1. Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a This material (Comp1_Unit5a) was developed by Oregon Health and Science University, funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number [IU24OC000015)].

2. Financing Healthcare (Part 2) Learning Objectives Describe the revenue cycle and the billing process undertaken by different healthcare enterprises. (Lecture a) Understand the billing and coding processes, and standard code sets used in the claims process. (Lecture a) Identify different fee-for-service and episode-of-care reimbursement methodologies used by insurers and healthcare organizations in the claims process. (Lecture a) Review factors responsible for escalating healthcare expenditures in the United States. (Lecture b) Discuss methods of controlling rising medical costs. (Lecture c) Health IT Workforce Curriculum Version 3.0/Spring 2012 2 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

3. Financing Healthcare (Part 2) Lecture a - Goals Describe the revenue cycle and the billing process including charge capture and coding in the cycle that ensures appropriate reimbursement Review the use code sets and electronic data interchange transactions used in the claims process Examine different methodologies used by payers to reimburse providers 3 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 3

4. The Business of Healthcare Revenue to HCOs different than typical business –Payments made by 3 rd party 1 st party – insured or patient 2 nd party – the HCO or provider 3 rd party – the insurance company or plan that pays the HCO or provider –Payment depends on Type of service and diagnosis Payer formula to determine Health IT Workforce Curriculum Version 3.0/Spring 2012 4 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

5. The Business of Healthcare Revenue (continued) –Payments for identical services may vary from payer to payer –The government pays for approximately 47% of all medical services rendered Health IT Workforce Curriculum Version 3.0/Spring 2012 5 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

6. The Revenue Cycle and Medical Billing Revenue Cycle - standard set of activities and events that produce revenue or income for a healthcare provider. Medical billing - the process of submitting claims to insurance companies in order to receive payment or reimbursement for services rendered by a healthcare provider. Health IT Workforce Curriculum Version 3.0/Spring 2012 6 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

7. Reimbursement & Claims Reimbursement: compensation or payment for healthcare services already provided Methods of reimbursement include fee-for- service and episode-of-care Claim: itemized statement and request for payment of the costs of healthcare services rendered by a healthcare provider or organization Health IT Workforce Curriculum Version 3.0/Spring 2012 7 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

8. Billing Definitions Charge capture –The process of documenting medical services in preparation of a claim Charge description master = price list -Database of prices for services provided used by HCOs during the billing process 8 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 8

9. Billing Definitions Electronic Data Interchange (EDI) –The structured transmission of data between organizations by electronic means using standard transaction sets –A transaction set: an electronic model of a paper transaction or form Health IT Workforce Curriculum Version 3.0/Spring 2012 9 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

10. Revenue Cycle Overview Appointment scheduled Registration: Demographic and insurance info Services provided Charge capture Coding Claim submission: paper or electronic Reimbursement received Final settlement with patient 10 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 10

11. Registration Practice management software or hospital management software Demographic information –Accurate patient and responsible party information Insurance information –Confirm terms of coverage –Determine deductibles, copayments, and coinsurance –Accurate claim identification by third party payer 11 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 11

12. Charge Capture Charge capture: the process of collecting a list of all services, procedures, and supplies provided during an encounter or in the course of care Charge description master = the price list –Database used by healthcare facilities –Paper based forms Superbill, encounter form, or charge ticket –Electronic capture Automatic – improved accuracy Health IT Workforce Curriculum Version 3.0/Spring 2012 12 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

13. Importance of Charge Capture Ensures proper reimbursement for services provided Permits reevaluation of episode of care reimbursement arrangements Health IT Workforce Curriculum Version 3.0/Spring 2012 13 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

14. Coding and Code Sets Coding: process of translating the written diagnosis and procedures relating to a patient encounter into a numeric classification or code Code set: group of numeric or alphanumeric codes used to encode descriptive data elements -Tables of terms, medical concepts, medical diagnostic codes, or medical procedure codes -A code set includes the codes and the descriptors of the codes Health IT Workforce Curriculum Version 3.0/Spring 2012 14 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

15. HIPAA Code Sets Health Care Common Procedure Coding System (HCPCS) & Current Procedural Terminology (CPT) – AMA ICD-9-CM Volumes 1 & 2 (diagnosis codes) ICD-9-CM Volume 3 (procedures) – National Center for Health Statistics & CMS respectively National Drug Codes (NDC) – Food and Drug Administration and drug manufacturers Code on Dental Procedures and Nomenclature (CDT) – American dental Association (ADA) Health IT Workforce Curriculum Version 3.0/Spring 2012 15 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

16. Code Sets by Provider Physician - Inpatient and outpatient –Diagnosis – ICD-9-CM –Procedure – CPT Hospital Facility – inpatient –Diagnosis – ICD-9-CM –Procedure – ICD-9-CM volume 3 Hospital Facility – outpatient –Diagnosis – ICD-9-CM –Procedure – HCPCS (CPT Level I and HCPCS Level II) Health IT Workforce Curriculum Version 3.0/Spring 2012 16 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

17. Update to the ICD-9 ICD-10-CM –Replaces ICD-9-CM Volume 1 –Increases diagnosis codes from 13,000 to 68,000 codes. ICD-10-PCS –Replaces ICD-9-CM Volume 3 –Number of codes from 11,000 to 87,000 Compliance set for October 1, 2013 17 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 17

18. ICD-9-CM Diseases of the circulatory system (390-459) Ischemic heart disease (410-414) (410) Acute myocardial infarction (410.0) MI, acute, anterolateral (410.1) MRI, acute, inferior, NOS Health IT Workforce Curriculum Version 3.0/Spring 2012 18 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

19. CPT Examples Auditory System External Ear Incision 69000 Drainage external ear, abscess or hematoma, simple 69005complicated 69020 Drainage external auditory canal, abscess 69090 Ear piercing 19 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 19

20. Coding Examples Diagnosis –Upper respiratory infection = 461.9 (ICD-9-CM) Service, procedure or test –New patient, office visit, level II = 99202 (CPT) –Biopsy of skin, subcutaneous tissue and/or mucous membrane(including simple closure), unless otherwise listed; single lesion = 11100 (CPT) –Immune globulin 10 mg = J1564 (HCPCS Level II) Health IT Workforce Curriculum Version 3.0/Spring 2012 20 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

21. Claim Submission Claim elements –Demographic and insurance identification information –Encounter elements Diagnosis Dates Procedure Charges Identifiers Submission method: paper or electronic –Paper physicians – CMS Form 1500 facility – CMS Form 1450 –EDI: 837 Transaction Health IT Workforce Curriculum Version 3.0/Spring 2012 21 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

22. Electronic claims-transactions Electronic data interchange (EDI) –HIPAA privacy rules/Transactions Rule 837 Healthcare claims or equivalent encounter information 835 Healthcare payment and remittance advice 270/271 Eligibility for a health plan 276/277 Health claims status 278 Referral certification and authorization Health IT Workforce Curriculum Version 3.0/Spring 2012 22 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

23. Remittance Reimbursement received –Reduced amount due to coinsurance, copayments, or contract –Challenges Non-payment by payer Incorrect reimbursement Final settlement with patient coinsurance Health IT Workforce Curriculum Version 3.0/Spring 2012 23 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

24. 3 rd Party reimbursement Reimbursement Methodology –Fee-for-service (FFS)– separate payments made for each individual service provided –Episode-of-care – payment of one sum for providing all services or care during a illness or time frame 24 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 24

25. Reimbursement Methodology Fee-for-service (FFS)– separate payments made for each individual service provided –Traditional retrospective –Self-pay Episode-of-care – payment of one sum for providing all services or care during a illness or time frame –Capitation –Prospective payment –Global payment Managed care may involve fee-for-service and/or episode-of-care methods 25 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 25

26. Traditional Retrospective Traditional retrospective payment: payment made after services have been provided –Method of reimbursement used by commercial or indemnity health insurance policies –Fee schedule – list of allowable services and procedures and amounts payable for each –Fee schedule developed using historical claims data and provider “usual and customary” submissions –Resource Based Relative Value Scale (RBRVS) payment based on the cost of services in terms of effort, overhead, and malpractice insurance Health IT Workforce Curriculum Version 3.0/Spring 2012 26 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

27. Self-pay –Patient responsible for payment for healthcare services Uninsured subset of self-pay –May seek reimbursement afterwards Self-insured plan – large employers Costs possibly higher Health IT Workforce Curriculum Version 3.0/Spring 2012 27 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

28. Episode-of-Care Methodology Episode-of-care: one or more services provided by a HCO during the course of providing care related to a particular medical condition or situation Episode-of-care payment: one payment for the services provided during an episode of care Types of episode-of-care payments –Capitation –Prospective payment –Global payment Health IT Workforce Curriculum Version 3.0/Spring 2012 28 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

29. Capitation HCO receives a fixed sum per person enrolled in the plan and assigned to the HCO –Typical payment for a HMO - same amount paid per length of time regardless of the number of plan patients requiring care, the frequency of visits, or the severity of an illness –PMPM = per member per month –Payer knows costs in advance –Provider assumes some risk as the level of services required is unknown 29 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 29

30. Prospective Payment Method Prospective payment method : payers establish reimbursement rates in advance for healthcare services to be provided over a specified time Based upon average resource use required to provide a level of care for a given set of conditions or a disease Same amount paid regardless of the costs incurred 30 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 30

31. Prospective Payment Types Per-diem payment: a fixed payment is made for each day of hospitalization i.e. based on unit of time Case-based payment : payment of a fixed amount for providing health services for a condition or disease (case) 31 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 31

32. Diagnosis Related Groups (DRGs) CMS case based in-patient prospective payment system –Based on diagnosis, procedures, age, sex, comorbidities, complications, and discharge status Comorbidity - the presence of 2 or more conditions or diseases in the same patient which complicates a patient’s hospital stay leading to more resource use or longer length of stay 32 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 32

33. Global Payment Payer makes one payment for multiple providers treating a single episode of care Extends the concept of capitation to a larger group 33 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a Health IT Workforce Curriculum Version 3.0/Spring 2012 33

34. Managed Care Reimbursement Reimbursement –Contract with providers to limit fees Fee-for-service: discounted fee schedules Episode-of-care: prospective payment Patient utilization control through –Financial incentives to use network resources Offer lower in-network costs Increase out-of-pocket expenses for non-network use 34 Health IT Workforce Curriculum Version 3.0/Spring 2012 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

35. Financing Healthcare (Part 2) Summary Revenue cycle –Unique process –Charge capture Services & diagnosis –Claims coded –Claim submitted and adjusted by payer Reimbursement methods –Fee-for service –Episode-of-care Health IT Workforce Curriculum Version 3.0/Spring 2012 35 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a

36. Financing Healthcare (Part 2) References – Lecture a References Abraham, M. (2011). In CPT Current Procedural Terminology (Standard ed.). Chicago, IL: American Medical Association. Retrieved Jan 2012 from: http://www.ama-assn.org/ama/pub/physician-resources/solutions- managing-your-practice/coding-billing-insurance/cpt/about-cpt.page?http://www.ama-assn.org/ama/pub/physician-resources/solutions- managing-your-practice/coding-billing-insurance/cpt/about-cpt.page Buck, C. J. (2012). ICD-9-CM, for Physicians. In CPT Current Procedural Terminology (Professional ed., Vol. 1, 2). Chicago, IL: The American Health Information Management Association. Castro, A. B. and Layman, E (2006). Principles of Healthcare Reimbursement. In CPT Current Procedural Terminology (Standard ed., Ch. 1 - 3, 8). Chicago, IL: The American Health Information Management Association. Current Procedural Terminology. (n.d.). Retrieved December 16, 2011, from Wikipedia website: http://en.wikipedia.org/wiki/Current_Procedural_Terminology. http://en.wikipedia.org/wiki/Current_Procedural_Terminology Definition of Health Insurance Terms. (2010, August 1). Retrieved March 22, 2011, from Bureau of Labor Statistics website: http://www.bls.gov/ncs/ebs/sp/healthterms.pdf.http://www.bls.gov/ncs/ebs/sp/healthterms.pdf HIPAA Code Sets. (n.d.). Retrieved December 16, 2011, from Centers for Medicare and Medicaid Services website: https://www.cms.gov/ICD9ProviderDiagnosticCodes/https://www.cms.gov/ICD9ProviderDiagnosticCodes/ Health IT Workforce Curriculum Version 3.0/Spring 2012 36 Introduction to Healthcare and Public Health in the US Financing Healthcare (Part 2) Lecture a