The healthcare industry faces an invisible yet significant challenge: the “silent payer discount.”
The silent payer discount is a hidden revenue loss, where hospitals and health systems miss out on millions. The average health system’s silent payer discount can equal $2-$5 million for every 10,000 inpatient discharges.
Revenue “leaks” contributing to the silent payer discount are hard to identify, quantify and resolve. Even the best-performing revenue cycle teams are losing out on millions in potential revenue.
What is the Silent Payer Discount?
To provide an official definition, the silent payer discount is earned revenue, typically between 3% and 5% of the hospital’s annual net revenue, that is lost due to the complexity of accurately documenting and coding complex inpatient cases.
At a mid-size health system, this can mean a staggering $22 million to $38 million in lost revenue annually. Even hospitals with strong Clinical Documentation Improvement (CDI) programs aren’t immune to these losses, leaving health systems struggling to be fully reimbursed for the critical care they provide.
Why does this happen?
Unfortunately, the silent payer discount is a natural consequence of the status quo. It’s caused by unavoidable challenges in today’s healthcare system that are largely out of providers’ control. The three main causes of the silent payer discount are clinical documentation issues, payer challenges, and a massive increase in patient data.
Clinical documentation
Today’s insurance system is designed to reimburse providers based on documented care rather than actual care provided. One of the primary culprits of the silent payer discount is the disconnect between physician documentation and the coding process.
Clinical documentation and coding are two different “languages.” Physicians use free-text documentation to describe the complexity of cases, but when this information is translated into codes for billing, critical details can get lost.
Physicians are focused on describing a patient’s condition, not necessarily on how their documentation impacts coding and reimbursement. In contrast, coders work within a strict framework that doesn’t always align with the nuances of clinical care.
Take, for example, a physician’s note about a “frozen mediastinum,” a situation where scar tissue makes surgery more difficult. This complexity doesn’t translate neatly into a code, and coders don’t always have the luxury of talking to the physician directly for clarity. Instead, it might be ultimately coded as simple pneumonia, missing the intricacies of the case. The result? The hospital misses out on the full reimbursement it’s entitled to.
Physicians often believe their clinical judgment should be enough to justify a diagnosis, but that’s not how the system works. Coding and documentation need to match perfectly to secure reimbursement. Queries from CDI teams can help bridge the gap, but they are often seen by physicians as challenges to their expertise rather than a tool to ensure proper coding.
Payer created challenges
The complexity of coding patient care is largely driven by payers, who benefit from the system’s intricacies. Payers control the rules for how patient care is coded and reimbursed, leading to an uneven playing field. The payers and auditors make the rules and can change them anytime, as well as audit providers for compliance. These rules also do not always take the physician’s clinical judgment into account, even though physicians are the ones experiencing face-to-face encounters with patients.
A 2021 survey showed a 20% increase in claim denial rates over the prior five years. Many of these are clinical validation denials—where a payer rejects a diagnosis based on its own clinical criteria. When a payer’s definition of a diagnosis, like sepsis or respiratory failure, doesn’t align with a physician’s clinical judgment, hospitals lose potential reimbursement.
To gain back this revenue, hospitals must dedicate resources to managing denials and navigating payer guidelines that often differ by payer and state. Documentation requirements for audits, appeals, and claims are also constantly increasing. Hospitals must invest in internal training for CDI teams and physicians to enhance documentation for complex patient cases.
This reimbursement structure causes excess stress for the healthcare systems balancing their work between patient care and avoiding the silent payer discount. It puts a lot of responsibility on the provider’s shoulders.
Increase in patient data
High-complexity cases with longer stays and more expensive treatments are on the rise. These cases generate massive amounts of both structured and unstructured data in a patient’s medical file.
Structured data is quantifiable, like a patient’s vital signs, lab results, and basic personal information like an address or zip code. This data can be easily automated and formatted into a standardized database.
Unstructured data, however, is the way the care teams communicate within a hospital. It involves free-written notes from multiple people based on their assessments of the patient’s situation. Think of how a radiologist might describe an image or how a physician will describe the intensity of a patient’s illness.
While structured data is easily quantified and coded, the majority of medical records—about 80%—are unstructured, making them harder to translate into billable codes. This increase in data requires more collaboration between CDI teams, coders, and physicians.
However, not all teams have access to a physician’s input in the coding process to bridge the gap. Without effective communication, critical information can slip through the cracks, leading to further revenue loss.
Solving the silent payer discount
These factors work together to create a silent payer discount, which benefits payers and costs providers, leaving a major impact on a hospital’s bottom line. The margins for hospitals have already been continuously decreasing due to the high cost of healthcare. One of the only ways to combat this is to avoid revenue leakage at all costs. If hospitals and health systems stay idle, there’s no chance of ending the silent payer discount.
Long-term success requires systematic efforts to bridge the gap between physicians and CDI teams. Until providers can plug the leaks mid-revenue cycle, they risk losing millions each year in lost reimbursement.
To learn more about how the silent payer discount may be affecting your health system and how you can stop revenue from slipping through the cracks, contact the Accuity team. Let’s talk.