How to identify what payers are looking for in healthcare claims

Tuesday, September 4, 2018

Insurers are in business to make a profit. This profit comes from the difference between what is paid in premiums and the reimbursement provided. They are the sole entity in the United States allowed to manage “risk,” and for taking the risk they set some guidelines to ensure medically necessary services are reimbursed.

Stronger guidelines and limitations will occur around high-dollar costs to the payer, such as chronic disease and mental health services. Payers rely heavily on the use of data and data analytics to manage their risk. While federal payers do use data analytics, to a large degree they are neophytes compared to the sophistication of the commercial and managed care payers.

What payers are looking for

There is significant confusion in the industry about what documentation a commercial/managed care payer requires to approve the claim. Much of this confusion comes from the timing of requirements to ensure reimbursement. The bottom line is the same for all payers: The documentation must show a plan of care based on the working diagnosis and then progress to the goal of the plan and when the patient can expect to reach the goal. One documentation system should be characteristic of each provider or facility, and it should not display wide variations within the same provider identification and documentation methods. EMRs have complicated the documentation process with the inclusion of thousands of nonessential elements for the sole purpose of data collection and not for the support of the care provided. Despite variations in documentation, the following elements are critical to supportive documentation.

Payer guideline compliance

Medicare provides guidance through national and local coverage determinations—articles that set forth the standards that must be followed to attain a benefit category and reimbursement. Similarly, each payer provides its own guidelines based on their management of risk. While many follow Medicare guidelines, they can certainly produce their own guidelines per their contracts. Payer guidelines generally address items such as:

  • Medical necessity
  • Prior authorization requirements
  • Preadmission guidelines
  • Therapy requirement
  • Formulary and nonformulary medications
  • Other requirements based on payer operations


Additional payer guidance may be included within the contract with the payer. Many payers publish their guidelines in either hard copy or through their websites. All guidelines are proprietary to the payer; therefore, a facility or provider cannot apply these as “universal” guidelines for all payers. An example of a payer guideline is the joint arthroplasty guideline published by BlueCross of Florida. This example can be found on the BlueCross website at

Within this document, there is an overview followed by the criteria that must be met for authorization for the procedure and aftercare. The payer auditor will take this guideline and review each component against the medical record documentation to see that the criteria have been achieved. Failure to follow these guidelines will most likely result in a denial of the claim. It is important to note that this guideline would only specifically apply to BlueCross but may be similar to other payer’s guidelines for the same procedure. If a facility performs a significant number of arthroplasties, then creating a documentation template against the payer guidelines would be one method to ensure compliance with the payer-stated guidelines.

Payer guidelines, like Medicare, are dynamic and subject to change at any time. Therefore, the documentation in the record must support the guideline in existence on the day the service was rendered. Like national and local coverage determinations for Medicare, these are expected to be well documented within the medical record and address each element of the guideline completely. Every provider should randomly audit their record against the relevant payer guidelines to ensure that the record is complete and addresses the guidelines.

Medical necessity compliance

Like payer guidance, medical necessity must be met and documented prior to claim submission. Sometimes the medical necessity requirements are listed within the payer guidelines, and other times they may be in a separate document. Medical necessity requirements are often similar to those required for Medicare. The bottom line is that a payer will expect to see the outpatient need for the service or the inpatient plan of care. Various screen tools might be employed, but these are not the only requirements that need to be satisfied for a payer. In most cases, there needs to be a fully developed active problem list showing the plan of care to address the current problems.

It is also expected that the plan will include regular updates on progress toward the stated goal or evidence that the plan was changed to adjust the goal. Payers use many different medical necessity formats. For example, there are substantial medical necessity guidelines surrounding chronic care conditions, such as behavioral health.

Magellan publishes their documentation requirements specific to each type of service whether inpatient, intensive outpatient, or partial hospitalization (Magellan Healthcare, 2016). For many chronic conditions, as well as acute conditions, there will be guidelines that specify what must be documented to achieve medical necessity. Unlike Medicare, most commercial or managed care payers require medical necessity determination early in the episode of care to provide further authorization for the service. A payer will therefore want to see all case management notes documenting their review of the plan of care, progress as stated by the provider, and discussions they have had with the payer case management. The provider’s or facility’s failure to engage with the appropriate case management at the payer level will put the claim in jeopardy for reimbursement, as medical necessity is dynamic and must be reassessed at each step of the care plan. This is different from Medicare where all medical necessity is performed retrospectively. If at any point medical necessity is not achieved, then the service is deemed to be complete; therefore, it is essential that screening tools be used throughout the stay and specific documentation by the case management be in place to document communication with the payer on the plan of care and expectation for length of stay.

Arguably, documentation requirements for commercial or managed care payers, in terms of medical necessity, can be more extensive than for Medicare. With the growth in commercial/managed care and Medicaid plans, it is essential that documentation be based on these growing percentages of the payer mix instead of solely on Medicare. Payers will also need to see evidence that the beneficiary is in the most appropriate location and status to receive the medically necessary care with the highest-quality outcome and lowest cost. Therefore, like Medicare status, evaluations are common in medical necessity determination processes.

Documentation of services rendered as necessary

This element is of particular importance and required by all commercial/managed care payers, as they may use a charge line audit. Every test, service, procedure, pharmaceutical, and nonroutine supply must have an order and be clearly documented within the record. The auditor will compare the itemized claim data (not the UB04 or CMS 1500) of charges and reconcile every line to the medical record. If the documentation is not complete, the service will be determined as not documented and removed from the total charges to be reimbursed. This process applies to both inpatient and outpatient services.

Overutilization of testing is also reviewed against payer guidelines and evidence-based medicine guidelines. As such, “routine” tests ordered each day that are not directly related to the plan of care become a potential for removal from the charges. Pharmaceuticals are high priority in the payers’ review. Pharmaceuticals are either formulary or nonformulary and audited as such.

Some tests and medications require that a more conservative treatment has been tried and failed prior to moving on to a more expensive pharmacy or treatment. This is especially important with high-cost drugs. A payer will expect to see that the provider has considered a more generic or lower-cost alternative and documented why it was not in the interest of the beneficiary to have had that medication. In some cases, the payer will issue payer guidelines that include medical necessity requirements for medications.

Avoidance of nonessential overutilization of testing

As mentioned previously, facilities seek to avoid litigation and document care through testing. However, if the provider does not speak to the value of the testing as an element of the plan of care, then it can be deemed routine or nonessential, such as “daily labs” that are not discussed in the progress note or shown in the documentation of medical decision-making. This can result in a determination of non–medically necessary testing. With the advent of value-based care and “risk sharing” contracts, overutilization has come into focus for both the provider and payer. In some cases, joint utilization programs have been developed. One example is the Cleveland Clinic Test Utilization program. These programs are geared, as are payer programs, at the reduction of overutilization of testing.

As providers are moving toward value and away from fee-for-service, the focus on reducing overutilization by payers becomes significant. Furthermore, the advent of downside risk sharing arrangements puts overutilization at top of the auditors’ minds and comes into focus in the line item audit. Facilities should conduct ongoing line item internal audits to determine whether they have concerns with overutilization. As we move to a downside risk payer-provider model, one key goal will be reduction in the cost to provide care. Therefore, payer auditors will be focused on this goal.

Delay of care events

A consistent focus of governmental and commercial/managed care payer is charges that resulted from a delay of care. Therefore, most payers perform routine audits of high-dollar or high-volume admissions over a weekend and holiday to determine whether the patient received care in a timely fashion and met that medically necessary inpatient level of care. It is important to note that most commercial/managed care admissions require notification of the payer and then ongoing case manager–to–case manager discussions. Most of the potential delay-of-care concerns will be addressed at this point.

Nevertheless, auditors will look to see that the documentation for the medical plan of care and necessary testing shows a reasonable time frame and has not been delayed. For example, a patient is admitted for chest pain on a Thursday, and the plan of care calls for a diagnostic cardiac catheterization and stress test. However, the orders are marked as urgent in the record, but it is electively scheduled for the following Tuesday, when Dr. Smith comes back to town. This would be an example where care was delayed for a selected physician and would likely result in a denial. Delay-of-care issues are less likely with commercial/managed care payers who have ongoing case management discussions during the patients’ hospital stay than with the federal payers who conduct retrospective rather than prospective audits. Having said that, all payers still focus on delay of services within their audit techniques. The plan of care, severity of illness, and receiving care must be efficiently provided and recorded in the medical record.

Never events

Most commercial/managed care payers follow the Agency for Healthcare Research and Quality (AHRQ) never event guidelines. Nonfederal payers generally will not provide reimbursement for a never event or care required to remedy the malady created by the never event. Never events came into the commercial payer arena in 2008, and most payers outline their management of these events within the payer-provider contract or within the benefit manuals published by the payer.

In 2008, Healthcare Finance published an article that discussed the concerns that Cigna had with never events and reimbursement for these events (Healthcare Finance, 2008). Most payers require the provider (whether physician or facility) to report a never event to them within a specified amount of time after the event occurs. When reported, the payer has a guideline for auditing and continued monitoring of the patient claims and medical record. Some states supersede payer requirements and require a root cause analysis and report of remediation be issued. The payer, at a minimum, will request the full medical record for an indeterminate amount of time into the future to ensure they are not reimbursing for the never event.



Healthcare Finance. (2008). “Cigna won’t pay for ‘never events.’ ” Retrieved from

Magellan Healthcare. (2016). “Medical Necessity Criteria Guidelines.” Retrieved from


Editor’s note: This article was excerpted from The Essential Guide to Coding Audits by Rose T. Dunn, MBA, RHIA, CPA/CGMA, FACHE, FHFMA, CHPS, with contributions by William L. Malm, ND, DNP, CRCR, CMAS.