In medicine, coding and billing utilize diagnosis codes, known as International Classification of Diseases (ICD) codes, and procedure codes, known as Current Procedural Terminology (CPT) and Healthcare Common Procedure Coding System (HCPCS) codes. ICD codes are gathered from patient symptoms documented during a medical visit and are used to demonstrate medical necessity for the corresponding procedure codes performed during the visit. The medical billing process can get complicated, but in general, it breaks down into the following nine steps.
Most providers will request a patient's insurance information prior to a scheduled visit in order to verify the coverage and ensure that the patient is eligible with his or her plan on the date of service. This is known as insurance verification. Providers can generally check the status of a patient's health insurance plan directly with the carrier either by phone or online. Many major carriers offer secure online provider portals that can be used to check insurance eligibility among other things. Many providers will require patients to cancel their appointments or agree to pay out of pocket if they are unable to verify the health insurance coverage, so it's important to provide correct and up to date insurance information for verification purposes.
If you've ever filled out a form at a doctor's office that included information like your full name, date of birth, social security number, address, and phone numbers, you've participated in patient demographic entry, although you may have not known it at the time. Having complete and correct demographic information on every patient is very important for providers. This information is necessary in order to submit accurate medical claims to your insurance company, and it allows the provider to send you a bill should you owe any portion of the costs for services rendered. In the olden days, this information would be documented in a paper patient chart, but most providers now utilize an electronic health record (EHR) or other electronic practice management service to store demographic information in an electronic patient chart.
We briefly touched on this in the opening paragraph above, but this is where the coding portion of the medical billing process takes place. After a patient has completed his or her medical visit, the provider documents the visit by dictating a visit note, or report, that contains, among other things, why the patient was seen, what symptoms the patient was experiencing, and information on the procedures that were performed. From this information, the practice will convert the symptoms into standardized ICD diagnosis codes and the procedures into standardized CPT and HCPCS codes. The ICD codes must demonstrate medical necessity for the corresponding procedure codes that are performed; otherwise, the provider will not be reimbursed for the services rendered. Coders also utilize modifiers, which are basically a set of standardized codes that help explain certain situations to payors, such as why two similar procedures were performed on the same day. These ICD, CPT, and HCPCS codes as well as any appropriate modifiers are then entered into the practice's billing system, which nowadays is typically electronic.
Having a savvy coding team can be a significant advantage for a medical practice, and many healthcare consulting companies offer services to assist in optimizing the coding of a practice. Optimized coding refers to ensuring that the practice is coding correctly and fully for all reimbursable services and doing so in a way that maximizes revenue for the practice. This can get complex, but in general it consists of knowing what services are separately reimbursable, what diagnosis codes will get the services paid, and how to enter the coding into the billing system in a way that minimizes claim denials, which require costly and time-consuming appeals. Thus, having a great coder can increase revenue for a practice, which in turn can increase out of pocket costs for patients. This is perfectly appropriate as long as the practice is coding honestly and adhering to rules set by the Centers for Medicare and Medicaid Services (CMS) and other insurance companies.
Once the coding has been completed, charges, or prices, for the procedures performed are entered into the billing system. Most practices have set prices by CPT and HCPCS code, and these prices, which are submitted to the health insurance company, are known as usual, customary, and reasonable (UCR) charges. UCR indicates that the charge is the provider's usual fee for a service, the fee does not exceed the customary fee in that geographic area, and the fee is reasonable based on the circumstances. Some insurers used to reimburse providers a percentage of their UCR charge (e.g. 80% of UCR); however, most plans now reimburse according to their negotiated and contracted fee schedule, so the amount of the UCR charge has little to do with the actual amount that an in-network provider will be reimbursed. In general, providers that are in-network with your insurance plan cannot charge you the difference between their UCR charge and the insurance plan's contracted rate, and this difference is written off as a contractual adjustment. However, an out-of-network provider may be able to charge you the difference depending on your health insurance plan.
This one is fairly simple. Once the coding is completed and charges have been entered for all procedures, the claim is submitted by the provider's office to the patient's health insurance plan. Providers who utilize an EHR with billing capabilities or another electronic service submit the vast majority of their claims electronically, which results in faster submission and turnaround time. Medicare and Medicaid require electronic claim submission unless the practice meets certain hardship exemptions. Paper claims are still accepted by most private carriers and are utilized if the practice or payor does not have electronic billing capabilities. Paper claims are submitted on standardized claim forms such as the CMS-1500 and the CMS-1450.
Payment entry can also be referred to as payment posting or claim reconciliation. Once a health insurance plan receives a claim, they review it and determine the amount payable to the provider; this process is known as claim adjudication. Once the claim has been adjudicated, the insurer returns an explanation of benefits (EOB), also known as remittance advice, to the provider and the patient. The EOB breaks down each individual procedure charge in terms of the provider's UCR charge, the insurer's contracted rate (aka allowed amount), the difference between the two (aka the contractual adjustment or write-off), the amount paid to the provider by the insurer, and the amount owed by the patient. All of this information is entered by the provider's office into the patient's claim ledger which is used to track the total claim amount charged and all subsequent payments and adjustments until the ledger balance is zero and the claim is closed.
During the claim adjudication process, certain procedures or the entire claim may be denied for payment by the insurance company. This can happen for a variety of reasons from not having the patient's insurance information entered correctly, to not obtaining pre-authorization for the services, to not demonstrating medical necessity for the procedures performed. When this happens, insurance companies usually have a process that is utilized for claim appeals. One might assume that the burden of appealing denied claims falls on the provider, and this is true in large part. Providers will normally appeal claims to the fullest extent in order to get paid. However, it is important for patients to understand appeals because they are sometimes asked to participate in the process, and patients may be held responsible for payment if the claim is ultimately denied.
Each insurance carrier is a bit different, but there are general similarities in appeal processes. Most insurers have multiple levels of appeals, such as level 1, level 2, etc, so options are available even if a first appeal is denied. Also, an expedited appeal can usually be requested if the normal appeals process poses a significant health risk to the patient. In cases where a claim is denied due to utilization review, i.e. deemed not medically necessary, a request for an independent external review appeal can sometimes be requested. There are times when insurers will ask for more information from a patient in order to complete claim adjudication, and patients should try to provide the information as soon as possible to expedite the process and avoid unnecessary out of pocket costs. If you have questions on your insurance plan's appeals process, we recommend calling the customer service number on the back of your health insurance card.
A/R follow up encompasses all of the work a practice does to ensure they are paid all they are rightfully owed for services rendered. So once the insurance plan's payment has been entered and all denials are resolved, any remaining balance is generally owed by the patient in the form of a copay, coinsurance, or deductible responsibility. If a patient has multiple tiers of insurance coverage, the provider would bill the secondary and any other coverage prior to billing the patient. The provider will then invoice the patient for any remaining balance owed. Keeping track of A/R and collecting unpaid balances is crucial for the viability of a medical practice, and this is why most put a huge emphasis on it. It is understandable that medical bills can be frustrating for patients, but please keep in mind that the amount you owe is dependent in large part on your health insurance benefits and the type of care received. Once a patient has paid their balance owed, if any, and the ledger balance is zero meaning that the entire amount owed has been paid, the provider's office closes the claim and the process is complete.
Most providers utilize reporting tools that are part of their billing system in order to continue monitoring accounts receivable, to help in using collection agencies, and to monitor their bad debt. One useful reporting tool is A/R aging, which shows how old outstanding A/R balances are. Normally, A/R balances that are not collected within a certain time period (e.g. 120 days) will be sent to a collections agency. Patients generally want to avoid this as being sent to collections can affect one's credit rating.
Hopefully the information here has given you a sufficient background on how medical billing works. In terms of cost, having a solid health insurance plan, choosing an in-network provider, and making informed decisions as to the appropriate provider can go a long way in minimizing your risk.
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