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Kellogg Professor Joel Shalowitz's research found that most specialist services were billed inaccurately, especially if the error was in the physician’s favor.

Joel Shalowitz

Billing errors a costly drag on health system

New Kellogg research finds that reforms could save a half-billion dollars annually

By <a href="">Tim De Chant</a>

11/13/2009 - It’s no secret that doctors who specialize in a field of medicine tend to be paid more for their services than a primary care physician. In fact, the median specialist in 2004 was paid $135,184 more than the equivalent primary care physician, an amount that has grown more than 60 percent since 1995. Many reasons account for this disparity, but one stands out as a surprise: billing errors.

Specialists erroneously charged nearly one-third of all patients referred to them, according to new research by Joel Shalowitz, professor of health industry management at the Kellogg School. More often than not, the errors worked in specialists’ favor. Shalowitz’s survey of 466 referrals found enough mistakes to save Medicare $536 million annually if the billing system were simplified.

At root, the problem involves incentives related to medical coding. Medicare divides referrals into two categories, consultations and regular referrals. Consultations are a type of referral reserved for cases when the primary provider cannot comfortably make an accurate diagnosis. Specialists generally earn more for their consultation services — up to 30 percent more at Medicare rates — than they do for simple referrals where a primary care provider made the initial diagnosis.

Shalowitz’s research, published in the November Archives of Internal Medicine, found that most specialist services were billed inaccurately, especially if the error was in the physician’s favor. “If a doctor sends a patient to another doctor for a referral, chances are overwhelmingly it will be billed as a consultation,” Shalowitz ’82 says. “On the other hand, if it is submitted as a consultation, chances are overwhelmingly it will be billed as a consultation.”

A staggering 78 percent of referrals were incorrectly billed at the higher consultation rate, while only 5.5 percent of consultations were billed as lower paying referrals. These numbers raise uncomfortable ethical questions given that the consultation code was originally meant to compensate specialists for the additional time they invested in those patients, including making diagnoses and writing formal letters alerting primary providers of their patients’ conditions. The latter requirement has since fallen by the wayside, Shalowitz notes, and has never been well enforced, leaving little to prove or disprove that a consult took place.

Enforcing consultation requirements would be an enormous bureaucratic undertaking, he says, one that would certainly drive up costs. Eliminating the consultation code, though, could both reduce the pay gap between specialists and primary care physicians while spurring lower costs throughout the insurance industry. Private insurers often follow Medicare’s lead when determining their billing practices, Shalowitz says, and doing away with consults could help trim everyone’s medical costs.

What’s more, the move could steer young doctors towards a career in primary care, an area that is increasingly important as practitioners and policymakers try to keep costs down while meeting the demands posed by a population that’s living longer.

“At a time when we want to encourage new physicians to consider primary care, and support current practitioners,” writes Shalowitz, “this [salary] differential sends a dissonant message.”

Shalowitz, Joel I. 2010. “Is It Time to Eliminate Consultation Codes? An Analysis of Impact and Rationale,” Archives of Internal Medicine, 170(1). [doi:10.1001/archinternmed.2009.446]