Medicaid Cost of Incomplete Payment Eats Into Physician Reimbursement

One-quarter of Medicaid claims result in a denial of payment for at least one service included in the claim compared with just 7.3% of claims submitted to Medicare and 4.8% of claims submitted to commercial insurers, according to National Bureau of Economic Research study published in July.

Abe Dunn, Ph.D., the study’s lead author and an economist in the Bureau of Economic Analysis in the Department of Commerce, and his colleagues set out to examine and quantify the “administrative frictions” in claims for medical services.

They came up with a statistic they call the cost of incomplete payments (CIP), which comprises forgone revenues when a claim is denied and the costs associated with the back-and-forth of trying to get payment. Their research shows that CIP eats up 17.4% of the contracted fee of a typical Medicaid visit, 5% of a Medicare fee and 2.8% of commercial insurance fee.

“These are significant losses — especially for Medicaid, which offers physicians much lower reimbursement rates than other insurers in the first place,” they wrote. Medicaid’s high CIP is, they argue, tantamount to a tax on physician revenues.

Dunn and his co-authors say their research opens up another avenue to reducing inequality in healthcare.

“Without expanding eligibility or raising reimbursement, improving Medicaid claims administration could help make healthcare for low-income Americans more similar to Medicare or employer-sponsored healthcare,” they said.