HOW THE MEDICAL CLAIM CYCLE WORKS

After completing this chapter, you should be able to:

Briefly explain the purpose of a medical claim

Relate what happens to claims when they reach the insurance company

Briefly explain how to complete the claim cycle after payment is received

Demonstrate how to gather the information for a medical claim

Explain how to streamline the claim cycle by using forms that collect the correct information

Demonstrate the effect on reimbursement, on practice expenses, and on profit when claims are penalized or rejected because of incorrect information

Key Terms

ABN

Advance Beneficiary Notice; a Medicare waiver that notifies the patient that Medicare might not pay for a service, either because it is a noncovered service or because medical necessity, as defined by Medicare, might not be met, even though the physician believes the service is medically necessary. The patient may then choose to pay for the service if Medicare does not or may choose to decline the service. This form must be signed by the patient before the service is provided, or you cannot bill the patient if Medicare does not pay.

appeal

a formal request submitted to an insurance plan to have a payment decision changed or a penalty reversed.

assignment of benefits

instructs the insurance company to send payment directly to the medical practice or provider. (The patient will pay copayments and deductibles at the time of service.)

balance billing

billing the patient for the balance remaining after the insurance payment has been posted.

billing address

the mailing address for the patient or the mailing address for the payor.

birthday rule

when a dependent child is covered by insurance plans from both parents’ employers, the policy for the parent whose birthday falls earliest in the calendar year is the primary payor and is billed first.

claim audits

check for duplication of services or billing that is in excess of normal.

claim edits

check for completeness and accuracy of claim form.

clean claim

a claim that passes payor claim edits and claim audits.

demographics

statistics about a person or a population, such as name, age, gender, race, address, zip code, telephone number, and area code.

duplicate claim

resubmission of an identical claim—mirror image—with no changes. Also called double billing; duplicate claims are considered fraud.

E/M

evaluation and management; the process of evaluating a patient for suspected, known, or potential problems or conditions; assessing the findings; rendering an opinion; and developing and initiating a plan of action.

encounter form

a fee ticket or superbill that ties reimbursement to specific encounters for line item billing.

EOB

explanation of benefits; a notification of the payor’s decision regarding a claim, accompanied by payment when payment is due.

EOMB

explanation of Medicare benefits; a notice sent from Medicare to a beneficiary informing the beneficiary of Medicare’s payment decisions and bills paid or not paid for the beneficiary.

fee ticket

a record of the day’s charges for a patient.

financial class

a person’s income or ability to pay a debt.

financial record

documentation of a patient’s financial transactions, i.e., billing and collections.

living will

a legal document that communicates a patient’s decision regarding life support measures in the event the patient is unconscious or otherwise unable to make that decision.

medical record

documentation of a patient’s medical visits and care rendered.

MRN

Medicare remittance notice; also called remittance advice (RA); this notice is sent from Medicare to the physician (or other medical provider) giving notification of Medicare’s payment decision regarding a claim, accompanied by payment when payment is due.

new patient

a patient who is new to the practice or who has not been seen by a physician in the practice (or the specialty in a multi-specialty group) within the past 3 years.

patient financial responsibility

the portion of the bill that the patient legally is required to pay.

payor

the insurance company responsible for paying the medical claim.

penalized claim

a claim that did not pass the payor’s claim edits or claim audits and a penalty was applied, reducing the payment.

physical address

the actual location of a building or the actual location where a person lives—not a post office box.

primary payor

the insurance company that legally should be billed first when more than one insurance company can be billed.

profit

the money remaining from a payment after all expenses for the service, including employee expenses, have been paid.

rebill

the process of resubmitting a corrected claim.

rejected claim

a claim that did not pass payor claim edits and claim audits, and no payment was sent.

release of information

the patient authorizes the medical practice to send specific records, such as billing information, to a payor or to a specific person or place.

repeat claims

corrected claims that have been resubmitted with information that has changed; not the same as duplicate claims.

secondary payor

the insurance company that legally should be billed second for any remaining unpaid bills after the primary payor has sent payment.

superbill

a tool to report chart documentation for billing purposes; part of the financial record.

unprocessable claim

a claim that could not be processed by a payor because of missing key information.

write-off

a discount the physician has given a patient or has authorized in a payor contract.

Introduction

The purpose of this chapter is to give you (1) an overview of how the claim cycle works, (2) an awareness of the unnecessary expense that occurs when a claim is not completed correctly the first time, and (3) the tools to gather correct information from patients and physicians for medical claims. You will need this basic understanding of the medical claim process as a foundation to build on throughout the rest of the book when you learn about claim preparation, basic billing, coding and documentation rules, types of medical insurance plans, payor-specific billing requirements, and strategies for reimbursement success, as well as what to do when things go wrong.

Medical documentation requirements have become very specific in recent years. Many physicians are struggling to meet the new, complex requirements. Insurance companies now want to know the thought processes physicians use to reach medical decisions. Therefore, much of the physician work that traditionally has been cognitive now must be documented in patient medical records. Well-designed forms and documents can assist physicians in meeting these complex requirements while helping you gather the correct information for billing physician services.

When the requirements are all met and the claim form is prepared correctly the first time, full payment can be received quickly. The costs for billing medical services are kept as small as possible. However, any time a reduced payment or no payment is received, the cost for billing the service rises dramatically. These extra costs reduce the profit for the service. Profit is the money remaining after all the expenses, including employee expenses, have been paid.

In this chapter, the lifecycle of the claim is an overview to introduce you to the claim cycle process. Each of the items is explained in more detail as the book progresses. Because the government hires private insurance companies to process government medical claims, and because the claim process is similar for both private and government medical claims, the term insurance in this section shall refer to both private and government medical plans. Let’s take a look at the medical claim cycle from beginning to end.

Lifecycle of a Medical Claim

The potential for a medical claim begins when a person first enrolls in a medical plan (private or government). That potential increases when the person, now called a patient, calls to schedule a medical appointment. The collection of data for a medical claim begins at this time. The scheduler collects and documents insurance information in order to arrange the appointment with an authorized provider under contract with the patient’s medical plan and to determine if any other requirements must be met.

The most important aspects of the medical claim cycle occur between the time the patient arrives for the appointment and the time the medical claim first arrives at the insurance company. This is such a small part of the lifecycle of a claim, as you can see from Figure 3-1, yet it determines whether correct reimbursement is received in a timely manner.

FIGURE 3-1 The lifecycle of a clean claim for a patient with one insurance plan.

On the day of the appointment, the receptionist greets the patient and collects or verifies the patient-supplied medical billing information during patient check-in. The receptionist is held accountable for identifying all possible payors (insurance companies). This is done using registration forms to question the patient. The receptionist makes sure current copies of the insurance card(s) and a copy of a valid patient ID card are on file, and the receptionist obtains or verifies the signatures for the “Release of Information” and “Assignment of Benefits.” The release of information allows the medical practice to send billing information to the insurance company. The assignment of benefits allows the insurance company to send payment directly to the medical practice, and the patient only pays deductible and copayment amounts at the time of the appointment. Medical claims cannot be filed without this critical information. The scheduling and patient check-in processes are described in more detail later in this chapter.

During the appointment, in addition to providing medical care, the authorized physician is responsible for (1) documenting the details of the encounter in the patient’s medical record in a manner that meets legal requirements, and (2) approving the billing instructions that will be given to the billing department. Chapters 5, 6, and 7 cover the basic requirements for converting the physician’s written documentation of this visit into codes that are placed first on the superbill (billing instructions) and then on the medical claim form. Gathering physician-supplied information is discussed in more detail later in this chapter.

At the end of the appointment, clinical support personnel (e.g., nurse or medical assistant) review the physician’s instructions with the patient and they review the billing instructions. The business-office checkout personnel (often another duty of the receptionist) schedule a follow-up appointment, if needed, and verify that the patient’s financial responsibility for the appointment has been met or appropriate payment arrangements have been made.

The billing department is then given the insurance billing instructions. Billing and coding personnel verify the patient-supplied and the physician-supplied billing information as they prepare the medical insurance claim. The quality and accuracy of billing information and clinical documentation, as it flows through each department and is entered on the claim form, has the single greatest impact on the profit margin for the claim.

The primary payor is the medical plan that is billed first when more than one medical plan can be billed, and the secondary payor is the medical plan that is billed for any remaining unpaid bills after the primary payor has sent payment.

For example: When a patient has both Medicaid and Medicare, Medicare is the primary payor because Medicaid is always the secondary payor when there are two payors. The patient’s bill is sent to Medicare first. After payment is received from Medicare, the patient’s bill and a copy of Medicare’s payment documents are sent to Medicaid.

The biller is held accountable for determining which payor is primary. Failure to identify the correct primary payor is considered a violation of most payor contracts or agreements and is a serious breach of trust. Primary and secondary payors and payor-specific billing requirements are discussed in more detail in Chapters 8, 9, 10, and 11.

When complete, the medical claim is submitted to the payor either electronically or by mail. In Chapter 4, you will learn how to complete and submit a medical claim, and you will learn the requirements for both paper claims and electronic claims.

Payment is received a little faster with electronic submission of claims, and electronic submission eliminates the potential for data entry errors when the claim reaches the payor. However, each payor must receive electronic data in a slightly different manner to meet the requirements for payor-specific software programs. In most states, Medicare has free software you may use to send claims directly to them.

In addition, there are national claims clearinghouses that translate claim information into the format desired by the major payors for every state, and there are regional claims clearinghouses that specialize in translating claims for the majority of the payors in a particular region. You do not have to be a large practice to use a claims clearinghouse.

When an electronic medical claim is sent through a claims clearinghouse, the clearinghouse puts the claim through a series of edits before sending the claim to the payor. The edits check to see whether basic information required by the specific payor for each claim is present on the claim form. If the claim is rejected by the clearinghouse and is sent back to the medical practice, an opportunity exists to correct the claim before it reaches the payor. Once the claim reaches the payor, a record of the transaction is established by the payor, and the stage is set for the remainder of the claim cycle.

When a claim first reaches the insurance company, it is automatically subjected to a series of claim edits and claim audits established by the medical plan. Claim edits verify the completeness and accuracy of information entered on the claim form. Claim audits check for duplication of services or billing that is in “excess of normal.” Excess billing could be indicated by a higher level of visit than normal for the given diagnosis, more visits than normal for the diagnosis, or a more complex procedure than normal for the diagnosis.

For example: When a patient has a simple sore throat, it normally does not take an hour for the physician to examine the patient and make the diagnosis of tonsillitis. Tonsillitis does not normally require complex diagnostic testing as does cardiac catheterization, nor does it normally require multiple follow-up visits. Claim audits detect such inconsistencies.

Chapters 5 through 14 include additional information about payor edits, payor audits, and other payor requirements. When the claim passes all of the payor edits and audits, it is called a clean claim. The payment amount is determined, and payment is sent to the provider, either electronically or by mail.

When the correct payment amount is received from the payor, a collections employee posts the payment by recording it in the patient ledger. If secondary insurance is responsible for an additional amount or if the patient has an outstanding balance for their portion, the account for this transaction (claim) remains open, and bills are sent out to the secondary payor, or to the patient if there is no secondary payor. When these payments are received, they are posted. As soon as no further payment is expected, the insurance write-off (discount), if any, is calculated and posted, and the account for this claim is closed. See Chapter 13 for detailed information on posting payments and calculating insurance write-offs.

A record of the transaction remains on file for the time specified in the payor contract or the time specified in state or federal laws, whichever is longer. The longest period is usually 7 years, so most practices choose to keep all their records for at least 7 years.

Note: Some organizations are lobbying to have the laws changed so medical records are kept for the life of the patient or seven years, whichever is longer.

When the claim does not pass all of the edits and audits, it is not a clean claim. Then, one of two events is likely to occur: either (1) the claim is rejected and no payment is sent or (2) the claim is processed and penalties are applied, reducing the amount of payment that is sent.

An “Explanation of Benefits” (EOB) is sent either electronically or by mail to the physician for every claim received by the medical plan (payor). Medicare calls this form “Medicare Remittance Notice” (MRN) and sends the patient an explanation of Medicare benefits (EOMB). Payment is enclosed with the EOB or MRN when payment is authorized. The remarks on the EOB are the first indication of whether follow-up procedures are required for the claim. EOBs and payor remarks are discussed in detail in Chapter 13.

A pending claim is an outstanding claim that the payor has received, but for which the payor has not yet made a payment decision. An EOB indicates the results of a payment decision. When an EOB arrives and shows that no payment is received or when only partial payment is received, a collections employee posts the payment, but the account for the transaction remains open for further action. In most cases, the next action is to correct the claim information and either rebill the claim or file an appeal.

Rejected claims are “unprocessable” claims, and no payment is received. The EOB usually indicates incomplete data or incorrect data, such as “unable to identify the patient as an authorized recipient.” These claims may be corrected and rebilled within time limits established by the payor contract. Most payors allow corrected claims to be submitted either electronically or on paper. However, if a claim is re-sent with no changes, it is flagged as a “mirror image” duplicate claim and, once again, no payment is received. Duplicate claims are, in effect, double-billing, and trying to collect twice on the same claim is considered fraud.

Penalized claims must be corrected and the payment decision must be appealed. Partial payment is usually received with these claims, though occasionally a penalized claim will receive zero payment, and the provider may even owe money due to a penalty. Appeals obtain better results when they are submitted by mail with supporting documentation. Chapter 13 covers the requirements for rebilling and filing appeals for corrected claims.

When the corrected claim is received by the payor, whether rebilled or appealed, the claim is immediately flagged for closer scrutiny. Even if the claim is now “clean” and can pass the payor’s standard claim edits and claim audits, claim adjusters are seldom authorized to make payment decisions on repeat claims; instead, the claim is sent to the review department.

Most payor contracts have many loopholes (legal or not) that state the payor may deny or reduce payment for a wide variety of reasons. A claim review employee closely scrutinizes the claim, and every box on the claim form represents a potential reason to deny or reduce payment. Payor contract provisions often give the payor complete control and authority over claim review. The provider too often agrees in the contract to abide by the payor’s decision with no requirement that the decision meet current standards of medical practice and no requirement that the decision be fair. See Chapter 14 for more information on payor contracts.

Claim review is normally performed by hand—it is not automated or computerized—and repeat claims are not subject to the payment time limits that apply to initial claims. The review process and payment decision for a repeat claim can take anywhere from 6 weeks to 6 months. Most of that time the claim just sits in a “claim review” inbox, waiting to be processed. Contested claims often must go through this process at least twice before other alternatives, such as arbitration, are available.

Once every effort has been made to collect payment from the primary medical plan, and no further payment is expected, the secondary medical plan, if any, is billed. A copy of the payment documents (EOB or MRN) received from the primary payor must accompany secondary claims. Medicare sometimes, but not always, automatically forwards the claim and the payment documents to Medigap payors that are registered in the Medicare system. See Chapter 10 for more information about Medicare billing considerations.

In special cases the secondary medical plan may be billed without first going through the rebilling or appeal process. For example: A hearing aid might be clearly excluded from coverage with the primary plan and covered by the secondary plan only when the primary plan’s denial is in writing. The primary medical plan is billed to obtain an intentional denial. The secondary insurance can then be billed immediately after receiving the written denial.

After all insurance payments are received, collections employees check to see if the patient is responsible for any of the remaining balance. More than 80% of all medical care is now subject to managed care rules and contract provisions. Most managed care contracts do not allow a provider to bill patients for anything except a deductible or copayment amount, and many specifically stipulate that penalty amounts are not a patient responsibility. Usually services that are deemed as “noncovered” services may only be billed to the patient if the patient signs a specific “NonCovered Service Payment Agreement” (Advance Beneficiary Notice [ABN] or waiver) before the service is rendered. ABNs and waivers are discussed later in this chapter, and examples are given at that time.

When all expected payments from all sources have been received, remaining balances are typically written off and the account for the transaction (claim) is closed. A record of the transaction remains on file for the time specified in the payor contract or the time specified in state or federal laws, whichever is longer. See Chapters 13 and 14 for more detailed information on the portion of the claim cycle that occurs after the primary payor receives the initial claim and makes a payment decision.

STOP & REVIEW

Please answer the following questions:

1. Which employee is usually the first to collect information for the claim form?

______________________

2. Which employee is responsible for identifying all possible payors? __________________

______________________

3. What is a payor? ______________

4. Which employee is responsible for identifying the primary payor? __________________

______________________

5. Which employee is responsible for determining if full payment was received? __________________

______________________

6. What is an EOB?____________________________

__________________________________

7. When are claim edits and claim audits performed?

___________________________________

Match the item in column A with the correct action in column B.

COLUMN A	COLUMN B
8. Clearinghouse edit 9. Claim edit 10. Claim audit	A Checks claims for completeness and accuracy after claims reach payor B Checks for double claims and for services that are in “excess of normal” C Checks claims for completeness and accuracy before claims reach payor

Gathering Patient-Supplied Information

Gathering patient information for the medical claim is only a small step in the lifecycle of a claim, but it is vital, and it influences whether correct reimbursement is received in a timely manner.

Accuracy is extremely important when filing medical claims. The legal consequences for carelessness can be devastating. Therefore a system of checks and balances is built into medical office procedures. The scheduler gathers medical insurance information when the appointment is scheduled. The receptionist verifies the medical insurance information and gathers proof that the information is correct.

The physician documents medical care and approves billing instructions. The clinical support employees check to be sure the billing information includes everything, and they check the documentation to see if it matches the billing information. When clinical support employees, such as nurses or medical assistants, find an error, they bring it to the physician’s attention and get it corrected immediately, before the patient leaves the office.

Then the billers and coders check the same information for accuracy one last time before completing and submitting the medical claim form. This system is designed to enable the highest level of accuracy when medical claims are filed.

The downfall of the system is that it can and often does lead to complacency. Employees don’t check the data as closely as they should because they know someone else will be checking it again later. They adopt the attitude, “I really don’t have time for this. If there’s a mistake, the biller will find it when she verifies the information before sending out the claim.” Meanwhile, the biller decides, “This information has already been checked and double-checked. I trust the other employees. They wouldn’t send me information that is not accurate.” Many errors slip through the system undetected, and reduced payments are mistakenly blamed on managed care rather than employee error.

Since the passage of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), medical employees can no longer afford the luxury of complacency. Personal accountability for medical office employees will become mandatory when HIPAA is fully implemented. The wheels are already in motion. The final version of the “Guidance” for solo practitioners and small group practices was released in September 2000. These regulations are already in effect. You may check the status of compliance guidance for other medical entities at the website for the Office of Inspector General, Department of Health and Human Services (OIG/HHS): http://oig.hhs.gov/.

When you follow the correct procedures and check or recheck billing information for accuracy every time you should, you will establish a pattern of behavior. If the OIG/HHS receives a complaint that leads them to investigate your work, they will find you have a history of accuracy. Their stated intention is to only go after those with a history of carelessness and inaccuracy. What pattern of behavior do you want the OIG/HHS or the Federal Bureau of Investigation (FBI) to find when they arrive on your doorstep?

If your practice is computerized, each employee who enters patient information must take the time to learn what happens to the information after it is entered into the computer. Which computer screen documents information about the primary payor? Which computer screen documents information about the secondary payor? What steps are required to switch the information if the payors are accidentally entered into the computer system in the wrong order? Which computer screen documents the patient’s physical address, and which one documents the mailing address? Which patient-address screen is used for the address that will appear on the medical claim form? What computer screen is used to document the payor’s authorization number? Will the computer automatically enter this information on the claim form?

Every computer program is different, and most of them do not have help screens that tell employees “information entered here will appear in block No. 5 on the claim form.” You must take the time to learn this information for yourself, and you cannot establish a record of accuracy until you do. Take a blank Centers for Medicare and Medicaid Services (CMS)-1500 claim form and identify which computer screen supplies the information for each block on the claim form. Write it down on the claim form in each block. This is your cheat sheet; don’t lose it. When something is entered incorrectly on a claim form, you will know where to go in the computer system to fix the problem. Taking the time to create a claim form cheat sheet will make your job easier and greatly reduce frustration.

Sometimes it takes a few days to figure out a computer system, but once you learn how to use the management software system, a computer is very efficient. Most computer systems save patient information. You don’t have to type in information that has been saved, but it is wise to review the patient address, employment, and insurance information with the patient on every visit.

SCHEDULING

The scheduler does much more than just schedule appointments. In Chapter 2 you learned that the scheduler determines whether the patient’s problem is urgent or routine. The scheduler determines which physicians the patient may choose to see according to insurance plan requirements. The scheduler checks for payor-specific scheduling requirements, such as preauthorizations or time-limit requirements.

The scheduler also preregisters patients. Preregistration includes obtaining or verifying patient demographic information (address, birth date, gender, marital status, etc.) and insurance billing information (Figure 3-2). The scheduler also discusses patient financial responsibility (the portion of the bill due from the patient) and determines the patient’s financial class (ability to pay).

FIGURE 3-2 In booking telephone appointments, the scheduler enters insurance and demographic information into the computer system. (From Chester G: Modern Medical Assisting. Philadelphia, WB Saunders, 1998, p. 90.)

The scheduler is the first person to gather billing information for the medical claim, and the scheduler is accountable for knowing what information to gather. When a practice is not computerized, the scheduler uses paper worksheets to schedule appointments and to record billing information. When a practice is computerized, the scheduler is accountable for knowing where each piece of information should be entered and where the computer places the information in other documents.

PATIENT CHECK-IN

The security and confidentiality of health information provisions in HIPAA mean that many medical practices must change their procedures at the registration desk. It is a breach of the Privacy Act of 2001 for a patient or visitor to see or hear any “protected health information” that could be used to identify an individual patient. Traditional check-in procedures, with sign-in sheets that also update billing information, no longer meet legal requirements. Doors and windows between employee work areas and the waiting room must remain closed to limit the potential for eavesdropping (Figure 3-3). Patient charts and computer screens must be handled in a manner that prevents patients and vendors from viewing protected health information.

FIGURE 3-3 During check-in, the patient comes to the office window in the waiting room. The window is only open wide enough to accomplish the check-in procedure, and then it is closed again to maintain privacy. (From Chester G: Modern Medical Assisting. Philadelphia, WB Saunders, 1998, p. 67.)

Figure 3-4 is an example of a patient check-in form that meets the Privacy Act requirements and at the same time meets many of the billing requirements. The date of service is noted on the first line. The provider is identified. The patient is identified. The reason for the visit is identified. A signature is obtained from either the patient or the guarantor giving written proof that the patient was indeed in the office on the specified date.