CHAPTER © 2014 The McGraw-Hill Companies, Inc. All rights reserved. BOOK COVER 13 Claim Processing, Payments, and Collections

CHAPTER

© 2014 The McGraw-Hill Companies, Inc. All rights reserved.

BOOK COVERBOOK COVER

13Claim Processing,

Payments, and Collections


Learning OutcomesWhen you finish this chapter, you will be able to:13.1 Outline the steps of claim adjudication, explaining the

effect of upcoding and downcoding on the process.

13.2 Process RAs.

13.3 Discuss the purpose and general steps of the appeal process.

13.4 Describe the purpose and content of patient statements.

13.5 Apply regulations and guidelines to the collection process.

13.6 Explain the procedures for writing off uncollectible accounts.

13.7 Describe the physician’s responsibilities when terminating the provider-patient relationship.

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Key Terms

• adjudication• adjustment code• aging• appeal• autoposting• bad debt• collections• cycle billing• day sheet• determination• development• downcoding

• electronic funds transfer (EFT)

• electronic remittance advice (ERA)

• Equal Credit Opportunity Act (ECOA)

• explanation of benefits (EOB)

• Fair Debt Collection Practices Act (FDCPA) of 1977

• guarantor billing• insurance aging report

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Key Terms (continued)

• NSF checks• overpayment• patient aging report• patient ledger• patient statement• patient refund

• reconciliation• Telephone Consumer

Protection Act of 1991• Truth in Lending Act• uncollectible account• upcoding

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13.1 Health Plan Claim Processing by Payers

The Importance of Clean Claims• Clean claims increase the probability of being paid in

full and on time.• Claims that payers pay late, decide not to pay, or pay

at a reduced level have a negative effect on accounts receivable (AR).

• Patient balances that fail to be collected affect revenue.

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13.1 Health Plan Claim Processing by Payers Cont.

Adjudication Process• When the payer receives claims, it issues an electronic

response to the sender showing that the transmission has been successful.

• Each claim then undergoes a process known as adjudication, made up of five steps designed to judge how it should be paid:1. initial processing

2. automated review

3. manual review

4. determination

5. payment

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Initial Processing• Data elements are checked by the payer’s front-end claims

processing system.• Paper claims and any paper attachments are date-stamped

and entered into the payer’s computer system.• Initial processing problems may be that

• the patient’s name, plan identification number, or place of service code is wrong;

• the diagnosis code is missing or is not valid for the date of service;• the patient is not the correct sex for a reported gender-specific

procedure code.

• Claims with errors or simple mistakes are rejected, and the payer transmits instructions to the provider to correct errors and/or omissions and to rebill the service.

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Automated Review• After the claim is corrected, the payers’ computer systems

apply edits that reflect their payment policies.• For example, a Medicare claim is subject to the Correct Coding

Initiative (CCI) edits.

• The automated review checks for the following:1.Patient eligibility for benefits: Is the patient eligible for the services

that are billed?

2.Time limits for filing claims: Has the claim been sent within the payer’s time limits for filing claims?

3.Preauthorization and referral: Are valid preauthorization or referral numbers present as required under the payer’s policies? Some authorizations are for specific dates or number of service, so these data will be checked, too.

4.Duplicate dates of service: Is the claim billing for a service on the same date that has already been adjudicated?

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Automated Review• The automated review checks for the following (cont.):

5. Non-covered services: Are the billed services covered under the patient’s policy?

6. Valid code linkages : Are the diagnosis and procedure codes properly linked for medical necessity?

7. Bundled codes: Have surgical code bundling rules and global periods been followed?

8. Medical review: Are there charges for services that are not medically necessary or that are over the frequency limits of the plan? The payer’s medical director and other professional medical staff have a medical review program to ensure that providers give patients the most appropriate care in the most cost-effective manner. The basic medical review edits that are done at this stage are based on its guidelines.

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Automated Review• The automated review checks for the following (cont.):

9. Utilization review: Are the hospital-based health care services appropriate? Are days and services authorized consistent with services and dates billed?

10. Concurrent care: If concurrent care (medical situations in which a patient receives extensive care from two or more providers on the same date of service) is being billed, was it medically necessary?

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Manual Review• If problems result from the automated review, the claim

is suspended and set aside for development, the term used by payers to indicate that more information is needed for claim processing.

• These claims are sent to the medical review department, where a claims examiner reviews the claim.

• The examiner may ask the provider for clinical documentation to check:

• where the service took place• whether the treatments were appropriate and a logical outcome

of the facts and conditions shown in the medical record• that services provided were accurately reported

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Manual Review Cont.• Claims examiners are trained in the payer’s payment

policies, but they usually have little or no clinical medical background.

• When there is insufficient guidance on the point in question, examiners may have it reviewed by staff medical professionals.

• This step is usually followed, for example, to review the medical necessity of an unlisted procedure.

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Determination• For each service line on a claim, the payer makes a

payment determination, a decision whether to (1) pay it, (2) deny it, or (3) pay it at a reduced level.

• If the service falls within normal guidelines, it will be paid.

• If it is not reimbursable, the item on the claim is denied.• The examiner may decide that the procedure code

assigned is at too high a level for the diagnosis, and assign a lower-level code, called downcoding.

• Downcoding may occur because the procedure’s place of service is an emergency department, but the patient’s problem is not considered an emergency.

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Determination Cont.• Claims may also be downcoded because the documentation

fails to support the level of service claimed.• For example, if the physician has coded a high-level evaluation

and management service for a patient who presents with an apparently straightforward problem, this is considered upcoding, and the claims examiner is likely to request the encounter documentation.

• The medical record should contain information about the type of medical history and examination done as well as the complexity of the medical decision making that was performed.

• If the documentation does not support the service, the examiner downcodes the E/M code to a level considered appropriate.

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Payment• If payment is due, the payer sends it to the provider along

with a remittance advice (RA), also known as an electronic remittance advice (ERA), a transaction that explains the payment decisions to the provider.

Overdue Claims• Health plans have contractual or legal agreements to pay

claims within a period of time from receipt.• Claims must be monitored until payments are received.• Monitoring claims during adjudication requires two types

of information.1. The amount of time the payer is allowed to take to respond to

the claim

2. How long the claim has been in process

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Overdue Claims Cont.• Payers also have to process clean claims within the

claim turnaround time as specified by the participation contract or governed by state or federal rules.

• The other factor in claim follow-up is aging, how long a payer has had the claim.

• The practice management program is used to generate an insurance aging report that lists the claims transmitted on each day and shows how long they have been in process with the payer.

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13.2 Processing the Remittance Advice

Remittance Advice• The RA sent by the payer to the medical office

summarizes the determinations for a number of claims.• claim control number• patient name• dates of service• type of service• charges• explanation of the way the amount of payment was determined

• The document the patient receives, called the explanation of benefits or EOB, covers just the patient’s determination.

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13.2 Processing the Remittance Advice Cont.

Remittance Advice Cont.• RAs cover claims for a number of patients, and

payments may not be made for every service line on a particular claim.

• Payers use standard types of HIPAA administrative codes to explain their adjustments.

• For example, the adjustment code PR indicates that the amount can be billed to the patient/insured, and code PI means payer initiated reduction, which might result from the payer’s downcoding an E/M code.

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13.2 Processing the Remittance Advice Cont. 13-20



Review Procedure1. Check the patient’s name, account number, insurance

number, and date of service against the claim.

2. Verify that all billed CPT codes are listed.

3. Check the payment for each CPT against the expected amount, which may be an allowed amount or a percentage of the usual fee.

4. Analyze the payer’s adjustment codes to locate all unpaid, downcoded, or denied claims for closer review.

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Review Procedure Cont.5. Pay special attention to the RA for claims submitted

with modifiers. Some payers’ claim processing systems automatically ignore modifiers, so that E/M visits billed on the same date of service as a procedure are always unpaid and should be appealed.

6. Decide whether any items on the RA need clarifying with the payer, and follow up as necessary.

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Posting Procedure• Many practices that receive RAs authorize the payer to

provide an electronic funds transfer (EFT) of the payment.

• Payments are deposited directly into the practice’s bank account.

• Otherwise, the payer sends a check to the practice, and the check is taken to the practice’s bank for deposit.

• Regulations mandated under the Affordable Care Act (ACA) as of January 1, 2014, require a trace number to appear on both the EFT and its ERA, so the documents are easy to match up electronically.

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Payment Reconciliation• The process of reconciliation means making sure that

the totals on the RA EOB check out mathematically.• In this case, $27.13 is written off unless it can be billed

to the patient under the payer’s rules.

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Handling Overpayments• Overpayments (also called credit balances) are improper

or excessive payments resulting from billing errors for which the provider owes refunds.

• For example,• a payer may mistakenly overpay a claim;

• a payer’s post-payment audit may find that a claim that has been paid should be denied or downcoded because the documentation does not support it;

• a provider may collect a primary payment from Medicare when another payer is primary.

– The payer will ask for a refund (with the addition of interest for Medicare).

– Most often, the procedure is to promptly refund the overpayment.

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Denial Management• If the claim is rejected, it must be corrected and resent.• If a procedure was overlooked, another claim is sent for

that procedure.• If the payer has denied payment, study the adjustment

codes to determine why.• If a procedure is not a covered benefit or if the patient was not

eligible for that benefit, bill the patient for the non-covered amount.

• If the claim is denied or downcoded for lack of medical necessity, there are three options: bill the patient, write off the amount, or challenge the determination with an appeal.

• Some provider contracts prohibit billing the patient if an appeal or necessary documentation has not been submitted to the payer.

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Denial Management Cont.• To improve the rate of paid claims over time, medical

assistants track and analyze each payer’s reasons for denying claims.

• Denials should be grouped into categories, such as• coding errors (incorrect unbundling, procedure codes not

payable by plan with the reported diagnosis codes)• registration mistakes, such as incorrect patient ID numbers• billing errors, such as failure to get required pre-authorizations

or referral numbers• payer requests for more information or general delays in claims

processing

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13.3 Appeals

General Appeal Process• An appeal is a process that can be used to challenge a

payer’s decision to deny, reduce, or otherwise downcode a claim.

• A provider or a patient may begin the appeal process by asking for a review of the payer’s decision.

• Each payer has consistent procedures for handling appeals, based on the nature of the appeal.

• The practice staff reviews the appropriate guidelines for the particular insurance carrier before starting an appeal and plans its actions according to the rules.

• Appeals must be filed within a specified time after the claim determination.

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13.3 Appeals Cont.

General Appeal Process Cont.• Most payers have an escalating structure of appeals,

such as (1) a complaint, (2) an appeal, and (3) a grievance.

• Some payers also set a minimum amount that must be involved in an appeal process, so that a lot of time is not spent on a small dispute.

• A claimant can take another step if the payer has rejected all the appeal levels on a claim.

• State insurance commissions have the authority to review appeals that payers reject.

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13.3 Appeals Cont.

Medicare Appeals• Medicare participating providers have appeal rights.• Note, though, that there is no need to appeal a claim if it

has been denied for minor errors or omissions.• The provider can instead ask the Medicare carrier to

reopen the claim so the error can be fixed, rather than going through the appeals process.

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13.3 Appeals Cont.

Medicare Appeal Steps: Redetermination• This is a claim review by an employee of the Medicare carrier

who was not involved in the initial claim determination.• The request, which must be made within 120 days of

receiving the initial claim determination, is made by completing a form or writing a letter and attaching supporting medical documentation.

• If the decision is favorable, payment is sent.• If the redetermination is either partially favorable or

unfavorable, the answer comes as a letter called the Medicare Redetermination Notice (MRN).

• The decision must be made within 60 days.• The letter is sent to both the provider and the patient.

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13.3 Appeals Cont.

Medicare Appeal Steps: Reconsideration• The second step is a reconsideration request.• This request must be made within 180 days of receiving

the redetermination notice.• At this level, the claim is reviewed by qualified

independent contractors (QICs).

Medicare Appeal Steps: Administrative Law Judge• The third level is a hearing by an administrative law

judge.• The amount in question must be over $130, and the

hearing must be requested within 60 days of receiving the reconsideration notice.

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13.3 Appeals Cont.

Medicare Appeal Steps: Medicare Appeals Council• The fourth level must be requested within 60 days of

receiving the response from the hearing by the administrative law judge.

• No monetary amount is specified.

Medicare Appeal Steps: Federal Court Review• The fifth and final Medicare appeal level is a hearing in

federal court.• The amount in dispute must be at least $1,350, and the

hearing must be requested within 60 days of receiving the department appeals board decision.

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13.4 Patient Billing & Adjustments

PMP Updates1. The payment for each reported procedure is entered.

2. The amount owed is calculated.

3. If any part of a charge must be written off due to a payer’s required adjustment, this amount is also entered.

4. The PMP uses this information to update the day sheet, which is a summary of the financial transactions that occur each day.

5. The patient ledger, the patient’s account, is updated.

6. These data are used to generate patient statements, bills that show the amount each patient owes.

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13.4 Patient Billing & Adjustments Cont.

Working with Statements• Statements must be accurate and easy for the patient to

read. • They should contain all necessary information so that

there is no confusion about the amount owed:• the name of the practice and the patient’s name, address, and

account number• a cost breakdown of all services provided• an explanation of the costs covered by the patient’s payer(s)• the date of the statement (and sometimes the due date for the

payment)• the balance due (if a previous balance was due on the account,

the sum of the old balance and the new charges)• in some cases, the payment methods the practice accepts

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Cycle vs. Guarantor Billing• Cycle billing is used to assign patient accounts to a

specific time of the month and to standardize the times when statements will be mailed and payments will be due.

• Practices may send statements to each individual patient, or they may send one statement to the guarantor of a number of different accounts, called guarantor billing.

• For example, if a patient is responsible for his own bill as well as the bills of his wife and children, all of the family’s recent charges can be categorized and sent together on one statement.

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Patient Advocacy• Patients often have complaints and problems with their

health plans that they become aware of when they receive their bills.

• The medical assistant may serve as a go-between to contact the carrier and get questions answered.

• Handling these situations with expertise and objectivity can build goodwill for the physician’s office by using problem-solving and communication skills to fulfill this role.

• The first step in answering patients’ inquiries about claims is to find out exactly what the problem is.

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Patient Advocacy Cont.• Ask the patient whether he or she has:

• contacted the health plan• talked to the service representative• reviewed the policy

• The patient may not understand the insurance policy or may be confused about the rules, such as in- and out-of-network billing.

• On other occasions, the payer has made an error, and the patient is correct.

• Understandably, patients get upset when they receive unexpected large bills or incorrect payments or when payments are delayed.

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Patient Advocacy Cont.• The medical assistant is the patient’s advocate with the

health plan.• Sometimes the problem is just a misunderstanding

because the patient does not know the right questions to ask, does not understand the answers, or is unaware that benefits have changed.

• In other situations, the patient may accuse the office staff of billing incorrectly.

• In these cases, try to listen carefully for the facts without letting feelings interfere.

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Patient Advocacy Cont.• If the patient has already called the health plan but is

still upset or confused, the medical insurance specialist should call again and listen carefully to the explanation.

• The patient may have been too stressed to understand it.

• Use the following techniques when explaining insurance issues to patients:

• speak slowly and calmly• use simple language and try to avoid insurance jargon• explain more than once when necessary

• Remember, patients are under stress, so always use respect and care.

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Credit Balances, Refunds, and NSF Fee Posting• Refunds are made when the practice has overcharged a

patient for a service and the patient has a credit balance, so the extra amount needs to be repaid.

• The balance due must be refunded promptly if the practice has completed the patient’s care.

• If the practice is still treating the patient, the credit balance may be carried forward, to be applied toward the copayment or other charges for the next visit.

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Credit Balances, Refunds, and NSF Fee Posting Cont.• When a practice receives an NSF (non-sufficient funds)

notice from a bank, an adjustment is made in the patient’s account, since the patient now owes the practice the amount of the returned check.

• In addition, most practices charge a fee for a returned check, up to the maximum amount governed by state laws.

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13.5 Collecting Outstanding Patient Accounts

Introduction to Collections• The term collections refers to all the activities that are

related to patient accounts and follow-up.

• Collection activities should achieve a suitable balance between maintaining patient satisfaction and generating cash flow.

• While most patients pay their bills on time, every medical practice has patients who do not pay their monthly statements when they receive them.

• Many simply forget to pay the bills and need a reminder, but others require more attention and effort.

• A great deal of accounts receivable can be tied up in unpaid bills, and these funds can mean the difference between a successful and an unsuccessful practice.

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13.5 Collecting Outstanding Patient Accounts Cont.

Collections Cont.– A patient may not pay a bill for several reasons:

• The patient thinks the bill is too high.• The patient thinks that the care rendered was not appropriate or

not effective.• The patient has personal financial problems.• The bill was sent to an inaccurate address.• There is a misunderstanding about the amount the patient’s

insurance pays on the bill.

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Regulations• Collections from patients are classified as consumer

collections and are regulated by federal and state laws.

• The Federal Trade Commission enforces the Fair Debt Collection Practices Act (FDCPA) of 1977 and the Telephone Consumer Protection Act of 1991 that regulate collections to ensure fair and ethical treatment of debtors.

• State law may not permit contacting debtors at their place of employment, so this aspect needs to be checked.

• If the practice chooses to add late fees or finance charges to patients’ accounts, it must do so in accordance with state and federal laws.

• Often, it is required to disclose any fees or finance charges at the time services are rendered.

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Collection Guidelines• Contact patients once daily only, and leave no more than

three messages per week.• Do not call a patient before 8 A.M. or after 9 P.M.• Do not threaten the patient or use profane language.• Identify the caller, the practice, and the purpose of the call;

do not mislead the patient.• Do not discuss the patient’s debt with another person,

such as a neighbor.• Do not leave a message on an answering machine that

indicates that the call is about a debt or send an e-mail message stating that the topic is debt.

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Collection Guidelines Cont.• If a patient requests that all phone calls cease and desist,

do not call the patient again, but instead contact the patient via mail.

• If a patient wants calls to be made to an attorney, do not contact the patient directly again unless the attorney says to or cannot be reached.

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Credit Arrangements and Payment Plans• A practice may decide to extend credit to patients through a

payment plan. • The Federal Trade Commission (FTC) enforces the Equal

Credit Opportunity Act (ECOA), which prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because a person receives public assistance.

• If the practice decides not to extend credit to a particular patient, while extending it to others, under the ECOA the patient has a right to know why.

• Factors like income, expenses, debts, and credit history are among the considerations lenders use to determine creditworthiness and must be clearly stated.

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Credit Arrangements and Payment Plans Cont.• Both the patient and the practice must agree to all the

terms before the arrangement is finalized.• Patients agree to make set monthly payments; if no

finance charges are applied to the account, the arrangement is not regulated by law.

• However, if the practice applies finance charges or late fees, or if payments are scheduled for more than four installments, the payment plan is governed by the Truth in Lending Act, which is part of the Consumer Credit Protection Act.

• Patients must sign off on the terms on a truth-in-lending form that the practice negotiates with the patient.

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13.6 Writing Off Uncollectible Accounts

Uncollectible Accounts• Uncollectible accounts are those with unpaid balances that

the practice does not expect to be able to collect and that are not worth the time and cost to pursue.

• The practice must determine which debts to write off in the practice management program and whether to continue to treat the patients.

• Practice management programs can be set to automatically write off small balances, such as less than $5.00.

• After an account is determined to be uncollectible, it is removed from the practice’s expected accounts receivable and classified as bad debt.

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13.6 Writing Off Uncollectible Accounts Cont.

Uncollectible Accounts Cont.• Practices must follow strict guidelines and the established

office policy for write-offs.• Both Medicare and Medicaid require a practice to follow a

specific series of steps before an account can be written off.

• Writing off some accounts and not others could be considered fraud if there are discrepancies between charges for the same services.

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13.7 Terminating the Provider-Patient Relationship

• A physician has the right to terminate the provider-patient relationship for any reason under the regulations of each state.

• The doctor also has the right to be paid for care provided.

• The physician may decide to dismiss a patient who does not pay medical bills.

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13.7 Terminating the Provider-Patient Relationship Cont.

• If the patient is to be dismissed, this action should be documented in a letter to the patient that:• offers to continue care for a specific period of time after the

date of the dismissal letter, so that the patient is never endangered;

• provides suggestions of services that provide referrals to other physicians and offers to send copies of the medical record;

• does not state a specific reason for the dismissal; the letter must be tactful and carefully worded.

• The letter should be signed by the physician and mailed certified, return receipt requested, so there will be proof that the patient received it.

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Chapter Summary

Learning Outcomes Key Concepts/Examples

13.1 Outline the steps of claimadjudication, explaining the effect of upcoding and downcoding on the process.

The adjudication process is made up of 5 steps:• Initial processing• Automated review• Manual review• Determination• Payment

Upcoding by the practice may lead to requests for additional documentation anddelay payment.

Downcoding by the payer may result when the coding or medical necessity are called into question, reducing the payment.

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Chapter Summary


13.2 Process RAs. • The unique claim control number reported on the RA is used to match up claims sent and payments received.• Then basic data are checked against the claim, billed procedures are verified, the payment for each CPT is checked against the expected amount, adjustment codes are reviewed to locate all unpaid, downcoded, or denied claims, and items are identified for follow up.

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Chapter Summary


13.3 Discuss the purpose andgeneral steps of the appeal process.

• An appeal process is used to challenge a payer’s decision to deny, reduce, or otherwise downcode a claim.• Each payer has a graduated level of appeals, deadlines for requesting them, and medical review programs to answer them.• In some cases, appeals may be taken beyond the payer to an outside authority, such as a state insurance commission.

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Chapter Summary


13.4 Describe the purpose andcontent of patient statements.

• Updated patient ledgers reflecting all charges, adjustments, and previous payments to patients’ accounts are used to generate patient statements, printed bills that show the amount each patient owes.• Patients may owe coinsurance, deductibles, and fees for non-covered services.• Statements are designed to be direct and easy to read, clearly stating the services provided, balances owed, due dates, and accepted methods of payment.

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Chapter Summary


13.5 Apply regulations andguidelines to the collection process.

• Collections from patients are regulated by federal and state laws.• The Fair Debt Collection Act (FDCPA) of 1977 is such a law.

13.6 Explain the procedures for writing off uncollectible accounts.

• The practice reviews unpaid balances to determine which accounts are uncollectible.• Practice management programs can be set to automatically write off small balances.• Balances can be forgiven and a percentage of a bill can be written off if patients’ financial status classifies them as indigent based upon federal and state laws.• Account balances can be written off if a patient dies, files for bankruptcy, or can’t be located.• Practices must follow strict guidelines and use caution when writing off account balances to avoid activity that could be considered fraudulent.

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Chapter Summary


13.7 Describe the physician’sresponsibilities when terminating the provider–patient relationship.

• To inform the patient tactfully in a carefully worded letter of the dismissal.• To continue care for a specified period of time after the date of dismissal.• To suggest services that the patient could use that would provide a referral to another physician.

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Documents

CHAPTER © 2014 The McGraw-Hill Companies, Inc. All rights reserved. BOOK COVER 13 Claim Processing, Payments, and Collections