Expert Explains Why Payer Errors Skew Labs’ PAMA Price Data

Labs warned that payers’ information is full of errors

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CEO SUMMARY: In its work with more than 200 lab clients, XIFIN, Inc., of San Diego, sees the best and worst of problems in how labs submit claims to lab tests and how payers process these claims. In this exclusive interview, Lâle White, XIFIN’s Founder and CEO, identifies the systemic sources of problems in the filing and settlement of lab claims. Because CMS will engage outside auditors to find errors in the data that labs report under the final rule for PAMA market price reporting, it is imperative that lab billing teams learn how to identify and fix payer errors.

ACROSS THE NATION, clinical laboratories required to report their lab test market price data to the Centers for Medicare & Medicare Services are scrambling to gather that data, ensure it is accurate, and package it for submission to the federal agency starting on Jan. 1, 2017.

However, one expert in lab coding, billing, collections, and managed care issues says that the clinical lab industry is working with payer data that is full of significant errors and inaccuracies.

Because of this fact, labs are at risk of submitting market price data to CMS that, when later checked by auditors incentivized to find errors, will prove to be full of inconsistencies and problems that can cause federal regulators to assess the onerous penalties that are part of the Protecting Access to Medicare Act (PAMA).

In this exclusive interview with THE DARK REPORT, Lâle White, Founder and CEO of XIFIN, Inc., of San Diego, discusses why lab test billing data is rife with errors and inaccuracies. She offers insights and suggestions on how labs can identify and correct these errors before submitting their PAMA market price data to CMS.

The information which follows should be given high credibility, for a very good reason. XIFIN, which describes itself as a “health economics optimization platform and a connected health solution that facilitates connectivity and workflow automation for accessing and sharing clinical and financial diagnostic data,” provides revenue cycle management services to more than 200 laboratory clients.

XIFIN handles between 200 million and 300 million lab claims each year and is electronically connected to all of the nation’s payers. Its client mix includes the nation’s largest lab companies, independent labs, hospital labs with NPI numbers, molecular/genetic labs, and pain management/toxicology laboratories.

The common theme to White’s insights and recommendations to labs as they gather the data they need to report to CMS is that the incoming data from payers is peppered with errors. This didn’t matter in past years, as labs accepted that status quo, deposited the checks, and filed appeals on unpaid claims as a normal order of business.

But the stakes have changed. Now, if labs submit data to CMS that contains errors, inaccuracies, and other problems, downstream audits that uncover these problems can subject the lab to substantial penalties as defined in the PAMA statute. White has much to say about this situation and what steps labs should take to fix the problems, thus allowing them to have confidence that the information submitted to CMS can withstand rigorous audits in subsequent years.

Lab Claims rife With errors

“One major issue that all labs reporting price data need to address is the accuracy of the data they get from payers,” stated White. “There is much inconsistency in this data and that is why it is important for labs to understand two things about payer data.

“We know that payers make a lot of mistakes. There’s no question about that. That’s the first problem labs face when compiling data on lab test payment,” she said. “But the second problem is that even with electronic payments, there are many errors in the way claims are processed on both the lab side and the payer side.

“Both facts make it important for every lab to have people trained to recognize these errors,” explained White. “These individuals must regularly audit the data to understand the specific types of errors that can occur. Errors occur in a wide variety of ways, and since XIFIN began work for its lab clients to prepare accurate data for submission under PAMA, we have identified some of the most common errors labs will experience.

“Here’s just one example. Anytime there are multiple units of a single procedure code returned on an electronic remittance advice (ERA), there’s a high potential error rate,” White said. “There is a very high chance that the units aren’t being reported properly on the ERA. Your lab could be submitting payment for five units and the payer could return the payment for only one unit, or the payer could pay for 10 units. We’ve seen big errors, such as when one unit is billed and the ERA reports 1,000 units. This means that for a $17 test, the per-unit price is now $0.017.

payer recoupment

“Another common source of errors comes anytime a payer does either a recoupment or an adjustment. For recoupment and adjustments, there’s usually a high error rate in the way payers report the allowable price,” she said. “Sometimes they change the payments, but they don’t change the allowable. Sometimes they restate the new allowable, rather than increasing, decreasing or reversing the original allowable.

“Under PAMA, labs are supposed to report the allowable,” she explained. “This is significant because the OIG recommends auditing the data labs submit and it intends to use outside contractors for this purpose, much as Medicare currently uses contractors for its other program integrity and fraud audits.

“If Medicare uses outside contractors, those audit contractors will have a financial incentive to find errors, and there will be plenty of errors to find,” White warned.

“That’s why the issue of accuracy in determining allowables is critical for labs to understand,” she added. “Electronic payment-posting systems that auto-allocate tend to have a higher percentage of errors at the individual-allocated CPT code level than those that require line item entry. That can be a big problem in the way labs report payments because then the lab would actually be reporting an overbooked allowable for some CPT codes and under-reporting others.

“Another important issue related to allowables is that in the ASC X-12 v.5010 specification there is a formula for calculating the allowable,” she said. “Billing systems processing ERAs are supposed to calculate the allowable from the fields on the ERA instead of taking the allowable that the payer has pre-calculated and populated in the ERA.

“The calculation produces an accurate allowable, while payers that pre-populate do not always use the calculation and can make errors in the allowable reported on the ERA or EOB,” noted White. “Further, many payers do not populate the allowable field in the ERA, so lab systems must use the 5010 calculation to determine allowables when posting these ERA, making it a more standard exercise if all ERA allowables are calculated in the same manner.

“Also, keep in mind that pre-populated allowables are net of the sequestration amount,” she added. “Where sequestration is applicable, a lab would be under reporting allowables if it took the pre-populated allowable rather than performing the calculation and excluding sequestration.

“While these are some of the problems labs face when using electronic payment posting, manual payment posting is fraught with even more errors,” she warned. “We’ve seen an error rate of almost 10% when a lab’s clerical staff posts payments.

Interpreting a Complex era

“That’s because the clerical staff is trying to interpret what’s on the ERA and sometimes they pick up a miscalculated allowable,” White cautioned. “In some cases where the EOB does not reflect exactly what was submitted and has been re-bundled by the payer, the clerical staff will try to interpret a complex ERA and cannot make decisions accurately.

“The way to address this problem is to make sure your lab keeps the source documents (the electronic remittance advice and explanation of benefits) so that you can verify the original tests and billing amount,” she advised. “We recommend keeping the source documents because many labs post payments and then report price data for PAMA based on what they posted into the billing system.

“But what’s on the ERA or EOB source documents and what’s in the billing system may not match” she said. “Too often the lab doesn’t have the source documents and payers generally do not store source documents for more than two weeks for providers. So if your lab doesn’t retain them, you have no recourse.

XIFIN’s Lessons Learned Following Two Years Of Gathering PAMA Lab Test Market Price Data

FOR TWO YEARS, A NUMBER OF COMPANIES that advise clinical laboratories on best business practices have been preparing to assist their client laboratories in how to report test price data under the Protecting Access to Medicare Act.

One of those companies is XIFIN, a company in San Diego that specializes in revenue cycle management for clinical labs. Lâle White, XIFIN’s President and CEO, has identified five of the most important lessons learned as a result of preparing for PAMA since 2014.

“The first, most obvious, lesson is that any lab that has a managed care contract where the lab’s payment is based on getting a percentage of Medicare prices has a significant problem that can cause it to be paid less money by the payer,” said White. “Since labs had plenty of notice before the data collection period, XIFIN advised clients to renegotiate contracts with this language before the PAMA collection period was finalized.

“However, if labs were unable to renegotiate prices in their managed care contracts prior to the current collection period,” she stated, “it becomes even more important to do so before the new, lower Medicare prices go in effect in 2018 and before the next collections period. After those dates, labs with payer contracts that tie payment to a percent of Medicare prices will experience an unintended downward spiral on reimbursement.

“The second lesson is that all labs should ensure that they are billing the correct amount,” stated White. “Labs will need to do the financial analysis necessary to understand and payers generally do not store source documents for more than two weeks for providers. So if your lab doesn’t retain them, you have no recourse.

“Labs need to retain these documents for audit purposes,” she said. “When labs go back to the original ERA to recalculate payments, they often find errors. We recommend auditing your payments because that—where the billed amount equaled the allowed amount for a given payer plan—they were billing below the payer fee schedules and need to review their lab fees to make sure their billing price is adequate and represents appropriate market rates.

“The third lesson is to optimize your lab’s electronic transactions and eliminate all manual payments,” she explained. “Labs should absolutely make sure that they process every bill electronically. Payers are required to give you electronic transactions and labs should take steps to ensure that they are enrolled to receive those electronic transactions.

“The fourth lesson is to have a financial system that allows your lab team to audit your data,” added White. “That includes retaining the source data so that when your lab does an audit, you can confirm the audit results against the source data in an automated fashion.

“The fifth lesson is to have a system that has financial, accounting, and referential integrity,” she explained. “That’s important because your lab will need to produce an accurate, auditable financial report to manage your business and to review and negotiate your payer contracts properly.

“Such a system should be able to create audit trails for reported data, as well as data that was not reported by unreportable category since penalties apply for unreported as well as misreported data,” said White. “This will also help you document the accuracy of your lab’s PAMA lab test market price data reporting whenever CMS has auditors visit your lab.”

“Labs need to retain these documents for audit purposes,” she said. “When labs go back to the original ERA to recalculate payments, they often find errors. We recommend auditing your payments because even billing systems that process payments well will have some level of errors resulting from either payer mistakes or clerical overrides to the posting process.

“As we cross checked payments against original ERAs, we learned that having the source document made it much easier to identify potential errors,” she explained. “It’s the most reliable way to audit the data.

“As part of the auditing process, labs should be able to create a number of data integrity reports, including reports identifying different allowables from the same payer plan,” she continued. “A single payer may have multiple payer plans with different allowables, making it imperative to be able to identify payments by payer plan.

Lab paid Incorrectly By payer

“Discrepancies in payments from the same plan may indicate that the lab has been incorrectly paid and that either an appeal or a redetermination request needs to be filed” she noted. “This determination is not possible if the billing system does not differentiate between payer plans and simply lumps them all together under a single payer category.

“In a case where all payers are lumped together, a lab will end up reporting all payments at the different levels without the ability to pull out payments for underpaid claims.” White added. “Therefore it’s critical that labs have a system that can identify claims by payer plan. If you have that, you can create reports that show different payments on the same CPT code by payer plan. That would allow you to spot payment errors easily.

“If your lab has a system that dumps out different payments for the same payer because you’re not segregating by payer plan, and you’ve got 100 different payments for the same exact test from one payer, you would have no way to identify errors versus correct payments,” she said. “So you would not know if you have a contract problem or the payer is paying incorrectly.

“Remember that labs need to submit PAMA data accurately and to do that you have to determine that you got paid correctly and in full,” she cautioned. “If you can’t verify that you got paid accurately, then your lab will be submitting data that may be understated.

“I say all this to point out that the integrity of your financial system will be a crucial differentiator between labs that can report test price data accurately and those that cannot,” she concluded.

Managing Audit Risk From PAMA Market Data

“LABS NEED TO RECOGNIZE THE RISKS they face under the PAMA market price reporting requirement,” noted Lâle White, Founder and CEO of XIFIN. “CMS plans to use outside auditors—much like it currently does with Medicare fraud audits—to visit labs and audit the data it used to produce its PAMA market price report.

“Labs should anticipate that when the auditor shows up, it is incentivized to find errors in the lab’s reported data—and, for all the reasons explained earlier, there will be plenty of errors to find!” she warned.

White doesn’t believe that the audit risk to labs submitting PAMA market data will be immediate. “CMS will have its own learning curve during year one,” she pointed out. “And the agency will not have a basis for enforcing an audit on a retroactive data collection period during which time the lab could not have known the audit requirements.

“But eventually, auditors incentivized to find errors will fan out to audit labs,” she said. “Given the high rate of errors baked into payers’ remittance amounts and ERAs that we’ve already discussed, there will be plenty of errors for them to find.

“This is one reason why we recommend that every lab take the extra step of creating an actual report out of its financial system,” continued White. “This allows you conduct your own internal audits of the data that your lab will report to CMS.

“This report is critical for another reason,” she added. “This is the report your lab will use when someone arrives to audit your data. That report, along with the source data, must all be retained and must be easy to access for auditing purposes.”

Contact Lâle White at 858-436-2908 and


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