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Six Sigma Project Summary

Reduce Anesthesia Claim Payment ErrorsDue to Incorrect Unit/Minute Billing

Executive Sponsor: Kathy Merry

Project Champion: Beth Noakes

Black Belt: Paul Wenzler

April 22, 2003

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Problem & Impact

If these errors are not caught, we will overpay $895,000 per year

Despite being billed incorrectly, both of these claims passed right through our PAR/PPO systems and were overpaid.

This happens 16,000 times per year.

Our billing guidelines require Providers to equate 15 minutes to 1 unite.g., 60 minutes = 4 units

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Measure Phase

Data Collection & Sampling

The sample of anesthesia claims ≥16 units revealed:

32% billed incorrectly

$283 average overpayment

$629,000 annual overpayments

Baseline Sigma: 1.96

Correct

Incorrect

Hypothesizing that claims with a high number of units were more likely to be incorrect,

the team decided to look only at claims with 16 units or more (9% of the claims).

If billed correctly, 16 units equates to 4 hours of anesthesia – nearly double the average

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Analyze Phase – Critical Xs

In Six Sigma, we focus on factors we can control

Why do we pay anesthesia claims incorrectly?

- Lack of a national standard for time/unit reporting

- Claim forms do not have a field to indicate which time/unit system a provider is using

- Providers are not following our billing guidelines:• Not using 15 minute units• Adding base units

- CHIPS assumes 15 minute units for every claim – no way for it to automatically double-check

- The 15 minute unit is prone to overpayments

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Proposed Solutions

1. Pend all claims ≥16 units for manual review

2. Begin retracting overpaid claims from last 12 months

3. Continue to educate and assist our providers

Near term recommendation #1 was not accepted by the Sponsor and we were asked to explore other options

Recommend that PNM investigate the possibility of changing contracts/fee structures to one minute billing to address root cause.

(Current contracts won’t be up for renewal until mid 2005)

Our Recommendation for Addressing the Critical Xs

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Claim Data Breakdown

≥16 units9% of anesthesia claims (7000)

32% error rate

All overpayments

Ave overpayment of $234

Total overpayments of $629,000

<16 units91% of anesthesia claims (68000)

20% error rate

Over and Underpayments

Net Ave overpayment of $20

Net overpayments of $266,000

All Anesthesia Claims

75000 claims with an error rate of 21% = 16000 incorrect claims

Over and Underpayments: Absolute dollar error of $1,650,000

Net Ave overpayment of $57 = Net overpayments of $895,000

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Proposed Solutions - Revised

Pend claims ≥16 units Pend all claims

7000 pends2240 adjustments2600 calls to providersUse existing resources

75000 pends13400 adjustments46000 calls to providersHire 4-5 new resources

Pend by provider

Configure MARS to pend only those claims from targeted providers

Configure CHIPS to pend claims with 16 units or more

$629,000

Description

Impact

Savings

Pros

$895,000 To be determinedRange: $0 - $895,000

- Cross-functional team’s solution- Efficient use of resources- Significant savings

- The entire problem is addressed- Significant savings- Avoids business practice concerns

Configure CHIPS to pend all claims regardless of units

To be determined

- Low-hassle, targeted approach- Avoids business practice concerns

Cons- Customer feels it is a bad business practice and is counter to Operational Excellence

- Significant provider hassle- Inefficient use of company resources

- Moving target, requires admin effort- Unknown ROI- Will not detect many errors

Customer has decided to adopt the “Pend by provider” strategy.

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Benefits of the Project

• Better informed about a long-standing issueThis has been occurring since at least 1995 (8 years @ $500,000 = $4 million). We are now better equipped to do something about it.

• Proved the value of the methodologyFacts and rigor won out over strongly held assumptions: “HIPAA will fix that”, “CHIPS can’t do that”, “Its not that big of a problem”

• Generated new project ideasPotential Green Belt projects related to CRNA billing and improper use of modifiers on anesthesia claims

• Leadership DevelopmentWorked with Service Operations, Provider Network Management, Legal, Audit, ISD, and Corporate Training

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Many thanks to…

Beth Noakes, Kent Pillow, Colin Drozdowski, John Syer, Debbie Lahocki

A Great Project Team

PNMDan WiseTim MillerBob BrownDarryl DaySandy Self

Strong Cross-functional Involvement

Service OpsPatty TaylorNancy ElliottToni Franey

John EdwardsLillian Shell

Jerry GreeneClaims Process Team

AITCatherine Gaylor

AuditConway AllenMelissa Clark

LegalCarter Tucker

Owen Hunt

TrainingCordelia Starkes