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 healthcare provider. The same process is used for most insurance companies, whether they are private companies or government-owned.
The billing process is an interaction between a healthcare provider 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 one or more 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 the 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 ICD-9-CM. These two codes, a CPT and an ICD-9-CM, are equally important for claims processing.
Once the procedure and diagnosis codes are determined, the biller will transmit the claim to the insurance company (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 named for its originator, the Centers for Medicare and Medicaid Services. To this day about 30% of medical claims get sent to payers using paper forms which are either manually entered or entered using automated recognition or OCR software.
The insurance company (payer) processes the claims. The insurance company has medical directors review the claims and evaluate their validity for payment, using rubrics for patient eligibility, provider credentials, and medical necessity. Approved claims are reimbursed for a certain percentage of the billed services. Failed claims are rejected and notice is sent to provider.
Upon receiving the rejection message, the provider must decipher the message, reconcile it with the original claim, make required corrections, and resubmit the claim. This exchange of claims and rejections may be repeated multiple times until a claim is paid in full, or the provider relents and accepts an incomplete reimbursement.
The frequency of rejections, denials, and overpayments is high (often reaching 50%)(HBMA 7/07 ), mainly because of high complexity of claims and data entry errors.
This first transaction for a claim for services is known technically as X12-837 or ANSI-837, and it contains a large amount of data regarding the provider interaction as well reference information about the practice and the patient. Following that submission, the payer will respond with an X12-997, simply acknowledging that the claim's submission was received and that it was accepted for further processing. When the claim(s) are actually adjudicated by the payer, the payer will ultimately respond with a X12-835 transaction, which shows the line-items of the claim that will be paid or denied; if paid, the amount; and if denied, the reason.
Due to limited technology, many payers (especially states' Medicaid) still adjudicate claims manually; this results in significant delays — up to 48 hours or even weeks to issue 835 responses to properly submitted 837 transactions. In many cases this manual processing subverts the entire point of Congress in mandating a standardized electronic billing process. These delays can also present catastrophic problems to the availability of healthcare for those patients with difficult payers — such as happened in California with the state Medicaid program referred to as "Medi-cal.
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 copay, deductible, or a coinsurance. If the patient in the previous example had a $5.00 copay, 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.
Due to the rapidly changing requirements by U.S. health insurance companies, several aspects of medical billing and medical office management have created the necessity for specialized training. Medical office personnel may obtain certification through various institutions who may provide a variety of specialized education and in some cases award a certification credential to reflect professional status.
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, healthcare providers and health plans must follow in order to provide their services aptly and ensure 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. 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.