Years of finger-pointing by Illinois hospitals and managed-care organizations about what the hospitals said were high denial rates for Medicaid claims ended last month with legislation that both sides hope will reduce friction between the two and benefit low-income patients.
"This is a really good step forward," said Jay Roszhart, president of Memorial Health System's ambulatory group. "I'm fairly optimistic that the intent of the bill will resolve these issues."
Samantha Olds Frey, executive director of the Illinois Association of Medicaid Health Plans, said Senate Bill 1321, if signed into law by Gov. J.B. Pritzker as expected, would lead to hospitals sharing more information with companies hired by the state to carry out the state's Medicaid managed-care program, HealthChoice Illinois.
The legislation, Olds Frey said, would make sure hospitals and the managed-care organizations, or MCOs, "are talking to one another instead of at one another ... to ensure cohesive care-coordination and discharge planning with a focus on the Medicaid members."
Illinois' managed-care system covers 2.1 million Medicaid beneficiaries, or more than two-thirds of the state's 3.1 million population in Medicaid.
Medicaid is a public health-insurance program funded by the state and federal governments. With federal funds covering about half of all Medicaid expenses in Illinois, the program covers one out of every four state residents and is expected to cost $24.5 billion in the fiscal year that begins July 1.
After operating only in certain parts of the state since 2012, the managed-care program was rebooted on Jan. 1, 2018, and named HealthChoice Illinois by former Gov. Bruce Rauner.
The rebooted system was expanded to all 102 counties, including the Springfield area, in April 2018, and is designed to help the state save money and better serve Medicaid patients.
The system operates with six MCOs, two of which serve only Cook County. The for-profit health plans operating statewide are BlueCross, IlliniCare, Meridian and Molina Healthcare.
Hospitals said they were suffering financially because MCOs were denying more than one-fourth of all bills for the care of Medicaid patients.
This situation forced hospitals to spend time and money bickering with MCOs and the state for months over the often-complicated reasons for payment denials in hopes of being paid someday.
MCOs, on the other hand, said the denial rate was less than 11 percent.
The two sides disagreed over how to compute the denial rate.
Memorial Medical Center in Springfield is owed millions of dollars in disputed claims, many of which the 500-bed hospital continues to pursue in negotiations with MCOs and the state, Roszhart said.
Among the disputed bills, he said, are inpatient charges for the care of a drug-overdose patient in an intensive-care unit, and inpatient charges for a patient with sepsis, or a life-threatening infection.
Those patients' MCOs decided that the hospital deserved lower reimbursement rates and the patients needed only outpatient care, Roszhart said.
HB 1321 was supported by both the Association of Medicaid Health Plans and the Illinois Health and Hospital Association and passed unanimously by the Illinois House and Senate in late May.
The legislation would take effect immediately after being signed and calls for the Illinois Department of Healthcare and Family Services to work with a private vendor to established a computerized "clearinghouse" through which all Medicaid managed-care claims would be submitted.
The clearinghouse would, for the first time, allow HFS to track claims and determine true denial rates and factors behind denials that could be addressed by the state and everyone else involved, said Patrick Gallagher, senior vice president of health policy and finance for the hospital association.
"It shines a light on MCOs as well as accurate billing by hospitals," he said.
Added Dan Hoodin, vice president of managed care for Hospital Sisters Health System: "This is a good first step because it will standardize the language on the reason for the denial. It's the first step to bringing down the denial rate."
The legislation would set up a clear dispute-resolution process by Jan. 1, 2020, for denied claims and designate Healthcare and Family Services as the final arbiter of disputes.
MCOs would have to comply with a standard policy that determines when a Medicaid-enrolled doctor or other provider becomes eligible for payment. This provision in the bill, along with others requiring more standard practices among MCOs, would reduce claim denials in the current "chaotic" system, Hoodin said.
HFS also would set up a fee system to potentially pay hospitals for inpatient stays beyond "medical necessity" when hospitals and MCOs are unable to arrange for the discharge of patients to lower-level care settings such as nursing homes and private homes.
This provision would give MCOs financial incentives to work more aggressively with hospitals "to place the patients where they will get the best care," Hoodin said.
The current situation, he said, results in certain patients remaining in acute-care hospitals for weeks and months, even though they might recover better in a different setting, while the hospitals receive no additional pay from Medicaid.
The additional reimbursements to hospitals that are called for under the bill could reduce MCOs' profits but could lead to better coordination of care, Hoodin said.
There should be more scrutiny of care-coordination services that the state is paying MCOs to provide, he said. He hasn't seen evidence of MCOs providing those services.
Hoodin said he hopes that reducing disputes over denied claims will free up everyone's time to improve care coordination.
The greater oversight role that the bill designates for Healthcare and Family Services could go a long way to resolve problems, Gallagher said.
"We'll see how it's implemented," he said. "It creates the framework for really great strides, but it will take vigilance. ... It's going to require working with HFS and working with the managed-care plans.
"The billing process is so complex, and the plans do hold the money. They have a lot of power."