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Introduction to Healthcare and Public Health in the US: Financing Healthcare (Part 2)

Audio Transcript

Slide 1

Welcome to Introduction to Healthcare and Public Health in the US, Financing Healthcare (Part 2). This is Lecture (a).

The component Introduction to Healthcare and Public Health in the US, is a survey of how healthcare and public health are organized and services delivered in the US.

Slide 2

The objectives for Financing Healthcare (Part 2) are to:

Describe the revenue cycle and the billing process undertaken by different healthcare enterprises.

Understand the billing and coding processes, and standard code sets used in the claims process.

Identify different fee-for-service and episode-of-care reimbursement methodologies used by insurers and healthcare organizations in the claims process.

Review factors responsible for escalating healthcare expenditures in the US.

Discuss methods of controlling rising medical costs.

Slide 3

This lecture describes the processes that a healthcare organization uses to collect revenue from payers. This includes the revenue cycle in a healthcare organization, or the set of activities and events that produce income for the organization, the terms and processes associated with medical billing and coding including code sets and electronic data interchange transactions, and different methodologies used by third party payers to reimburse providers.

Slide 4

As with other business entities, healthcare organizations must receive income to pay expenses. Managing expenses in healthcare organizations is similar to any other business. However, healthcare is unique in the way in which it receives payment.

There are four features that make the business of healthcare different. First, a third-party payer makes the majority of payments to someone other than the patient for services provided. Second, the amount paid or reimbursed by an insurance plan depends on the codes submitted with the claim and a formula determined by the payer. This formula for payment frequently is not transparent. The amounts paid depends entirely on codes entered on the bill or claim that indicate the type of service provided and the reason or diagnosis for the service or services.

Slide 5

Third, payment amounts received for identical services may vary within a payer, and from payer to payer. And fourth, healthcare organizations depend on payment from the government for approximately half of all healthcare expenses in the US.

Slide 6

The next slides will define some terms and concepts that are specific to the medical billing process. The revenue cycle is a standard set of activities and events that produce revenue or income for a healthcare organization or provider.

Medical billing, as part of the revenue cycle, is the process of submitting claims to insurance companies in order to receive payment or reimbursement for services rendered by a healthcare provider.

Slide 7

Reimbursement is the term used to describe payment by third-party payers to healthcare organizations for services provided. Third-party payers reimburse claims based upon one of two methodologies: fee-for-service or episode-of-care, both of which describe a unit of payment. Reimbursement methodology will be discussed at length later in this unit.

A claim is the healthcare organization’s itemized statement and formal request for payment from the third-party payer for the medical services provided to the patient or the insured.

Slide 8

An additional definition associated with the billing and reimbursement is charge capture, which is the process of collecting and noting all services, procedures, and supplies provided during an encounter or patient care in preparation for submitting a claim to a third party payer.

The charge description master is the database of prices for services provided to patients and used by healthcare organizations during the billing process.

Slide 9

Electronic data interchange, or EDI [E-D-I], is the structured transmission of data between organizations by electronic means. The Health Insurance Portability and Accountability Act (HIPAA) of 1996 established national standards for electronic healthcare transactions. A transaction set used during an EDI [E-D-I] is an electronic model of a paper transaction or form.

Slide 10

The revenue cycle is a standard set of activities and events that produce revenue or income for a provider. Each organization determines the administrative and management tasks pertinent to their particular operational circumstances. The tasks for a serious case in the Emergency Department of a hospital will be handled differently than a direct admission to the hospital, as will the tasks in a physician’s office. In each case, the process of the revenue cycle is the same.

The process begins with the patient or provider determining that healthcare services are needed, and scheduling an appointment. At the healthcare facility, demographic information and insurance information are collected when the patient registers. The healthcare organization confirms the terms of the insurance coverage with the third-party payer, either electronically or by telephone. During this process, the provider obtains information about patient deductibles, copayments, and coinsurance.

The healthcare organization then provides services to the patient. Documentation of the services furnished and the diagnosis associated with each service occurs during charge capture. Subsequently during coding, the diagnosis and services are converted into alphanumeric or numeric codes in a claim, and submitted to the third-party payer for reimbursement. After processing by the third-party payer using the appropriate methodology, the provider receives a remittance advice, adjusts its accounts, and makes its final settlement on the account with the patient. The next slides examine select aspects of the medical billing process and the revenue cycle.

Slide 11

Today, hospital management or practice management software accomplishes most billing tasks electronically. During the registration process, the software allows the accurate capture of patient demographic and health insurance information. This allows the provider to confirm eligibility and enrollment in the healthcare plan, effective dates, benefits, and limitations and exclusions. It also permits the determination of deductibles, coinsurance, and copayments.

Acquiring the correct information ensures accurate reimbursement. Without accurate information, a third party payer may be unable to identify the patient or insured, resulting in a denial of payment for services provided.

Slide 12

During the course of delivering healthcare, the charge capture process gathers descriptive data about the services provided during an encounter, including diagnosis, procedures, and tests, in order to establish an accurate representation of the services provided and the costs associated with them.

The actual fees charged to a patient account can be found in the organization's charge description master, a database used by a healthcare facility that stores the price list for all services provided to patients.

Smaller providers may use paper-based forms in the charge capture process, which may be called a super bill, encounter form, or charge ticket. Large organizations with sophisticated information systems can electronically capture charges using their management software. In addition, charges for services extrapolated from patient electronic records can automatically post to the patient's account.

Slide 13

Charge capture is essential to ensure the healthcare organization or provider properly bills and receives reimbursement for the healthcare services provided. This becomes all the more important in what’s called episode of care reimbursement. Briefly, in episode of care reimbursement, a provider receives a single fee, no matter the services and the costs of providing the services. Since the cost of providing services may exceed the revenue received using this reimbursement method, providers must collect an accurate representation of the cost of providing the service using charge capture. In other words, providers must evaluate if they have taken on too much risk or cost in providing care in this reimbursement methodology.

For example, if a capitated plan pays twenty-five dollars per member per month, but the cost of providing care is thirty dollars per member, the provider loses five dollars each month for every plan member. If the provider cares for 200 members, he loses $1000 every month. By tracking charges, the provider may terminate or renegotiate the contract for reimbursement in the event that costs exceed revenue.

Episode of care reimbursement will be discussed at length later in this lecture.

Slide 14

After the services provided by a healthcare facility have been documented during charge capture, a claim can be prepared for submission to the third-party payer by coding the claim. Coding is the process of translating the descriptive or written diagnosis and procedures relating to a patient encounter into a standard numeric classification or code, accomplished by using code sets.

Code set refers to any table or group of codes used to encode data elements during the medical claims process. A code set may include a table of terms, medical concepts, medical diagnosis codes, or medical procedure codes. A code set includes the codes and the descriptors of the codes.

Slide 15

The Health Insurance Portability and Accountability Act (HIPAA [hip-uh]) of 1996 requires that providers use specific code sets when submitting a claim. This slide lists some of code sets used to report medical services. The list also includes the organizations responsible for each code set.

Two of these deserve further discussion here, the ICD-9-CM and the CPT.

The International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) is based on the World Health Organization's Ninth Revision, International Classification of Diseases (ICD-9). ICD-9-CM is the official system of assigning codes to diagnoses and procedures associated with hospital utilization in the US.

The ICD-9-CM consists of a list containing a numerical list of the disease code numbers in tabular form, an alphabetical index to the disease entries, and a classification system for surgical, diagnostic, and therapeutic procedures (alphabetic index and tabular list). The National Center for Health Statistics (NCHS) and the Centers for Medicare and Medicaid Services are the US governmental agencies responsible for overseeing all changes and modifications to the ICD-9-CM.

The Current Procedural Terminology (CPT) code set is maintained by the American Medical Association through the CPT Editorial Panel. The CPT code set describes medical, surgical, and diagnostic services and is designed to communicate uniform information about medical services and procedures among physicians, coders, patients, accreditation organizations, and payers for administrative, financial, and analytical purposes. Updates are published each year.

Slide 16

The HIPAA requires code sets for submitting claims depending on the provider and the delivery location of the service. The code sets for physicians and hospital facilities are listed here. The ICD-9-CM is used to report all inpatient and outpatient diagnoses. The CPT is used to report physician inpatient and outpatient procedures; the ICD-9 CM, Volume 3, is used to report inpatient facility procedures; and the HCPCS is used to report outpatient facility procedures.

Slide 17

The International Classification of Diseases, 10th Revision, Clinical Modification, or ICD-10-CM, is the new diagnosis coding system developed as a replacement for ICD-9-CM, Volume 1 & 2. The International Classification of Diseases, 10th Revision, Procedure Coding, the ICD-10-PCS, is the new procedure coding system that was developed as a replacement for ICD-9-CM, Volume 3. The compliance date for implementation of ICD-10-CM for diagnoses and ICD-10-PCS for inpatient hospital procedures is October 1, 2013.

Slide 18

An example of the data available in the ICD-9-CM code set is illustrated on this slide. Under diseases of the circulatory system, ischemic heart disease is listed, and under that classification, the 410 [four-ten] codes that describe an acute myocardial infarction. From there, the code for the specific type of myocardial infarction can be indicated. Note that this list is not all-inclusive.

Slide 19

An example of CPT surgery codes for the external ear are listed on this slide.

(10 seconds of audio silence)

Slide 20

Some examples of converting a diagnosis and procedure into codes for a physician are illustrated on this slide. The diagnosis of upper respiratory infection converts to 461.9 using the ICD-9-CM. A level two new patient office visit codes as 99202 [nine-nine-two-zero-two], using the CPT, and a skin biopsy converts to 11100 [one-one-one-zero-zero]. Immune globulin ten milligrams given as an injection converts to J1564 using the HCPCS level two codes. It is important to have trained personnel that are knowledgeable about coding in order to properly code a claim.

Also note that different medical terms may have the same code in a code set. For example, acute pharyngitis, acute sore throat, and viral pharyngitis code as the same three-digit ICD-9 code – 462.

Slide 21

After coding, a claim is prepared for submission to a third-party payer for reimbursement using a standard format. Included on a claim are demographic and insurance information, diagnosis codes, procedure codes with time intervals, charges, and practice and provider unique identifiers. Claims may be submitted on paper or electronically. The paper forms are called the CMS form 1500 [fifteen-hundred] and CMS form 1450 [fourteen-fifty], for physicians and institutions, respectively. Information submitted via an 837 transaction through an Electronic Data Interchange, or EDI [E-D-I], transmits electronically the same information found on a paper claim.

Slide 22

The American National Standards Institute (ANSI) oversees the development of standards for products, services, processes, systems, and personnel in the US and the Accredited Standards Committee X12 (ASC X12), chartered by ANSI, develops EDI standards.

This slide lists some of the ASC X12 specific HIPAA EDI [hip-uh-E-D-I] transaction sets used to transmit information and claims electronically for eligibility status, claim submission, claim status, claim remittance, and referral certification and authorization.

Slide 23

After processing by an examiner or adjuster at the payer, reimbursement is sent to the provider. In most cases, reimbursement is less than the amount billed due to co-payments, co-insurance, or contractual arrangements.

While most providers expect reductions in the amount billed, challenges occur when payment is less than anticipated since this results in lower than expected revenue. There are few industries or other types of insurances where this occurs. After receiving payment from the payer, a final bill is prepared for settlement with the patient. In most cases, this represents co-insurance amounts.

Slide 24

The payment a provider receives from a third party payer depends on the methodology applied to a specific claim. After submission to the payer, a medical claims examiner or adjuster processes it according to the insurance plan’s guidelines and the terms of the policy. Third party payers use different methodologies to determine the amount to pay for a specific claim. Payments for claims are based on one of two methodologies: fee-for-service or episode-of-care, both of which describe a unit of payment.

Fee-for-service refers to separate payments made for each individual service provided, whereas episode-of-care refers to one payment for all care provided during an illness or time frame.

For example, a patient with the cough and fever is examined and treated at an urgent care center. The center provides three services for this patient: the doctor’s professional fees, an x-ray, and a blood test. With fee-for-service reimbursement, the provider receives payment for each of the three services individually. With episode-of-care payment, the center receives one payment for all three services – the same pre-determined amount whether one, two, or all three of the services are performed. This single fee for all services is negotiated by the provider with the payer in advance as part of managed care arrangements.

Slide 25

There are two types of fee-for-service payments - traditional retrospective and self-pay. There are three types of episode-of-care payments - capitation, prospective payment, and global payment.

Managed care, when referring to reimbursement, may involve either fee-for-service or episode-of-care methodology.

Slide 26

A traditional retrospective fee-for-service payment refers to the payment by third-party payers, usually under a commercial or indemnity plan, after services have been provided. Payments are based upon a fee schedule developed from historical claim data using the average of the usual, customary, and reasonable charges that have been submitted by providers over time.

A fee schedule is the third party payer equivalent of the provider’s charge description master. It is a list of allowable services and procedures, and the amounts payable for each. Some medical services may not be allowable or payable, for example cosmetic plastic surgery.

Another type of retrospective fee-for-service payment is the resource-based relative value scale, or RBRVS, used by Medicare and other third-party payers. Payments are based on the cost of services in terms of effort, overhead, and malpractice insurance.

Slide 27

The second form of fee-for-service payment, self-pay, is when patients pay directly for the services they receive. For true self-pay patients, providers may offer a discount. Those without insurance are considered a subset of self-pay since they are responsible for all expenses.

One self-pay scheme involves large employers who self-insure under ERISA. The employer agrees to pay for an employee's medical care. The employer assumes all the risk for the cost of care, and administers and pays for all of an employee’s healthcare costs, or in some cases, employees may share some of the costs with the employer. This scheme usually involves a third party administrator which may be an insurance company to assist in processing employee claims. Covered individuals may appear to have commercial insurance.

As a reimbursement methodology, self-pay costs tend to be higher for services provided than other methodologies.

Slide 28

An episode-of-care is defined as one or more services given by a provider or healthcare organization during the course of care related to a particular medical problem or situation. Reimbursement is provided as a lump sum payment for all of the care provided to and received by the patient during the episode, regardless of the cost of providing the services.

There are three types of episode of care payments: capitation, prospective payment, and global payment.

Slide 29

Capitation payments are typically paid by Health Maintenance Organizations (HMOs). The provider or healthcare organization receives the same amount from the third-party payer per length of time, usually a month, for the care provided at the healthcare organization to all of its members. Regardless of the number of patients enrolled in the plan requiring care, the frequency of the visits, or the severity of an illness, the provider receives a preset amount per enrolled patient each month. The term used to describe this payment is per member per month, or PMPM.

The advantage of this method of payment for the payer is that the third-party payer knows the total costs in advance and places some of the risk on the provider.

The advantage to the provider is a guaranteed stream of payments or income. However, the disadvantage is that the provider must assume the risk of loss should the cost of care exceed the payments received.

To illustrate this, consider a group practice that enters into an agreement with a payer to receive twenty-five dollars per member per month. For every 100 members assigned to the practice, the provider receives $2500 per month even if none of the member patients is seen. If during a single month, the cost of care for all 100 members is actually $3500, then the group practice loses $1000 during that month and must absorb the expense of the additional cost of care. The payer makes no additional payments to the provider. The provider must balance provision of care with the costs.

Slide 30

Another type of episode-of-care methodology is the prospective payment method in which payers establish reimbursement rates in advance, for packages of healthcare services for specific problems. The rates are established based on average resource use for the level of care and the services provided. Individual patients may require different levels of resources that correspond to different costs; however, the total resource use should average out over time.

Slide 31

There are two prospective payment types. The first is per-diem payment in which a fixed amount is paid for each day of hospitalization, where the day represents the episode of care. The second type of prospective payment is case-based payment where the same amount is paid regardless of the length of stay and total resource use.

For example, two patients with pneumonia are admitted to the hospital on the same day. The first requires five days of hospitalization and the second requires nine days of hospitalization. With per-diem payments, the hospital receives five times the per diem payment for the first patient, and nine times the per diem rate for the second patient. Under case-based payment, the organization receives the same amount for both patients, even though one required additional days of care.

Slide 32

An example of a prospective payment system is the Centers for Medicaid and Medicare Services diagnosis related group system, or DRGs, used for payment to hospitals for inpatient services provided to Medicare patients. Payments are made based upon the age, sex, diagnosis and any existing comorbidities [koh-mor-bihd-eh-teez] that may affect the length of stay, the number of procedures necessary, expected complications, and discharge status.

A comorbidity is the presence of two or more conditions or diseases in the same patient, which complicates the patient's hospital stay, and may lead to more resource use or longer lengths of stay.

Slide 33

The final episode of care method is global payment. Under the global payment model, the third-party payer makes one payment for an episode of care for a patient that receives care within a fully-integrated delivery system by multiple providers.

Slide 34

Finally, in managed care reimbursement, Managed Care Organizations (MCOs) contract with providers to limit fees. The MCO may use a fee-for-service methodology in which payments are made according to a discounted fee schedule, or a MCO may use an episode-of-care reimbursement, such as a prospective or global payment. MCOs provide an incentive to patients to use resources effectively, by either lowering in-network costs, or raising costs for non-network care.

Slide 35

This concludes Lecture (a) of Financing Healthcare (Part 2). In summary, the revenue cycle for healthcare organizations is a unique process that requires submission of medical bills or claims that describe the services provided. During the preparation of claims, information about the type of medical service, the diagnosis associated with the service, and the fee for the service is gathered and coded into a claim using standardized codes. This data along with identifying information about the patient and organization is submitted to an insurance payer on paper or electronically for payment. Payers enter into contracts with organizations and providers to manage the amounts reimbursed for healthcare services. Payers review and adjust submitted claims and pay the balance to the provider. The methodology used to adjust the claim involves either a fee-for-service or episode-of-care method, which is a function of the provider-payer contract.

Slide 36

References slide. No audio.

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