What is billing errors and omissions insurance?

Can you afford not to have it?

Your agency provides a service and a valuable one at that. You deserve to get paid. You try to stay abreast of changes in reimbursement policies, and you try to submit your charges in as timely a fashion as possible.

Even so, you don’t always get paid. Why? There are literally thousands of reasons, most of which can be traced to billing errors made possible thanks to Health Care Financing Administra-tion guidelines, 50 state-specific sets of Medicare rules, a host of carrier-specific Medicare rules, individual guidelines for commercial insurance carriers, and 50 sets of state-specific workers’ compensation guidelines.1

When it comes to billing submissions, one error can mean that you won’t be paid but it can also weigh in with much more severe consequences. "Unfortunately, the government doesn’t distinguish between a human error and someone who knowingly bills Medicare for a patient they never saw," says Sheila Callison, CPCU, ARM, RPLU, CPDM, vice president of Keenan HealthCare in Pasadena, CA. "It seems to treat a clerical error pretty much the same as fraud."

She says this is one of the reasons companies such as Keenan HealthCare, a full-service brokerage and consulting company, have developed a billing errors and omissions insurance policy for hospitals, health systems, provider networks, and individual physicians.

"These policies were really developed by the insurance industry as a response to the government-increased scrutiny as related to legislation and the feeling that there was a lot of billing fraud in the health care system," she says. "As the number of audits continued to grow, people began to look at the policies they had and saw that there were exclusions from standard policies that would keep them from having coverage for fines or penalties and in some cases defense costs."

As Callison points out, when an individual or agency starts looking at fines of $5,000 to $10,000 per billing error, "you start to see some serious potential liability."

The ABCs of E&O

Billing errors and omissions policies will cover, among other things, civil fines that result from a government audit as well as the cost of the audit process itself. Additionally, the policies will cover legal and other costs involved with investigating possible errors in Medicare and Medicaid billing.

What the policies won’t cover, however, are intentional fraudulent claims. Unintentional errors are the object of the coverage, notes Callison.

In order to qualify for such coverage, the home care agency must have a corporate compliance policy in place. "It doesn’t need to be the best one going, but you have to have addressed it and have a formal process in place," she says. "These policies are underwritten and, without that, an insurance carrier won’t even consider you."

Some insurance companies, if you buy their coverage, will provide a corporate compliance software product, she adds. "Underwriters like to know that you are using the appropriate type of software to catch billing errors, too." (See related story, p. 42.)

It’s possible that a hospital home health agency is already covered by one of the hospital’s policies. Callison suggests checking under the hospital’s general liability policy or even its officers’ policies. In general, if the agency is a subsidiary of the hospital and the hospital has an errors and omissions policy, both entities will be covered. "This is definitely the most cost-effective way to go," she points out, adding that an extra benefit to being tied to a hospital is that it is all the more likely to have a strong corporate compliance program in place.

If your agency is covered through the hospital’s policy, the next step is to make sure adequate protection is provided. "A policy might be written to cover $1 million, but the hospital or home health agency might be liable for up to $50 million or more," she explains. Even if you are covered, in most instances the policy will have exclusions so that the agency won’t be covered for billing error claims, Callison says.

"People assume that if they have real liability or malpractice insurance, they should be pretty well covered, but they need to look at what the policy really covers and what the exclusions are," she says.

From a practical standpoint, the government is increasingly going after what it sees as a high percentage of fraudulent Medicare billing within the home health industry, Callison says. As such, agencies are under increased scrutiny and the chance of being audited has become substantially greater than in the past.

The results are that some agencies and hospitals have had fines in the millions of dollars, she adds. By the time an audit rolls around, "you’re negotiating a settlement amount. Having a strong corporate compliance program in place and an insurance program are things the government is looking for and they can help mitigate the final assessment."

Even with a obvious need within the industry to have billing errors and omissions insurance, Callison says she hasn’t seen a rush to sign up. "From a practical standpoint, it’s been interesting. When we first heard about it, we really thought people would say, I’ve got to have this,’ but the reality is that very few organizations have purchased."

Price is a significant part of the problem, she admits. Individual physicians will pay somewhere in the vicinity of $1,000 annually — a cost-effective policy when one considers the potential financial risks of not being covered. But hospitals are looking at minimum premiums of $50,000 and up. Premiums depend in large part on the number of billings a hospital or home health care agencies does, explains Callison. "Not only the number of billings but the costs involved are a factor, with the idea that the more billings you do, the greater the chance for error."

"When people look at the limits and then the premiums, they tend to think to themselves, We’ve had risk before and have a good corporate compliance record so we’re willing to take the risk of being self-insured.’ It really boils down to the price and your confidence in your billing operations," she says.

Linda Rashba, MS, RN, BSN, administrator of St. Francis Home Care Services in Poughkeepsie, NY, doesn’t see an immediate need to acquire a billings errors and omissions policy for her agency. "For our part, we don’t have a high percentage of Medicare problems," she says. "We do validation upfront so we’re not having a lot of denials. If it were otherwise, however, I might want to protect myself and my agency." (See related story, p. 43.)

Paying for it

Greg Solecki, vice president for Henry Ford Home Health Care in Detroit, doesn’t have a billing errors and omissions policy for his agency. "The home health industry is so severely undercapitalized and can hardly afford the surety bonds that I’m wondering how anyone can afford this, even if it is a good plan and makes sense," he says. "Where does the agency get the money when they’re already providing care for less than cost?"

Solecki says, the need for such insurance "speaks to the behemoth that has become the billing process.

"It’s a telling comment about what we’re required to go through to get reimbursed for trying to make a difference in the lives of patients and their families," he adds. "It’s really sad that we’ve come this far so that we need this type of insurance. It says more about the Medicare program and regulations and billing than it does about covering your exposure from errors."

Even so, Solecki describes himself as a realist and says he can see the reason that went into creating just such an insurance policy.

"The billing process is so filled with minutia and has become so cumbersome that I’m not sure that the people who most need this insurance are even close to understanding that they need it," he notes.

"I have empathy for the new product line because much like other products that have been felt to be of benefit to the home health care community, they are things the industry just can’t afford. Take laptop computers and palm pilots, for example. These are things that make sense from an industry perspective. Even so, we can’t afford what we need most," he adds. "This seems like a wonderful product that meets our needs, but we can’t afford it because no one is meeting ours."


1. Klasa M. Automated billing — new generation of systems provides tools to improve compliance. Health Care Innovations 1999; 9:18-21.

Sheila Callison, CPCU, ARM, RPLU, CPDM, Vice President, Keenan Healthcare, 70 S. Lake Ave., Suite 660, Pasadena, CA 91101. Telephone: (626) 431-2601.

Linda Rashba, MS, RN, BSN, Administrator, St. Francis Home Care Services, 366 Violet Ave., Poughkeepsie, NY 12601-1034. Telephone: (914) 485-4888.

Greg Solecki, Vice President, Henry Ford Home Health Care, 1 Ford Place, 4C, Detroit, MI 48202. Telephone: (303) 874-6500.