By Linda J. Blumberg and Kennah Watts

The U.S. health care system, by and large, does not regulate the prices providers charge in the commercial market, nor oversee private insurer claims decisions, particularly denials. Combined with the accelerating corporatization of health care delivery, this regulatory vacuum has fostered an ever-growing market for intermediary businesses to help clinicians navigate the processes of filing claims and maximizing reimbursements. At the same time, insurers increasingly contract with intermediary businesses in an effort to manage utilization and up their own margins. These competing “profit-enhancing middlemen” are likely increasing costs for consumers and spending in the private sector health system as a whole.

These for-profit businesses charge overhead fees or percentages on the services they provide, which can generate tremendous profits when compounded over billions of claims and payments. While some of these middlemen receive much public attention, such as pharmacy benefit managers (PBMs) and third-party administrators (TPAs), this article focuses on three other lesser known but equally concerning profit-enhancing industries: revenue cycle management, claims management, and claims repricing.

Providers Use Profit-Enhancing Middlemen To Maximize Reimbursements Per Claim

Providers and provider systems increasingly use revenue cycle management (RCM) companies to manage patient encounters – from preregistration through claims submission and collection – to maximize reimbursement and increase practice cash flow. Outsourcing these services with RCM companies also reduces individual practice and system needs to hire specific personnel to perform an array of administrative tasks. Handling these responsibilities directly can often feel onerous, particularly for modest size providers, given the complexities and variability of private insurance billing.  RCM companies promise to increase the efficiency of these operations. RCM software and management services leverage coding, marketing, insurance verification, claims filing and management, and payment collections processes to achieve maximum reimbursement and cash flow. However, in some instances, these services can lead to upcoding of claims, a practice where providers submit claims to insurers for services of greater intensity than those actually performed.

Of course, increased revenue through increased code intensity and more aggressive collections efforts results in higher spending on claims by insurers and patients. These services also carry administrative costs. RCM companies can be paid in an array of ways, from flat fees per patient or claim, percentage of collections (typically 5 percent to 10 percent), to monthly subscription fees. Some may receive bonuses or incentive payments for exceeding revenue or collection expectations. RCM approaches, therefore, both increase provider payments and may increase provider costs that must be incorporated in some respect into clinical service charges. Ultimately, these higher costs are certain to be reflected in higher premiums to consumers.

These costs are not insubstantial: by one estimate, in 2023, the U.S. RCM market was estimated at $155.6 billion, and is expected to grow 10 percent by 2030. Another estimate suggests that global RCM outsourcing will grow by 17 percent annually between 2022 and 20. More than a quarter (27 percent) of surveyed US providers have outsourced revenue cycle management. And these estimates only include payments to the RCM firms; they do not include higher spending that RCM activities generate for the health care providers that contract with them.

The concentration of RCM companies also poses risk to consumers beyond cost increases. For example, the RCM Change Healthcare recently experienced an enormous data breach. This cyberattack incident, referred to as being of “unprecedented magnitude” by the U.S. Department of Health and Human Services, compromised confidential financial information for “a substantial portion of people in America,” according to statements by Change itself. This concentration of huge amounts of data in a single corporate entity without regulatory oversight or protections highlights yet another danger inherent with such profit-enhancing middlemen.

Profit-Enhancing Middlemen Make Money On Both Sides Of Post Claims Insurance Claims Denials

Commercial insurers deny enrollee claims at astonishingly high rates, as post-claims utilization management remains the primary tool they wield to contain health care spending. A KFF survey found that, in the last 12 months, 20 percent of adults with private health insurance experienced a claims denial for care they thought was covered by their insurer. This is twice the denial rate of those with Medicare coverage. In a separate study of 2021 data from insurers participating in the Affordable Care Act nongroup insurance Marketplaces, claims denial rates ranged from a low of 2 percent to a high of 49 percent, with 10 percent of insurers denying at least 30 percent of claims (17 percent of total claims were denied).

Some denials are certainly legitimate, and some claims review tools likely reduce fraud to some extent. However, the large variation in denials across insurers and variation within insurer over time suggest a substantial degree of arbitrary denials. While we do not currently have estimates of appropriate versus inappropriate denials, the Center for Consumer Information and Insurance Oversight and the Department of Labor have authority to collect data that would make it much easier to assess this.

High claims denials reduce the insurer cost associated with providing coverage in the nongroup and employer markets, allowing insurers to offer prospective purchasers lower premiums and potentially increase insurers’ profits. These same denials, however, lower the value of the coverage to enrollees, as they are likely to be burdened with higher-than-expected out-of-pocket costs, since providers will turn to them to seek reimbursement for provided services. Concerns about denials may also create barriers to necessary future care, to the extent that enrollees avoid seeking care in fear of additional denials and provider collection actions.

While some insurers use on staff clinicians to deny claims, others – as an investigation of Cigna revealed – use their own or contractor created AI-based systems. Research indicates that these AI-based programs are often missing important information, and they are highly likely to reflect societal biases and perpetuate existing inequities as they incorporate the particular values and incentives of the systems’ designers.

In turn, many providers hire firms to limit their financial losses from such high denial rates. Some companies sell software solutions designed to minimize denials and recover the largest denied payments. The cost of their services and products are incorporated in clinician overhead and thus prices for care.

Claims denial management is often one component of a broader suite of services, including RCM services, that profit-enhancing middlemen provide. Indeed, some of these middlemen work both sides of the system, serving both providers and insurers. Given these overlapping business lines, it is challenging to estimate costs specifically associated with claims denial management and its impacts on consumers. However, the companies involved are highly valued, financially speaking, with the market estimated to reach almost $6 billion in revenue by 2027.

Profit-Enhancing Middlemen Battle Over Out-of-Network Reimbursement Rates

In addition to engaging in aggressive claims denial practices, some insurers seek to reduce provider reimbursements while increasing their own revenue by engaging affiliated or external middlemen to “reprice” out-of-network claims. These repricers, including companies such as MultiPlan, determine how much to pay for a service and act as the insurers’ proxy in negotiations with out-of-network clinicians. In theory, this repricing could reduce total spending. In practice, the repricer and insurer (often acting as a TPA for self-insured employer plans) share a percentage of the difference between a provider’s charge and the plan’s ultimate payment. This shared “savings fee,” according to a New York Times investigation, can be upwards of 30-45 percent. As a consequence, paying less for an out-of-network service results in more revenue for the repricer and the insurer, and higher billing by clinicians increases the amount repricers and insurers can take home. Even on small claims amounts, these fees become substantial given the large number of claims MultiPlan’s market share. In fact, the market strength of MultiPlan’s contracted plans has led to allegations of “collusion” and has spurred legal accusations of a re-pricing “cartel.” 

As the New York Times investigation and other exposés have shown, the fees accruing to repricers and insurers can sometimes significantly exceed the amounts paid to the providers who delivered the service. Employer health plans are paying less than they would have if they paid billed charges, but much of their spending is going to corporate profits for their administrators rather than the provider. And, in at least some instances, providers may still balance bill patients in order to recoup their full fees—meaning total spending could exceed what the employer and employee collectively would have spent without repricing.

Insurers are not alone in leveraging intermediaries to maximize their revenue from out-of-network claims. The No Surprises Act protects consumers from surprise out-of-network billing for certain services, including emergency care and anesthesiology, while directing insurers and providers to work out how much insurers should pay in these circumstances through the Independent Dispute Resolution (IDR) process. A cottage industry of IDR-specific services has developed around this process. HaloMD, for example, offers “independent dispute resolution services” to optimize “revenue recovery for out-of-network healthcare providers.” These new companies and new services lines at RCMs are not only for providers, but for payers as well. Other profit-enhancing middlemen have also created new lines of service specific to the provider side of the IDR process. While only 10 percent of claims are adjudicated through the IDR process, these claims can lead to much higher reimbursements for the medical practices, with some providers winning 800 percent of an insurer’s median in-network rate or 655 percent of the Medicare rate.

Conclusions

Over the last 15 years, health care consolidation has accelerated, and corporate players such as private equity have broadened their involvement in health care, seeking large and fast returns on investment. These developments have catalyzed a complex web of profit-enhancing middlemen, which in turn create demand for more counter-balancing middlemen. The end-result is a vicious cycle of repeated third-party claims adjudication.

The complex billing and administrative systems used in much of the health care sector make outsourcing such responsibilities attractive to providers for many reasons, including hopes for improved administrative efficiency. The effects of the entities performing such work goes beyond simply taking over challenging administrative tasks. The complexity inherent in the health care industry – dominated by large entities comprised of hospitals, outpatient facilities, and/or multiple physician practices – makes it difficult to obtain a clear picture of all of the intermediaries and strategies at play. Consequently, it will be difficult to accurately estimate the additional costs that these players impose on the system overall and on consumers in particular. Yet, it is reasonable to assume that these entities, and the health care systems and insurers employing them, are having cost-increasing effects that may impinge on access to care, particularly for people with the highest health care needs. The lack of oversight in private sector health care prices, insurance denials, and payment practices in general has left a large opening for abuse. If we watch closely, we can see stakeholders and their profit-seeking contractors running to jump through it. More policy attention and analysis are called for to limit the resulting damage.

Authors’ Note

The authors are appreciative of helpful comments from Chris Deacon, Jack Hoadley, Kevin Lucia, Christine Monahan, and Zirui Song.

Linda J. Blumberg and Kennah Watts “The Incursion Of Profit-Enhancing Middlemen In US Health Care,” October 22, 2024, https://www.healthaffairs.org/content/forefront/incursion-profit-enhancing-middlemen-us-health-care. Copyright © 2024 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.