CHAPTER 6 ACCOUNTS RECEIVABLE (A/R) MANAGEMENT UNDERSTANDING HOSPITAL BILLING AND CODING CHAPTER 6 ACCOUNTS RECEIVABLE (A/R) MANAGEMENT Copyright © 2011, 2006 by Saunders an imprint of Elsevier Inc.

LIFE CYCLE OF A HOSPITAL CLAIM THE LIFE CYCLE OF A HOSPITAL CLAIM BEGINS WHEN THE PATIENT ARRIVES AT THE HOSPITAL FOR DIAGNOSIS AND TREATMENT OF CONDITION(S) AND IT ENDS WHEN THE CLAIM IS PAID AS OUTLINED BELOW: Information is obtained at admission Patient care services rendered and documented Charges are captured through the chargemaster HIM review, coding, and APC or MS-DRG assignment Process and submission of insurance claims and patient statements Accounts receivable (A/R) management Payer review and determination Receipt of the remittance advice The objective of this chapter is to provide an overview of patient account transactions and accounts receivable management. Hospitals provide services to patients for treatment of conditions utilizing highly specialized equipment and personnel. It is critical for hospitals to maintain an efficient cash flow by obtaining timely compensation for resources utilized in order to provide services in the hospital environment. Refresh your students on the terms chargemaster, HIM, APC, MS-DRG, and remittance advice.

THE HOSPITAL BILLING PROCESS THE HOSPITAL BILLING PROCESS INVOLVES A SERIES OF FUNCTIONS REQUIRED TO SUBMIT CHARGES FORSERVICES RENDERED PATIENT ADMISSION PATIENT CARE CHARGE CAPTURE CHART REVIEW/CODING CHARGE SUBMISSION A/R MANAGEMENT PAYER PROCESSING AND PAYMENT DETERMINATION Discuss highlights on slide. The process involves collection of all financial, insurance, and medical information during a patient’s visit. Most charges are posted at the department level through the chargemaster during the patient stay (Figure 6-2).

THE HOSPITAL BILLING PROCESS CRITICAL ELEMENTS OF THE BILLING PROCESS INCLUDE: INSURANCE CLAIMS AND PATIENT STATEMENTS THIRD-PARTY PAYER CLAIM PROCESSING REMITTANCE ADVICE (RA) A critical part of the billing process is charge submission, which involves preparation of insurance claims and patient statements (Figure 6-3).

THE HOSPITAL BILLING PROCESS INSURANCE CLAIMS AND PATIENT STATEMENTS The Patient Financial Services (PFS) manages hospital transactions: Charge submission Patient transactions Accounts receivable (A/R) management Patient Financial Services (PFS) is also known as the Business Office or the Patient Accounts Department. Responsible for the hospital’s financial transactions.

THE HOSPITAL BILLING PROCESS INSURANCE CLAIMS AND PATIENT STATEMENTS CHARGE SUBMISSION Charges are submitted to third-party payers and to patients utilizing: Claim Forms Patient Statements Charge submission involves preparation of insurance claims and patient statements (Figure 6-4). The hospital generally has a schedule for batch mailings of patient statements.

THE HOSPITAL BILLING PROCESS INSURANCE CLAIMS AND PATIENT STATEMENTS CHARGE SUBMISSION Claim forms utilized to submit charges: CMS-1500 Utilized to submit physician services and outpatient services CMS-1450 (UB-04) Utilized to submit facility charges for hospitals and other institutions A detailed itemized statement is prepared for submission with the claim form when required. Detailed itemized statement is illustrated in Figure 6-5. The appropriate claim form is prepared. Ask the students why every item that is charged must be fully documented. (To substantiate medical necessity.)

THE HOSPITAL BILLING PROCESS INSURANCE CLAIMS AND PATIENT STATEMENTS CHARGE SUBMISSION CLEAN CLAIM This mission is to submit a clean claim the first time. A clean claim does not require further investigation by the payer. Claims that do not meet clean status include: Claims that need additional information Claims that need Medicare secondary payer (MSP) screening information Claims that need information to determine coverage Claims that do not pass payer edits Emphasize the importance of a clean claim. What are some common reasons that a claim may not pass payer audits? Refer students to the claim form examples in Figures 6-6 and 6-7.

THE HOSPITAL BILLING PROCESS INSURANCE CLAIMS AND PATIENT STATEMENTS CHARGE SUBMISSION METHODS FOR SUBMISSION OF CLAIM FORMS: Manual submission involves printing a paper claim that is sent via mail Electronic media claim (EMC) involves submitting the claim through electronic data interchange (EDI) More and more companies utilize electronic media claim (EMC) submissions via electronic data interchange (EDI). Discuss how paper claims are entered into a payer’s computer system. (Paper claims are scanned or entered manually into the payer’s computer system.) Electronic claims are transmitted directly to the payer’s computer system.

THE HOSPITAL BILLING PROCESS INSURANCE CLAIMS AND PATIENT STATEMENTS CHARGE SUBMISSION Patient statement utilized to submit charges to patients: Prepared and sent in batches Patient statements include a description of services, payments and adjustments along with the balance owed The hospital’s batch schedule may indicate that statements for patient accounts A to M should be mailed on Mondays and Wednesdays and N to Z on Tuesdays and Thursdays. Refer students to Figure 6-8.

HOSPITAL BILLING PROCESS THIRD-PARTY PAYER CLAIM PROCESSING Claim data is entered into the payer’s system Claim data is compared to the payer’s data file The payer’s system performs computerized edits Payment determination Discuss the highlights on the slide. Refer students to Figure 6-9.

HOSPITAL BILLING PROCESS THIRD-PARTY PAYER CLAIM PROCESSING PAYER DATA FILE Claim data is checked against the payer data file to ensure: Patient coverage is active Services were provided within coverage period the patient is eligible to receive benefits Preauthorization requirements are met Length of stay is within plan criteria Services provided are covered and not duplicated Procedure code data are reviewed to identify covered and non-covered items. Services on the claim are also checked against the common data file to identify duplicate services.

HOSPITAL BILLING PROCESS THIRD-PARTY PAYER CLAIM PROCESSING PAYER DETERMINATION Payment determination is conducted by the payer after the claim passes all computer edits and can result in one of the following actions: The claim payment is processed The claim is put in a pending status until requested information is received The claim is denied or rejected Determination of payment is conducted after the computer edits are performed. It includes the following steps: Determination of allowed charges, APC, MS-DRG rate Determination of deductible, coinsurance, or copayment Preparation of a remittance advice or explanation of benefits, which is forwarded to the hospital Payment determination may result in one of the following actions: The claim is paid The claim is placed in a pending or suspense status (pending requested information) The claim is denied or rejected

HOSPITAL BILLING PROCESS THIRD-PARTY PAYER CLAIM PROCESSING REMITTANCE ADVICE (RA) A document prepared by the payer to provide an explanation of payment determination for a claim. Also referred to as: Explanation of Benefits (EOB) Explanation of Medicare Benefits (EOMB) Electronic Remittance Advice (ERA) All RAs must be analyzed and investigated if payment determination does not meet expectations. Explain why all RAs need to be carefully analyzed. (To make sure that payments were correctly determined.)

PATIENT TRANSACTIONS The PFS Department is responsible for processing transactions including: PATIENT PAYMENTS THIRD-PARTY PAYER PAYMENTS ADJUSTMENTS Discounts Contractual adjustments Write-offs BALANCE BILLING Advanced Beneficiary Notice (ABN) Hospital Issued Notice of Noncoverage (HINN) SECONDARY BILLING Discuss highlights on slide

PATIENT TRANSACTIONS The Patient Financial Services (PFS) Department is responsible for processing transactions such as posting payments, adjustments, and other transactions to the patient’s account. The process is as follows: Payments are posted to the patient’s account A contractual adjustment is applied as applicable The balance is billed to the patient or sent to a secondary or tertiary payer where applicable Denials and information requests are researched and processed as appropriate If the claim is denied appropriately, the claim may need to be submitted to a secondary insurance Payments from patients and payers are posted to accounts when received. Adjustments may be posted to the patient’s account to reflect contractual write-offs, discounts or amounts that are uncollectible. Secondary billing occurs when the patient has supplemental insurance.

PATIENT TRANSACTIONS THIRD-PARTY PAYER PAYMENTS Payers may process payment for the claim at the appropriate rate or at a lower level than expected by the hospital. Common reasons for reduced claim payments: Level of service is not supported by the patient’s condition Services may be bundled, such as services included in the surgical package Service may be considered an integral part of a larger procedure Discuss common reasons for reduced payments as highlighted on slide. Review bundling - refer students to Box 6-13.

PATIENT TRANSACTIONS ADJUSTMENTS The original amount charged is reduced by a specified amount. Types of adjustments are: Discount Contractual adjustment Write-off Contractual adjustments reduce the original charge based on agreements between the hospital and the provider. Emphasize the differences between: discounts, contractual adjustment and a write-off.

PATIENT TRANSACTIONS BALANCE BILLING Law prohibits balance billing of Medicare patients for the following amounts: The difference between the original charge and the approved amount The amount of hospital charges that are greater than a MS-DRG payment The amount of hospital charges that are greater than an APC payment Payer contracts include provisions regarding the amount the hospital is required to accept as payment in full, commonly referred to as the approved amount.

PATIENT TRANSACTIONS BALANCE BILLING ADVANCED BENEFICIARY NOTICE (ABN) In accordance with Medicare guidelines an ABN must be provided to beneficiaries as follows: A written notice presented to a Medicare beneficiary before Part B services are furnished to inform the beneficiary that Medicare may not pay for some or all of the services to be rendered because they are not reasonable and necessary. Discuss highlights on slide. Review Figure 6-18 ABN. Emphasize ABN is used for Part B services.

PATIENT TRANSACTIONS BALANCE BILLING HOSPITAL ISSUED NOTICE OF NONCOVERAGE (HINN) In accordance with Medicare guidelines an HINN must be provided to beneficiaries as follows: A written notice presented to a Medicare beneficiary before Part A services are furnished to inform the beneficiary that Medicare will not pay for some or all of the services to be rendered because they are not reasonable and necessary. Review Figure 6-19 illustrates a sample HINN. Emphasize ABN is used for Part B services.

ACCOUNTS RECEIVABLE (A/R) MANAGEMENT ACCOUNTS RECEIVABLE Revenue owed to the hospital by patients and third-party payers OUTSTANDING ACCOUNTS Functions required to monitor and follow up on outstanding accounts to ensure that reimbursement is received in a timely manner The primary objective of AR management is to reduce the amount of time that accounts are outstanding. Discuss how problems with claims forms affect a hospital’s cash flow. (Lost, rejected, denied, and pended claims interrupt cash flow.)

ACCOUNTS RECEIVABLE (A/R) REPORTS UNBILLED ACCOUNTS Listing of patient accounts that have not been billed FINANCIAL CLASS Outlines claim information such as charges, payments, and outstanding balances, grouped according to type of payer DENIALS MANAGEMENT Listing of claims that have been denied ACCOUNTS RECEIVABLE (A/R) AGING Outstanding accounts are categorized based on the number of days the balance is outstanding Discuss various A/R reports are shown in Tables 6-1 through 6-5. Outstanding accounts have been billed but payment has not been received. Hospitals continually monitor their own data and systems. During this monitoring, issues may be found that delay billing.

ACCOUNTS RECEIVABLE (A/R) UNBILLED ACCOUNTS Common reasons that accounts are unbilled: Pending insurance verification Incorrect chargemaster data Delayed coding Data entry errors Unbilled accounts reports are utilized to track accounts that have not been billed since the patient was discharged. Documentation may be found to be lacking or insufficient, and clarifications will need to be made before submitting claim. Data entry errors include incorrect patient identification numbers or codes.

ACCOUNTS RECEIVABLE (A/R) AGING REPORT The process of counting the number of days that an account is outstanding from the date billed Computer-generated A/R aging reports are used to identify and analyze outstanding accounts The A/R aging report is a listing of outstanding accounts based on the age of the account (30, 60, 90, 120, 150,180 days) The term aging refers to the number of days the account has been outstanding. Refer students to Figure 6-22.

ACCOUNTS RECEIVABLE (A/R) PROCEDURES Hospitals establish policies and procedures for A/R follow-up activities for: LOST CLAIMS REJECTED CLAIM Common reasons for claim rejections DENIED CLAIM Common reasons for denied claims PENDED CLAIM Discuss highlights on slide

COLLECTION ACTIVITIES PRIORITIZING COLLECTION ACTIVITIES PATIENT AND THIRD-PARTY FOLLOW-UP PROCEDURES UNCOLLECTIBLE PATIENT ACCOUNTS INSURANCE COMMISSIONER INQUIRIES Describe collection activities. Collection activities are vital functions performed by the Credit and Collections Department. Timely follow-up on outstanding accounts is essential to obtaining payment in a reasonable time frame. Refer students to Figure 6-23.

COLLECTION ACTIVITIES Hospital policies and procedures for collections include guidelines that outline the following: Criteria for prioritizing collection activities Establishment of patient and third-party follow-up procedures Procedures for handling uncollectible patient accounts Insurance Commissioner inquiries procedures The Credit and Collection Department performs various collection functions to ensure that timely payment is received Hospital policies and procedures outline priorities of follow-up on outstanding accounts based on two factors—the age and dollar amount. Discuss example: the initial focus is typically directed toward accounts that fall within the 61- to 90-day aging category, then the 91- to 120-day category, and then 120+ days.

CREDIT AND COLLECTION LAWS STATUTE OF LIMITATIONS Legislation passed at the state level that establishes the time period in which legal collection procedures may be filed against a patient FAIR CREDIT BILLING ACT Federal legislation that outlines the patient’s rights regarding errors on a bill FAIR DEBT COLLECTION PRACTICES ACT Federal legislation that was passed to protect consumers from inappropriate collection activities such as harassment or deception Discuss three laws highlighted on the slide: Statute of limitations: The time period (number of years) varies in accordance with state law. For example, the statute of limitations in Florida is 5 years. Fair Credit Billing act states that the patient has 60 days from receipt of a statement to submit notification of an error Fair Debt Collection Practices Act Review Figure 6-26.

OUTSTANDING PATIENT ACCOUNTS PATIENT STATEMENTS Dun messages A message recorded on a patient statement regarding the status of an outstanding account and action required Payment options PATIENT PHONE CONTACT COLLECTION LETTERS Hospital policies define procedures to be followed to pursue collection of outstanding patient balances. Basic hospital policies include guidelines for collection: sending patient statements, phone contact, and collection letters. Patient account guidelines are shown in Figure 6-27.

OUTSTANDING THIRD-PARTY CLAIMS PROMPT PAY STATUTES State statutes that outline required language in contracts regarding timely payment on claims INSURANCE TELEPHONE CLAIMS INQUIRY Some payers allow follow-up on outstanding claims to be performed by phone contact INSURANCE COMPUTER CLAIM INQUIRY Many payers have Internet Websites where claim status can be researched INSURANCE CLAIM TRACER A form used to submit a claim inquiry to a payer Timely follow-up on outstanding claims is critical to obtaining payment within an appropriate time frame and also to prevent further delay of a claim. Third-party payers are required to process timely payment in accordance with prompt pay statutes, refer to Figure 6-30. An example of claim tracer is shown in Figure 6-31.

THE APPEALS PROCESS An appeal is a request submitted to the payer by the hospital for reconsideration of a claim denial, rejection, or incorrect payment Payers provide hospitals with procedures required to file an appeal. The procedures generally include provisions regarding the type of claim that can be appealed, who can file an appeal, time frame for submission of appeals, and levels of appeals Explain what an appeal is. The procedures generally include provisions regarding the type of claim that can be appealed, who can file an appeal, the time frame for submission of appeals, and the levels of appeals. Levels of appeal are shown in Figure 6-32.

APPEALS CLAIM DETERMINATIONS THAT CAN BE APPEALED: Denied claim for reason that is unclear Incorrect payment Denial based on preexisting conditions Denial based on authorization or pre-certification requirements Discuss highlights on slide. Review Medicare appeals - Figure 6-32.