of Payment Integrity

Emerging technologies such as machine learning and AI are playing an even larger role in payment integrity, automating many of the previously-manual tasks. These technologies can help comb through vast amounts of data to identify patterns to deliver findings for auditor approval. This not only reduces the time it takes to review claims, but gives more control back to health plans who often rely on vendors for payment integrity. 

As the landscape of healthcare continues to evolve, the importance of maintaining strong payment integrity systems will only grow. A commitment to payment integrity is key to ensuring that the healthcare system remains efficient, fair, and sustainable for years to come.

To learn more about how Machinify can help increase efficiency of your health plans payment integrity program, schedule a demo today.