Medical Billing

Medical billing is the process of submitting and following up on claims to insurance companies in order to receive payment for services rendered by a health care provider. The same process is used for most insurance companies, whether they are private companies or government-owned.

Medical Billing Process

The billing process is an interaction between a healthcare provider (such as a doctor) and the insurance company (payer). The interaction begins with the office visit: a doctor or their staff will typically create or update the patient's medical record. This record contains a summary of treatment and demographic information related to the patient. Upon the first visit, the provider will usually give the patient a diagnosis (or possibly several diagnoses), in order to better coordinate and streamline his/her care. In the absence of a definitive diagnosis, the reason for the visit will be cited for the purpose of claims filing. The patient record contains highly personal information, the nature of illness, examination details, medication lists, diagnoses and suggested treatment.

The extent of the physical examination, the complexity of the medical decision making, and amount of background information (history) obtained from the patient are evaluated to determine the correct level of service that will be used to bill the insurance. The level of service, once determined by qualified staff, is translated into a five digit procedure code from the Current Procedural Terminology. The verbal diagnosis is translated into a numerical code as well, drawn from the International Classification of Diseases, Ninth Edition, or ICD-9. These two codes, a CPT and an ICD-9, are equally important for claims processing.

Once the procedure and diagnosis codes are determined the biller will transmit the claim to the payer. This is usually done electronically by formatting the claim as an ANSI 837 file and using Electronic Data Interchange to submit the claim file to the payer directly or via a clearinghouse. Historically claims were submitted using a paper form — in the case of professional (non-hospital) services, and for most payers, the CMS-1500 form was used. The CMS-1500 form is so name for its originator, the Centers for Medicare and Medicaid Services. Even to this day a sizable portion of medical claims get sent to payers using paper forms.

The insurance company (payer) processes the claim. The insurance side of the process begins with testing the validity of the claim for payment. The tests cover patient eligibility for payment, provider credentials, and medical necessity. Upon passing successfully the tests, the payer pays the claim. If a claim fails the tests, the payer rejects the claim and communicates the rejection message to the claim submission source.

Upon receiving the rejection message, the provider must decipher the message, reconcile it with the original claim, make required corrections, and resubmit the claim again. This exchange of claims and messages may repeat multiple times until the claim is paid in full.

The frequency of rejections, denials, and underpayments is high (often reaching 50%)(HBMA 7/07), mainly because of high complexity of claims and data entry errors.

Medical Billing Payment

In order to be clear on the payment of a medical billing claim, the physician must have complete knowledge of different insurance plans that insurance companies are offering, and the laws & regulations that preside over them. Large insurance companies can have up to 15 different plans contracted with one physician. That is why the amount is settled between the physician and the company before he provides his services and is paid according to the each contract that has its own fee schedule, billing rules and billing address.

Based on the amount negotiated by the doctor and the insurance company, the original charge is reduced. The amount that is paid by the insurance is known as an allowable. For example, although a psychiatrist may charge $80.00 for a medication management session, the insurance may only allow $50.00, so a $30 reduction would be assessed. This is called a "provider write off" or "contractual adjustment." After payment has been made a patient will typically receive an Explanation of Benefits (EOB) from his insurance company that outlines these transactions.

The insurance payment is further reduced if the patient has a co-pay, deductible, or a coinsurance. If the patient in the previous example had a $5.00 co-pay, the doctor would be paid $45 by the insurance. The doctor is then responsible for collecting the out-of-pocket expense from the patient. If the patient had a $500.00 deductible, the contracted amount of $50 would not be paid by the insurance company. Instead, this amount would be the patient's responsibility to pay, and subsequent charges would also be the patient's responsibility, until his expenses totaled $500. At that point, the deductible is met, and the insurance would issue payment for future services.

A coinsurance is a percentage of the allowed amount that the patient must pay. It is most often applied to surgical and/or diagnostic procedures. Using the above example, a coinsurance of 20% would have the patient owing $10 and the insurance company owing $40.

In Medicare the physician can either be 'Participating' in which he will receive 80% of the allowable Medicare fee and 20% will be sent to the patient or can be ‘Nonparticipating’ in which the physician will receive 80% of the fee, and may bill patients for 15% or more on the scheduled amount.

For example the regular fee for a particular service is $100, while Medicare’s fee structure is $70. Therefore the physician will get $56, and the patient will pay $14. Similarly Medicaid has its own set of policies which are slightly more complex than Medicare.

Medical Billing History

For several decades, medical billing was done almost entirely on paper. However, with the advent of computers it has become possible to efficiently manage large amounts of claims. Many software companies have arisen to provide medical billing software to this particularly lucrative segment of the market. Several companies also offer full portal solutions through their own web-interfaces, which negates the cost of individually licensed software packages.

Health Insurance Portability and Accountability Act (HIPAA)

The billing field has been challenged in recent years due to the introduction of the Health Insurance Portability and Accountability Act (HIPAA).

HIPAA is a set of rules and regulations which hospitals, doctors, health care providers and health plans must follow in order to provide their services aptly and that there is no breach of confidence while maintaining patient records.

Since 2005 medical providers have been urged to electronically send their claims in compliance with HIPAA to receive their payment.

Title I of this Act protects health insurance of workers and their families when they change or lose a job. While Title II calls for the electronic transmission of major financial and administrative dealings, including billing, electronic claims processing, as well as reimbursement advice.

Medical billing service providers and insurance companies were not the only ones affected by HIPAA regulations - many patients found that their insurance companies and health care providers required additional waivers and paperwork related to HIPAA.

As a result of these changes, software companies and medical offices spent thousands of dollars on new technology and were forced to redesign business processes and software in order to become compliant with this new act.