Accounts Receivable (A/R) Management
The objective of this chapter is to provide an overview of patient account transactions and accounts receivable management. Hospitals provide services to patients for treatment of conditions utilizing highly specialized equipment and personnel. It is critical for hospitals to maintain an efficient cash flow by obtaining timely compensation for services provided in the hospital environment. Claim forms and patient statements are prepared to bill for services rendered on an outpatient and inpatient basis. Hospital billing personnel must monitor outstanding accounts to ensure that payment is received within an appropriate time frame. This function is critical to maintaining a positive cash flow for the hospital. This chapter provides a brief overview of the life cycle of a hospital claim and the hospital billing process. A discussion of the payer’s review of a claim and the remittance advice will provide an understanding of payer processing and related communications from the payer regarding a claim. Payer determinations are reviewed to provide an overview of issues handled by the Patient Financial Services (PFS) and the Credit and Collection Departments. A review of credit and collection laws and collection activities highlights various aspects of accounts receivable (A/R) follow-up. The chapter will close with a discussion of the appeals process to provide a greater understanding of various aspects of submitting appeals.
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.
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.
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.
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.
The computerized payer data files contain information regarding covered individuals, including a history of past claims submitted for the patient. Information submitted on the claim is compared with information in the payer’s data files to verify that the patient is covered, is eligible to receive benefits, and that all plan requirements are met. The following data are checked against the payer’s data file:
The payer’s system performs computerized edits on claim data for the purpose of identifying problems relating to services billed, such as coding errors or issues involving medical necessity. Payer computer edits vary according to the payer’s criteria and system setup. For example, Medicare’s system contains an Outpatient Code Editor (OCE) and a Medicare Code Editor (MCE). The OCE and MCE are used to identify data inconsistencies on hospital outpatient and inpatient claims. OCE contains edits for hospital outpatient claims. MCE contains edits for hospital inpatient claims (Figure 13-5). The following are examples of computer edits:
• Procedure conflicts with patient’s sex. The procedure code is checked against the patient’s sex to determine whether the procedure is gender appropriate. For example, a hysterectomy would not be performed on a male.
• Procedure conflict with patient’s age. The procedure code is checked against the patient’s age to verify that the procedure is age appropriate. For example, a hysterectomy would not normally be performed on a 10-year-old.
• Medical necessity. All services and items provided must be considered medically necessary to obtain third-party reimbursement. Diagnosis codes are checked against procedure codes to identify problems involving medical necessity.
• Bundled (packaged) services. Services and items billed are reviewed to identify cases of unbundling. Unbundling is the process of coding multiple codes to describe services that should be described with one code.
Many payers incorporate the National Correct Coding Initiative (NCCI) edits into their system. The National Correct Coding Initiative (NCCI) was developed by CMS for the purpose of promoting national coding guidelines and preventing improper coding. NCCI outlines code combinations that are inappropriate (Figure 13-6) based on coding guidelines. It is important for hospital personnel to remember that the NCCI is updated quarterly. The National Correct Coding Initiative (NCCI) is often referred to as the Correct Coding Initiative (CCI).
A remittance advice (RA) is a document prepared by the payer to provide an explanation of payment determination for a claim. The RA is also known by other names such as an explanation of benefits (EOB) or explanation of Medicare benefits (EOMB). The remittance advice (RA) includes detailed information about the charges submitted and an explanation of how the claim was processed. The RA may include information regarding several claims. It can be forwarded to the hospital electronically or it can be printed and sent to the hospital by mail. An electronic remittance advice (ERA) is a document that is electronically transmitted to the hospital to provide an explanation of payment determination for a claim. Historically, the content and explanations found in remittance advice documents varied by payer. New regulations under HIPAA regarding electronic data interchange require adoption of standard field lengths, common rejection codes, and key elements on the remittance advice (RA). The standard formats are helpful in understanding the data elements on the RA, since they are consistent for all payers.
The design and content of an RA will vary by payer. Most include basic data regarding the patient, service provided, charges submitted, and explanation of the payment determination. Figures 13-7A and 13-7B illustrate some of the following data elements listed on a sample Medicare remittance advice:
It is important for hospital billing professionals to understand the elements of an RA. Information on the RA is carefully analyzed to ensure that the claim was processed appropriately. This task is complicated by the fact that each payer may adopt a different type of form. Information on the RA is used to post payments to the patient’s account. An RA may be several pages long, and it may contain information regarding several patients and several claims (Figures 13-7A and 13-7B). The following is an overview of how to analyze the RA.
6. An explanation of the approved amount is indicated using some type of coding system commonly referred to as explanation or reason codes. Definitions of the reason codes are listed on the bottom or the back of the RA. The reason code M45 on the Medicare remittance advice tells the hospital that there are missing/incomplete/invalid occurrence code(s). M138 tells the hospital that the patient is identified as a demonstration participant and coverage is limited.
The Patient Financial Services (PFS) Department is responsible for processing transactions, including payments, adjustments, and other transactions to the patient’s account. Patient payments and third-party payments are posted to the patient’s account by PFS. In larger health systems, electronic payment posting is used for the larger payers. The payer provides an electronic payer file and electronic payment. The electronic payment posting provides a more secure way of handling protected health information (PHI) and it cuts the cost of paper and mailing. The basic payment posting process followed is outlined below:
Patient payments are posted to the patient’s account when payment is received. The patient may pay the entire amount or part of the balance owed. When the entire amount is not paid, a statement reflecting the balance will be sent to the patient in the next billing period. Adjustments may be posted to the patient’s account to reflect discounts or amounts that are uncollectible, as discussed later in this section.
Payments from third-party payers are posted to the patient’s account when a remittance advice (RA) is received from the payer. Payment on a claim is processed in accordance with the payer’s determination. The payer may process payment for the claim as appropriate or the payment amount may be lower than expected by the hospital. This may occur when services are billed separately with multiple codes, and the charges should have been bundled and billed with a single code. Lower payment may also be determined when medical necessity criteria are not met for a higher level of service. If the correct amount is not paid by the payer, a hospital representative will pursue correction of the claim.
When the payer processes a claim at a reduced level or payment is not made for a service reported on the claim, a hospital representative must investigate the reason for the reduced payment or nonpayment. Many hospitals today utilize managed care module software that compares the expected reimbursement against the actual amount received. When a difference is detected, the account is flagged for review. Common situations when a claim may be paid at a reduced level are outlined as follows:
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.
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.
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.
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.
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.
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.
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 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).
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 www.cms.gov/BNI/02_ABN.asp#TopOfPage.
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:
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 www.cms.gov/BNI/05_HINNs.asp#TopOfPage.
• 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.
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.