Hospital Billing Process
The purpose of this chapter is to provide a basic understanding of the hospital billing process. The billing process includes submitting charges to third-party payers and patients, posting patient transactions, and following-up on outstanding accounts. As discussed in previous chapters, information collected during the patient visit is used to complete the tasks required to bill for services rendered. A review of the billing process will provide an understanding of how vital billing functions are for the hospital to maintain a sound financial base.
The role of hospital billing and coding professionals is complicated because of the ever-changing health insurance environment and variations in payer guidelines. It is essential for billing and coding professionals to understand payer guidelines to ensure that accurate reimbursement is obtained and to ensure compliance with payer guidelines. A review of several provisions of the participating provider agreement (PAR) “payer contract” will illustrate how payer guidelines vary and the significant impact they have on the billing process. A discussion of how charges are captured, coding systems, and claim forms will provide a basis for understanding the billing process. The chapter will close with an overview of the hospital revenue cycle from patient admission to collections. Many of the concepts presented in this chapter are presented to provide an overview of the hospital billing process. These concepts will be expanded upon in future chapters.
The purpose of the hospital billing process is to obtain reimbursement for services and items rendered by the hospital. Reimbursement is received from patients, insurance carriers, and government programs. The hospital billing process begins when a patient arrives at the hospital for diagnosis and treatment of an injury, illness, disease, or condition. The billing process involves all the functions required to prepare charges for submission to patients and third-party payers to obtain reimbursement for hospital services. The term claims process refers to the portion of billing that involves preparing claims for submission to payers. An extension of the billing process is collections, also known as accounts receivable (A/R) management, which involves monitoring accounts that are outstanding and pursuing payment of those balances from patients and third-party payers.
The complexity of the hospital billing process is a result of the health care industry’s evolution. Health insurance and government-funded health care benefit programs were born. Regulation of the health care industry was enhanced. Contracts between providers and payers were initiated. The process of submitting charges became more involved. It now involves authorizations and certifications, medical record documentation, coding, participating provider agreements, various payer guidelines, and different reimbursement systems (Figure 5-1). The complexity of this system makes it essential for hospital billing and coding professionals to have knowledge of key elements of the billing process to ensure that appropriate reimbursement is obtained and compliance with payer guidelines. This section will discuss key elements: payer guidelines, Charge Description Master, coding systems, and universally accepted claims forms.
Variations in payer guidelines contribute significantly to the complexity of the billing process. Guidelines for the provision of patient care services, claim submission, and reimbursement vary from payer to payer. Hospitals are required to comply with all provisions in the participating provider agreement. Compliance with these guidelines is a condition for receiving reimbursement, and legal consequences may result from non-compliance. A review of some common provisions in a participating provider agreement will highlight the relationship between the agreement and the billing process.
The hospital’s payer mix includes various payers that provide coverage to patients seen at the hospital. Medicare, Medicaid, TRICARE, Blue Cross/Blue Shield, Worker’s Compensation, and various managed care plans are generally part of the hospital’s payer mix. Hospitals and other providers may elect to enter into a written agreement to participate with payers, known as the participating provider agreement. A participating provider agreement (PAR) is a written agreement between the hospital and a payer that outlines the terms and conditions of participation for the hospital and the payer. Figures 5-2 and 5-3 highlight common provisions related to patient care services, patient financial responsibility, billing requirements, and reimbursement as outlined below.
The participating provider agreement outlines the services that are covered for plan members. Participating providers are encouraged to refer patients to providers within the plan’s network. All payers include provisions regarding medical necessity and utilization management protocols that must be followed to ensure that the appropriate reimbursement is received.
Providers are statutorily obligated to provide patient care services that are medically necessary. Medically necessary services are those that are considered reasonable and necessary to address the patient’s condition based on standards of medical practice. All payers have medical necessity guidelines that must be met as a condition of receiving payment for services rendered. Interpretations of medical necessity based on standards of medical practice vary by payer.
Utilization management (UM) involves monitoring and managing health care resources for the purpose of controlling cost and ensuring that quality care is provided. In accordance with the participating provider agreement, providers are required to follow utilization management provisions outlined in the payer contract. Precertification, prior authorization, and second surgical opinions are examples of utilization management provisions.
Participating provider agreements include information regarding the patient’s financial responsibility under the plan. The patient’s responsibility is the amount that the patient is required to pay in accordance with his or her health care plan. All health care plans require the patient to pay some portion of the charges for services rendered. As outlined in the patient’s plan, the patient’s responsibility amount may represent a deductible, coinsurance, or copayment amount. The agreement further specifies the participating provider’s contractual obligation to collect deductible, coinsurance, or copayment amounts from the patient. It also outlines the consequences if the provider does not make every attempt to collect the patient’s share.
Participating provider agreements generally include a provision stating the hospital must accept assignment, which means the hospital will accept the approved amount or prospective payment rate as payment in full. In accordance with this provision the hospital cannot balance bill the patient for the balance over the approved or prospective payment amount.
Billing requirements are outlined in the participating provider agreement. Billing requirements vary according to plan. Most plans outline provisions in the participating provider agreement regarding documentation, coding, claim form requirements, timely filing, and the appeals process.
Timely filing refers to the period of time in which claims must be filed, such as 90 days. Timely filing is generally calculated from the date of service. Payers include timely filing requirements in the participating provider agreement that indicate the time frame during which claims must be submitted for reimbursement. If a claim is not submitted within the timely filing period, as defined by the payer, reimbursement may not be made for those services. However, state statutes defining timely filing take precedence over payer guidelines.
Participating provider agreements also contain provisions regarding timely processing of claims and reimbursement. Reimbursement is provided for services covered under the patient’s plan that are medically necessary. The agreement also explains how payment determinations are made and what reimbursement method will be used to calculate payment for covered services.
It is important to remember that reimbursement for services provided to plan members is contingent on the provider’s compliance with plan terms and specifications. It is critical for hospital personnel involved in the billing process to have an understanding of the terms in the provider agreement to ensure compliance with program specifications and to optimize reimbursement. Participating provider agreements will be discussed further in the Health Care Payers chapter. Variations in claim requirements and reimbursement methods outlined in participating provider agreements contribute to the complexity of the billing process. It important to understand these provisions to ensure appropriate reimbursement is obtained.
The purpose of the claim form is to submit charges to third-party payers. A third-party payer is an organization or other entity that provides coverage for medical services, such as insurance companies, managed care plans, Medicare, and other government programs. All the information collected and recorded on the patient account and in the patient’s medical record is used to complete the claim form.
There are two universally accepted claim forms used for submission of charges to various payers: the CMS-1500 and the CMS-1450 (UB-04). The CMS-1500 is the claim form used by noninstitutional providers to submit professional charges for physician and outpatient services to payers for reimbursement. The CMS-1450 (UB-04) is the uniform claim form used by institutional providers to submit hospital facility charges for services, procedures, and items to payers for reimbursement. These forms were formerly called the HCFA-1500 and the HCFA-1450 (UB-92). The Health Care Financing Administration (HCFA) changed its name to the Centers for Medicare and Medicaid Services (CMS) in 2003 and the name of the claim forms were changed to CMS-1500 and the CMS-1450. The CMS-1450 (UB-04) replaced the CMS-1450 (UB-92) in May 2007.
Claim form requirements vary by payer, and the participating provider agreement defines what claim form should be used to submit charges. Some payers define claim form requirements based on the part of the plan that covers specific services. For example, the CMS-1450 (UB-04) is used to submit charges covered under Medicare Part A. The CMS-1500 is used to submit charges covered under Medicare Part B. Durable medical equipment is covered under Medicare Part B; therefore, charges for these items are generally submitted on the CMS-1500. Claim form submission requirements also vary based on the following service categories: outpatient, inpatient, and non-patient. The following section provides an overview of the claim form required for these service categories, as shown in Table 5-1. Claim forms will be discussed further in the Claim Forms chapter.
|Hospital Service Categories Facility Charges||CMS-1500||CMS-1450 (UB-04)||Variations|
|Ambulatory surgery—performed in a hospital outpatient Surgery Department||X||Some payers require ambulatory surgery charges to be submitted on the CMS-1500|
|Ambulatory surgery—performed in a certified Ambulatory Surgery Center (ASC)||X|
|Emergency Department||X||Some payers require outpatient department charges to be submitted on the CMS-1500|
|Ancillary departments: Radiology; Laboratory; Physical, Occupational, and Speech Therapy||X||Some payers require outpatient department charges to be submitted on the CMS-1500|
|Other outpatient services: infusion therapy and observation||X||Some payers require outpatient department charges to be submitted on the CMS-1500|
|Hospital-based primary care office||X||Physician services may be billed by the hospital when the physician is employed by the hospital|
|Other hospital-based clinic||X|
|All services and items provided by the hospital during the inpatient stay||X||Emergency Department charges are included on the inpatient claim when the patient is admitted from the ER|
|A specimen received and processed; the patient is not present||X||Some payers require outpatient department charges to be submitted on the CMS-1500|
Outpatient is the term used to describe procedures or services that are performed in which the patient is released from the hospital within 24 hours. Hospital outpatient services are generally submitted to payers on the CMS-1450 (UB-04); however, some payers may require the CMS-1500 for specified services. Outpatient services include ambulatory surgery, emergency room, clinic, and other outpatient department services.
Ambulatory surgery is surgery that is performed on the same day the patient is discharged. Ambulatory surgery may be performed in a freestanding or hospital-based Ambulatory Surgery Center (ASC). Ambulatory surgery is considered an outpatient service because the patient is released the same day the procedure is performed. Hospital-based ambulatory surgery services are generally submitted on the CMS-1450 (UB-04). Some payers may require ambulatory surgery services performed in a certified ASC to be submitted on a CMS-1500.
Facility charges for Emergency Department (ED) visits are generally submitted on the CMS-1450 (UB-04). Again, some payers may require the CMS-1500. Emergency room (ER) physician charges are not billed by the hospital unless the physician is employed by the hospital. The ER physician will submit charges for services provided on the CMS-1500. Emergency Department charges are included on the inpatient claim when the patient is admitted as an inpatient from the ER. In accordance with Medicare’s 3-day and 1-day payment window policy, outpatient services provided as outlined below are included on the inpatient claim, and therefore, paid under Inpatient Prospective Payment System (IPPS):
Charges for services provided by ancillary departments such as Radiology, Laboratory, or Physical, Occupational, and Speech Therapy on an outpatient basis are generally submitted using the CMS-1450 (UB-04). Infusion therapy and observation services are also submitted on the CMS-1450 (UB-04).
Charges for services provided in a hospital-based primary care office are generally submitted on the CMS-1500. These charges will include the physician services if the physician is employed by the hospital. Charges for services provided in a hospital-based clinic are generally submitted on the CMS-1450 (UB-04). Clinic charges do not include the physician services unless the physician is an employee of the hospital.
Inpatient charges are submitted on a CMS-1450 (UB-04). Claims for hospital inpatient services are generally submitted after the patient is discharged. It is important to remember that if the patient is seen in the emergency room and later admitted to the hospital as an inpatient, the Emergency Department charges will be included on the CMS-1450 (UB-04) for the inpatient claim.
Non-patient care is provided when the Pathology/Laboratory Department receives a specimen for processing. The specimen can be delivered from somewhere within the hospital, such as the operating room, or it can be received from an outside physician’s office. The specimen is processed and the patient is not present. The results are forwarded to the requesting physician.
Payer guidelines also dictate required methods of submission and claim completion requirements. Historically, claims were submitted manually by sending a paper claim. Today, most payers require electronic claim submission. However, there may be circumstances when submission of a paper claim is necessary.
In accordance with HIPAA regulations, standard formats for electronic transactions, including submission of claims, have been adopted. The standard formats adopted were developed by the American National Standards Institute (ANSI). The standard transaction format for the CMS-1500 is the ANSI X12 837 and the format for the CMS-1450 (UB-04) is the ANSI X12 837I. The standard transaction formats contain elements found on the CMS-1500 and CMS-1450 (UB-04) paper claims. The current standard format, Version 5010, was adopted and the compliance date for all HIPAA covered entities to transition to Version 5010 was January 1, 2012. Details regarding Version 5010 can be viewed on the CMS Web site at www.cms.gov/ICD10/11a_Version_5010.asp#TopOfPage.
Reimbursement is the term used to describe the amount paid to the hospital for services rendered, by patients and third-party payers. The purpose of the billing process is to obtain the appropriate reimbursement within a reasonable period after the services are rendered. Most reimbursement for hospital services is received from third-party payers. Payers use various reimbursement methods to determine the payment amount for a service or item. Reimbursement methods can be categorized as traditional payment methods, fixed payment methods, and Prospective Payment System (PPS) methods.
Historically, payments for health care services were primarily based on charges submitted. Insurance companies and government programs process payments for services based on one of the following reimbursement methods: fee-for-service, fee schedule, percentage of accrued charges, and usual, customary, and reasonable.
Efforts to control the rising costs of health care changed reimbursement methods to systems involving predetermined amounts paid to hospitals. The advent of managed care also brought with it fixed payment methods. The following reimbursement methods provide a fixed payment amount: capitation, case rate, contract rate, flat rate, per diem, and relative value scale.
Capitation is a reimbursement method that provides payment of a fixed amount, paid per member per month. Capitation methods are generally used to provide reimbursement for primary care physician services and other specified outpatient services provided to managed care plan members.
The government became one of the largest payers of health care services with the establishment of the Medicare and Medicaid programs in 1965. Over the following 30 years, due to the continued growth in the aged population and the rising cost of health care, the government found it necessary to devise reimbursement methods that provided fixed payment amounts for health care services. Prospective Payment Systems (PPS) are reimbursement methods for services provided to Medicare beneficiaries where payment is based on a predetermined, fixed amount. Several reimbursement methods have been implemented under PPS including IPPS and OPPS. The Inpatient Prospective Payment System (IPPS) is a reimbursement system, implemented in 1983, as mandated under TEFRA for inpatient services provided to Medicare beneficiaries that provides a predetermined payment based on the patient’s diagnosis and procedures performed. The Outpatient Prospective Payment System (OPPS) was implemented in August 2000 by CMS to provide reimbursement for hospital outpatient services. Today, services provided by hospitals to members of government-sponsored plans are paid based on the following reimbursement methods.
Medicare Severity-Diagnosis Related Groups (MS-DRG) is the IPPS reimbursement method used by Medicare and other government programs to provide reimbursement for hospital inpatient services. MS-DRG replaced DRG in 2007. Under the MS-DRG system, the hospital is paid a fixed fee based on the severity of the patient’s condition and related treatment. MS-DRG assignment is determined based on the principal diagnosis, secondary diagnosis, complications and co-morbidities, significant procedures, sex of the patient, and discharge status of the patient.
Resource-Based Relative Value Scale (RBRVS) is the payment method used by Medicare and other government programs to provide reimbursement for physician and some outpatient services. This reimbursement method was implemented over a 5-year period beginning January 1992. The RBRVS system consists of a fee schedule of approved amounts calculated based on relative values. A relative value unit (RVU) is assigned to each procedure. The RVU represents physician time and skill, practice overhead, and malpractice insurance. The RVU is used in a formula that multiplies the RVU by a geographic adjustment factor (GAF) and a monetary conversion factor (CF).
Ambulatory Payment Classifications (APC) is the OPPS reimbursement method used by Medicare and other government programs to provide reimbursement for hospital outpatient services. Under the APC system, the hospital is paid a fixed fee based on the procedure(s) performed. Services reimbursed under APC include ambulatory surgical procedures, chemotherapy, clinic visits, diagnostic services and tests, emergency room services, implants, and other outpatient services.
PPS methods were implemented to provide pre-established payment amounts for reimbursement to providers for services rendered to members of government health care programs. Figure 5-6 illustrates payment determination based on the MS-DRG and APC reimbursement systems. PPS will be discussed further in the Prospective Payment Systems (PPS) chapter.
Hospitals provide various services including outpatient, inpatient, non-patient, and professional services. Reimbursement methods vary based on many factors, such as payer type and the type of service provided. Hospital billing professionals strive to achieve an understanding of the various reimbursement methods to ensure that appropriate payment is provided for services rendered.
It is also important to understand guidelines relating to each of the different payment methods by payer type. Three major categories of third-party payers are government programs, commercial payers, and managed care plans. Each of the payer types listed uses various methods of reimbursement for outpatient, inpatient, non-patient, and professional services. Some of the most common reimbursement methods used by government programs, commercial payers, and managed care plans are outlined in Table 5-2 for outpatient, inpatient, non-patient, and professional services. It is important to note that many commercial and managed care payers are adopting prospective payment reimbursement methods, such as APC and MS-DRG, as a part of their contract rates. Reimbursement methods will be discussed further as they relate to each of the payer categories later in this text.
|Payer||Outpatient Services||Inpatient Services||Professional and Non-patient Services|
|Government Programs Medicare, TRICARE, Medicaid (implemented under Prospective Payment System)||Ambulatory Payment Classifications (APC)||Medicare Severity-Diagnosis Related Groups (MS-DRG)||Resource-Based Relative Value Scale (RBRVS)|
|PPS method basis||Hospital is reimbursed a set fee based on the APC payment rate for the procedure performed.||Hospital is reimbursed a set fee based on the MS-DRG payment rate for the patient’s condition and related treatment.||A relative value is assigned to each CPT code, which represents physician time, skill, and overhead.|
|Commercial and Other Third-Party Payers||Case rate|
|Blue Cross/Blue Shield, Aetna, Humana, workers’ compensation||Fee-for-service|
Percentage of accrued charges
Percentage of accrued charges
|Relative value scale (RVU)|
Usual, customary, and reasonable (UCR)
|Managed Care Plans||Case rate|