The life cycle of a hospital claim begins when a patient arrives at the hospital for diagnosis and treatment of a condition(s) and ends when the claim is paid, as illustrated in Figure 13-1. The Admissions Department is responsible for obtaining required demographic, financial, and insurance information from the patient. When the patient has more than one insurance hospital personnel must collect information regarding all insurance coverage to determine what payer is primary. Another function that is equally important is obtaining appropriate referrals and authorizations. Information obtained by the Admissions Department is entered into the computer on the patient’s account. Patient care services are rendered and documented by various departments within the hospital, and charges are generated. Most charges are posted at the department level through the Charge Description Master (CDM) during the patient stay (Figure 13-2). The CDM is also referred to as the chargemaster.

Charges posted through the chargemaster are automatically dropped to the claim and submitted after the patient is discharged. Generally the hospital does not submit a claim or send a patient statement for inpatient services until after the patient is discharged. On discharge, the Health Information Management (HIM) Department receives the patient’s chart for review and coding. The HIM Department assigns codes for services, procedures, and items that were not posted through the chargemaster, such as surgeries. The patient’s diagnoses are also coded by the HIM personnel. Coding is generally performed through an encoder program, which uses information entered by the HIM coder to assign procedure and diagnosis codes. A grouper program uses the information entered to assign the appropriate Medicare Severity-Diagnosis Related Group (MS-DRG) or Ambulatory Payment Classifications (APC) Group to the hospital case.

BOX 13-1 CONCEPT REVIEW

Hospital Encoder Program

• Computer software that allows the HIM professional to enter specified information regarding patient care services and the patient’s condition.

• The program utilizes data entered to identify potential codes.

Grouper Program

• Software program that allows the HIM professional to enter specified information regarding the patient’s care including condition(s) and procedure(s).

• The program uses the information to assign MS-DRG or APC.

Hospital Billing Process

The hospital billing process involves a series of functions required to submit charges for services rendered. Information obtained during the patient visit is used to submit charges to payers and patients. A critical part of the billing process is charge submission.

The Patient Financial Services (PFS) Department is responsible for managing the hospital’s patient financial transactions, which include charge submission, patient transactions, and accounts receivable (AR) management. PFS may also be referred to as the Business Office or Patient Accounts. Charge submission involves preparation of insurance claims and patient statements.

A claim form is prepared for submission of charges to third-party payers. Today’s electronic billing systems have claim editors built into the software referred to as a claim scrubber. The claim scrubber detects missing codes, need for modifiers, and checks the insurance address for electronic routing. The goal is to submit a clean claim the first time. A clean claim is defined as one that does not need to be investigated by the payer. The claim passes all internal billing edits and payer-specific edits and is paid without need for additional intervention. Claims that do not meet clean claim status may be denied, rejected, or pended.

BOX 13-2 CONCEPT REVIEW

Clean Claim

A claim that passes payer edits and can be processed without any additional investigation by the payer.

Clean Claim Status

Examples of claims that do not meet clean claim status.

• Claims that require additional information

• Claims that require Medicare Secondary Payer (MSP) screening information

• Claims that require information to determine coverage

• Claims that do not pass payer edits

Patient statements are generated and sent to the patient. It is common practice to hold statements until the insurance has processed the claim unless a copayment is due. The hospital generally has a schedule for batch mailings of patient statements. For example, the hospital’s batch schedule may indicate that statements for patient accounts A to M should be mailed on Mondays and Wednesdays and N to Z on Tuesdays and Thursdays. Patient statements include the patient’s name, address, account number, and medical record number; service dates; service descriptions; charges; payments and adjustments; and the balance owed as illustrated in Figure 13-3.

BOX 13-3 CONCEPT REVIEW
Hospital Billing Process
Patient Financial Services (PFS) Responsibilities

Charge submission

• Insurance claim forms

• Patient statements

Patient transactions

• Payments, adjustments, and write-offs

Accounts receivable (A/R) management

• Monitor and follow-up on outstanding accounts.

Payer Processing

Third-party payer claim processing involves receiving claim data into the payer’s system, review of the payer’s data file, performance of payer edits, and payment determination (Figure 13-4). It is important to remember that most payers require electronic claims submission in accordance with HIPAA regulations. However, there may be circumstances that require submission of a paper claim. Electronic claims are transmitted directly to the payer’s computer system. Paper claims are scanned or entered manually into the payer’s computer system. The payer’s computer system performs a detailed review and electronic edits on each claim. The computerized review and edits are performed to check information on the claim for the purpose of identifying potential problems with the claim. First, the computer checks information on the claim against the payer’s data files to verify patient coverage and eligibility. Then the payer’s system performs computerized edits.

FIGURE 13-4 Phases of third-party payer claims processing.

The ABC Insurance remittance advice (RA) illustrated in Figure 13-8 highlights a reduced payment situation. The RA reason, code Z81 on claim number 4, indicates that the payer did not pay on procedure 99213, “Evaluation and Management” (E/M) service. The payer considered the E/M to be part of the surgical package which is the reason for nonpayment. The surgical package outlines services that are bundled into the surgery code.

FIGURE 13-8 ABC Insurance remittance advice (RA) illustrating reason codes.

The hospital cannot balance bill the patient for this amount in accordance with the payer contract. Upon investigation, it may be determined that the service should not have been considered part of the surgical package, and payment should have been made. If the E/M service was not related to the surgery or if the decision for surgery was made during the E/M service, the hospital may request that the claim be reprocessed with a modifier attached to the E/M code, or the hospital may appeal the claim.

BOX 13-9 CONCEPT REVIEW
Upcoding

Using a Higher Level Code to Describe a Service or Procedure that is not Supported by the Documentation

• Upcoding is also referred to as “creeping.”

BOX 13-10 CONCEPT REVIEW
Common Reasons for Reduced Claim Payments

• Level of service is not supported by the patient’s condition.

• Service is unbundled, should not be billed separate.

• Service is considered an integral part of a larger procedure.

Adjustments

An adjustment is the process of reducing the original amount charged by a specified amount. There are several types of adjustments that may be posted to a patient’s account, such as discount, contractual adjustment, or write-off.

Discount

The original charge may be discounted by a specific amount as an agreement between the patient and the hospital. For example, a hospital may offer a discount to self-pay patients who are responsible for the entire hospital bill. The hospital may offer a 20% discount to the patient for payment of the entire balance. When the payment is received, the adjustment is made to the patient’s account to reduce the original charge by the discounted amount. CMS has regulations that indicate all patients must be treated equally when it comes to discounts. Therefore, these discounts must be approved by policy to ensure the hospital is in compliance with regulations.

Contractual Adjustment

A contractual adjustment is a reduction made to the original charge in accordance with the hospital’s contract with a payer. Payer contracts include provisions regarding the amount the hospital is required to accept as payment in full, commonly referred to as the approved amount. The approved amount may represent a case rate, contract rate, MS-DRG or APC rate, or fee schedule amount. In accordance with the contract, the hospital agrees to follow those provisions and therefore may not bill patients for amounts over the approved amount. The difference between the approved amount and the hospital’s original charge must be adjusted off the patient’s account. The hospital posts a contractual adjustment to the patient’s account to reduce the original charge. Most hospitals program the computer billing system to calculate and deduct the contractual amount as required by agreement with the payer.

The ABC Insurance remittance advice illustrated in Figure 13-8 highlights a contractual adjustment situation on claim number 1. The difference between the billed amount of $61.00 and the approved amount of $43.30 on this claim is $17.70. A contractual adjustment in the amount of $17.70 must be posted to the patient account if the hospital is participating with the insurance company. The reduction of the claim by $17.70 is a contractual adjustment that is made in accordance with the hospital’s contract with the payer.

Write-Off

A write-off is the process of reducing a patient’s balance to zero. Write-offs are made when the balance is deemed uncollectible. In accordance with most contracts, the hospital is not allowed to forgive or write off a patient deductible, coinsurance, and copayment amount. The hospital is required to follow the necessary steps required to make every attempt to collect the amount for which the patient is responsible. When all efforts are exhausted to collect the patient’s responsibility, the hospital may then write off the balance. These write offs are considered a bad debt. Hospitals establish policies and procedures regarding write-offs that detail the necessary steps required to collect the patient balance and the criteria for write-offs.

BOX 13-11 CONCEPT REVIEW
Patient Transactions

Patient Financial Services (PFS) Department

• Responsible for posting transactions to the patient’s account.

Patient Transactions Include the Following

• Patient payments

• Third-party payer payments

• Adjustments

Discount

Contractual adjustment

Write-off

Balance Billing

Balance billing refers to billing the patient for a balance in excess of the payer’s approved amount in accordance with the payer contract. When the hospital is participating with the payer, the contractual agreement prohibits balance billing. Federal law prohibits balance billing Medicare patients for the following amounts:

• The difference between the original charge and the approved amount

• The amount of hospital charges that are greater than an MS-DRG payment rate

• The amount of hospital charges that are greater than an APC payment rate

The hospital is required to bill patients for the required copayment, coinsurance, or deductible. In some cases, charges for services that are not covered may also be billed. Medicare requires that beneficiaries be given advanced notice of services that Medicare may not cover due to medical necessity. The notice required by Medicare is the Advance Beneficiary Notice (ABN) or Hospital-Issued Notice of Non-Coverage (HINN).

BOX 13-12 CONCEPT REVIEW

Balance Billing

• Law prohibits balance billing Medicare patients for amounts in excess of the payer’s approved amount.

• Hospital is required to bill copayment, coinsurance, and deductible amount.

• Must have a signed ABN or HINN on file to bill for services that are not covered.

Advance Beneficiary Notice (ABN)

An Advance Beneficiary Notice (ABN) is a written notice that is presented to a Medicare beneficiary before Medicare Part A or Part B services are provided, when the hospital expects the service will not be covered. The ABN is also referred to as a waiver of liability. The purpose of this notice is to inform the beneficiary that the provider believes Medicare will not pay for some or all of the services to be rendered because they are not reasonable and necessary, the services are excluded, or the services are considered non-covered. The information provided on the ABN enables the patient to make an informed decision about accepting financial responsibility because it provides a reasonable description and estimate of the cost of the service. Figure 13-9 illustrates the ABN required by Medicare. Hospitals are required to present this form for signature to the beneficiary before services are rendered. The hospital cannot bill the patient for these services if the ABN is not completed and on file. It is not appropriate to provide patients with a blanket ABN. It is important to remember that an ABN must be provided before each service is rendered. Information and copies of the ABN can be viewed on the CMS Web site at http://www.cms.gov/BNI/02_ABN.asp#TopOfPage.

BOX 13-13 CONCEPT REVIEW
Advance Beneficiary Notice (ABN)

• Written notice presented to a Medicare beneficiary before Part A or B services are provided

• Informs beneficiary that Medicare may not pay for some or all of the services

• Based on medical necessity criteria, services are not considered reasonable and necessary

• Provides a reasonable description and estimate of the cost of the services

Hospital-Issued Notice of Non-Coverage (HINN)

The Hospital-Issued Notice of Non-Coverage (HINN) is a written notice that is presented to a Medicare beneficiary before a Part A admission, or during the inpatient stay, to inform the beneficiary that the provider believes Medicare will not pay for some or all of the services to be rendered because they are not reasonable and necessary (Figure 13-10). The purpose of this notice is to inform the beneficiary that the provider believes that Medicare will not pay for some or all of the services based on one of the following:

• Service is not medically necessary

• Service is not provided in the most appropriate setting; or

• Service is custodial in nature (non-medical assistance with daily living activities)

In accordance with Medicare guidelines, as published on the CMS Web site, hospitals are required to provide an HINN prior to admission, at admission, or at any point during an inpatient stay if the hospital determines that the care the beneficiary is receiving, or is about to receive, is not covered. The information provided on the HINN enables the patient to make an informed decision about accepting financial responsibility for the services. The following HINN beneficiary notices are listed on the CMS Web site at http://www.cms.gov/BNI/05_HINNs.asp#TopOfPage.

• HINN 1, The Preadmission/Admission HINN, used prior to an entirely non-covered stay.

• HINN 10, also known as the Notice of Hospital Requested Review (HRR), should be issued by hospitals to beneficiaries in Original Medicare whenever a hospital requests QIO review of a discharge decision without physician concurrence.

• HINN 11, which is used for non-covered items or services provided during an otherwise covered stay. Instructions for the HINN 11 have not yet been incorporated into Chapter 30 of the Online Claims Processing Manual.

• HINN 12 should be used in association with the Hospital Discharge Appeal Notices to inform beneficiaries of their potential liability for a non-covered continued stay.

BOX 13-14 CONCEPT REVIEW
Hospital-Issued Notice of Non-Coverage (HINN)

• A written notice presented to a Medicare beneficiary before a Part A admission, prior to or during the inpatient stay, when the hospital expects the admission will not be covered.

• Informs the beneficiary that Medicare will not pay for some or all of the services rendered during the admission

• Based on medical necessity criteria, services are not considered reasonable and necessary

Secondary Billing

Secondary billing may occur when the patient has supplemental insurance that is designed to cover expenses not covered by the primary insurance. When payment is processed from the primary payer, the hospital representative may initiate billing to a secondary or tertiary payer. Coordination of benefits (COB) provisions for the plan must be followed. Coordination of benefits (COB) is a clause written into an insurance policy or government program that defines how benefits will be paid when the member or beneficiary is covered under multiple plans. Medicare Secondary Payer guidelines must also be followed.

BOX 13-15 CONCEPT REVIEW
Life Cycle of a Hospital Claim

• Patient presents for diagnosis and treatment

• Financial and medical information obtained

• Authorization obtained

• Patient care services are rendered

• Charge capture

• HIM chart review for coding and APC or MS-DRG assignment

• Claim submission

• Payer processing

• Payment determination

• A/R management

BOX 13-1 Test Your Knowledge
LIFE CYCLE OF A CLAIM; HOSPITAL BILLING PROCESS

True/False

1. The life cycle of a hospital claim begins when the patient arrives at the hospital for diagnosis and treatment of condition(s) and ends when the claim is paid.	T	F
2. Claim form(s) are used to bill patients for hospital outpatient and inpatient services.	T	F
3. The hospital billing process involves a series of functions required to submit charges for services rendered.	T	F
4. The purpose of checking claim information against the payer’s common data file is to determine the medical necessity of services.	T	F
5. When analyzing a remittance advice (RA) it is important to match the date of service from the remittance advice to the date of service on the patient’s account.	T	F