1. CHAPTER 5 HOSPITAL BILLING PROCESS
UNDERSTANDING HOSPITAL BILLING AND CODING
CHAPTER 5 HOSPITAL BILLING PROCESS
Copyright © 2011, 2006 by Saunders an imprint of Elsevier Inc.

2. PURPOSE OF THE BILLING PROCESS
The purpose of the hospital billing process is to obtain reimbursement for services and items rendered by the hospital
The billing process involves all the functions performed to prepare charges for submission to patients and other payers. It includes patient registration, posting charges to the patient’s account, chart review and coding, preparing claim forms and patient statements for charge submission, and monitoring and follow-up on outstanding accounts
The claims process refers to the portion of billing that involves preparing claims for submission to payers
Collections (accounts receivable [A/R] management) is an extension of the billing process that involves monitoring and follow-up on outstanding accounts
The purpose of this chapter is to provide an overview of the hospital billing process.
The billing process includes submitting charges to third-party payers and patients, posting patient transactions, and following up on outstanding accounts.
Billing is a vital part of providing services in the hospital.

3. COMPLEXITY OF THE HOSPITAL BILLING PROCESS
The hospital billing process has evolved into a complex process as a result of:
Increasing number of health insurance and government-funded healthcare benefit programs
Enhanced regulation of the healthcare industry
Contracts between providers and payers
The role of hospital billing and coding professionals is complicated because of the ever-changing health insurance environment and variations in payer guidelines.
The complex process of billing is difficult to understand without knowledge of the purpose of billing, the chargemaster, coding systems, claim forms, and the detailed itemized statement.
The process is similar to a puzzle, and hospital billing and coding professionals need to know all the pieces of the puzzle in order complete the process effectively and efficiently.

4. PAYER GUIDELINES PARTICIPATING PROVIDER AGREEMENTS
Variations in payer guidelines contribute significantly to the complexity of the billing process. Guidelines for the provision of patient care services, claims submission, and reimbursement vary from payer to payer.
PARTICIPATING PROVIDER AGREEMENTS
CLAIM FORMS
CLEAN CLAIM STATUS
REIMBURSEMENT METHODS
It is essential for billing and coding professionals to understand payer guidelines in order to ensure that proper reimbursement is obtained and to be compliant with payer guidelines.
Have the students discuss how compliance affects reimbursement. (Compliance with payer guidelines is a condition for receiving reimbursement.)

5. PAYER GUIDELINES PARTICIPATING PROVIDER AGREEMENT
A written agreement between the hospital and a payer that outlines the terms of and specifications of participation for the hospital and the payer. Common provisions included in most participating provider agreements relate to:
Patient care services  Medical necessity  Utilization management (UM)
Patient financial responsibility
Billing requirements
Reimbursement
A review of several elements of the participating provider agreement “payer contract” will illustrate how payer guidelines vary and the significant impact they have on the billing process.
The hospital’s payer mix includes various payers that provide coverage to patients seen at the hospital. Medicare, Medicaid, TRICARE, Blue Cross/Blue Shield, Worker’s Compensation, automobile insurance, and various managed care plans are generally part of the hospital’s payer mix.
Figures 5-3 and 5-4 highlight provisions of a participating provider agreement.

6. PAYER GUIDELINES PARTICIPATING PROVIDER AGREEMENTS PATIENT CARE SERVICES
MEDICAL NECESSITY
Providers are statutorily obligated to provide patient care services that are considered medically necessary
All payers have medical necessity guidelines that must be met as a condition of receiving payment for services
Medically necessary services are those that are considered reasonable and medically necessary to address the patient’s condition based on standards of medical practice
Ask students the type of surgeries/procedures that would not be considered medically necessary.
Then ask “Can they think of circumstances that if changed could make a surgery/procedure necessary”?
Show examples on the board of how medical necessity is important. For example, if a patient complains of sore throat and a cough, a chest X-ray would only be medically necessary for the cough.

7. PAYER GUIDELINES PARTICIPATING PROVIDER AGREEMENTS PATIENT CARE SERVICES
UTILIZATION MANAGEMENT
Utilization management (UM) involves monitoring and managing healthcare resources for the purpose of controlling cost and ensuring that quality care is provided
In accordance with the participating provider agreement, providers are required to follow UM requirements outlined in the payer contract
Examples of UM requirements include: precertification, prior authorization, and second surgical opinion
Discuss highlights on the slide

8. PAYER GUIDELINES PARTICIPATING PROVIDER AGREEMENTS PATIENT FINANCIAL RESPONSIBILITY
The amount patients are required to pay as outlined in their healthcare plan. The patient may be responsible for any of the following:
Deductible Annual amount determined by the payer that the patient must pay before the plan pays benefits
Coinsurance A percentage of the approved amount that the patient is required to pay
Copayment
A fixed amount determined per service that the patient must pay
Same concept as your auto insurance. You pay your deductible before the provider will pay the portion outlined by your policy.
Coinsurance is commonly an 80/20 program. Insurance pays 80% and the patient pays 20% of bill.
Copayment is commonly seen with HMOs. Patients pay a certain amount (co-pay) for each service, no matter the condition or seriousness.

9. PAYER GUIDELINES CLAIM FORMS
The participating provider agreement outlines what claim form is required for submission of charges to the payer and it provides completion guidelines which vary by payer.
All information collected and recorded on the patient’s account and in the patient’s record is used to complete the claim form.
Payers outline claim form requirements in the participating provider agreement and provider manuals.
Two claim forms used for submission of charges to payers are the CMS-1500 and the CMS-1450 (UB-04)
These forms were formerly called the HCFA-1500 and HCFA The Health Care Financing Administration (HCFA) changed its name to the Centers for Medicare and Medicaid Services (CMS). The forms are now referred to as the CMS-1500 and CMS-1450 (UB-04).
The purpose of the claim form is to submit charges to third-party payers.
A third-party payer is an organization or other entity that provides coverage for medical services, such as insurance companies, managed care plans, Medicare, and other government programs.
An example of a CMS-1500 form is shown in Figure 5-6.
An example of a CMS-1450 form is shown in Figure 5-7.

10. PAYER GUIDELINES CLAIM FORM REQUIREMENTS
Hospitals generally use the CMS-1450 (UB-04) to submit charges to third-party payers for most services; however, there are variations:
OUTPATIENT SERVICES
Ambulatory surgery facility charges for ambulatory surgeries are submitted on the CMS-1450 (UB-04)  Ambulatory surgery performed in a freestanding ambulatory surgery center is billed using the CMS-1500
Emergency Department services  Hospitals submit all facility charges on the CMS-1450 (UB-04) ER physician charges are not submitted by the hospital.
Payers specify the claim form required for submission of charges based on the following service categories: outpatient, inpatient, and non-patient.

11. PAYER GUIDELINES CLAIM FORM REQUIREMENTS
OUTPATIENT SERVICES (Cont’d)
Ancillary department services, such as Radiology and Pathology/Laboratory, charges submitted with CMS-1450 (UB-04)
Hospital-based primary care office or hospital-based clinic The CMS-1500 is used to submit these charges, which may include physician services if the physician is an employee of the hospital
INPATIENT SERVICES
Facility charges for services provided on an inpatient basis are reported using the CMS-1450 (UB-04)
Spend some time on this slide. Give students specific procedures or situations and ask them “is the service inpatient, outpatient or non-patient?”

12. PAYER GUIDELINES CLEAN CLAIM
The hospital’s major goal when submitting charges for services rendered is to submit a clean claim the first time.
A clean claim is one that does not need to be investigated further by the payer. A clean claim passes all the internal billing edits and payer specific edits, and is paid without need for additional intervention
Remember claim form requirements vary by payer
Emphasize - The hospital’s major goal when submitting claims to third-party payers is to submit a clean claim the first time.
Claims need to be carefully reviewed before submission.
Billing and coding professionals must understand all requirements to achieve maximum reimbursement.

13. PAYER GUIDELINES CLEAN CLAIM
Examples of claims that do not meet clean
claim status:
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
Ask the students to name an advantage to processing a clean claim. (Clean claims are paid promptly.)

14. PAYER GUIDELINES REIMBURSEMENT METHODS
Reimbursement is the term used to describe the amount paid to the hospital by patients and third-party payers for services rendered. Payers use various reimbursement methods to determine the payment amount for a service or item. Reimbursement methods can be categorized as:
Traditional methods Fee-for-service; fee schedule; percentage of accrued charges; and usual, customary, and reasonable (UCR)
Fixed-payment methods Capitation, case rate, contract rate, flat rate, per diem, and relative value scale (RVS)
Prospective Payment Systems (PPS) Ambulatory payment classification (APC), Medicare Severity Diagnosis Related Groups (MS-DRG) and resource-based relative value scale (RBRVS)
Figure 5-8 illustrates examples of payment calculations utilizing traditional payment methods; fee-for-service, percentage of accrued charges, fee schedule, and UCR.
Discuss how payer guidelines are important to reimbursement.
Emphasize - A biller must know the guidelines for each payer to ensure that they have used the correct codes for each procedure and to ensure that reimbursement will occur in a timely manner.

15. PAYER GUIDELINES REIMBURSEMENT METHODS
Reimbursement methods vary by payer and by service category. Government, commercial, and managed care payers use various reimbursement methods to pay for inpatient, outpatient, and professional services.
The government became one of the largest payers of healthcare services with the establishment of the Medicare and Medicaid programs in 1965.
Emphasize - Payer guidelines specify requirements to achieve a clean claim

16. PAYER GUIDELINES REIMBURSEMENT METHODS
GOVERNMENT PROGRAMS USE THE FOLLOWING METHODS:
Outpatient services—Ambulatory Payment Classification (APC); ambulatory surgery freestanding; ASC—Ambulatory Surgery Groups (ASC)
Inpatient services—Medicare Severity Diagnosis Related Groups (MS-DRGs) Professional services—Resource Based Relative Value Scale (RBRVS)
COMMERCIAL PAYERS USE A VARIETY OF METHODS:
Outpatient services—case rate, contract rate, fee-for-service, fee schedule, or percentage of accrued charges
Inpatient services—case rate, contract rate, fee-for-service, flat rate, percentage of accrued charges, or per diem
MANAGED CARE PLANS GENERALLY USE CONTRACT RATES OR CAPITATION METHODS:
Outpatient services—case rate or contract rate
Inpatient services—case rate or contract rate
Professional services—capitation, contract rate, and fee schedule
Prospective Payment Systems (PPS) were implemented to provide reimbursement for inpatient, outpatient, and professional services provided to members of government healthcare programs.
PPS is a method of determining reimbursement to healthcare providers based on predetermined factors, not on individual services.
Refer to Table 5-2 – Reimbursement methods defined.

17. CHARGE DESCRIPTION MASTER (CDM)
The Charge Description Master is also referred to as the charge-master. The chargemaster is a computerized system used by hospitals to inventory and record services and items provided in various locations within the hospital during a patient’s stay.
The chargemaster is usually automated and linked with the billing system
Items in the chargemaster are generally organized by department
Each item in the chargemaster is associated with the appropriate procedure code, revenue code, service or item description, charge, and other information required for the submission of the hospital facility charge
A critical component of the entire billing process in the hospital environment is the CDM.
The hospital provides a variety of services and items during a patient’s visit.
It is critical for the hospital’s financial stability to capture charges for services and items provided during the patient’s stay.

18. CHARGE DESCRIPTION MASTER (CDM) SERVICES BILLED BY THE HOSPITAL
FACILITY CHARGES
 Facility charges represent the technical component of services provided, including space, equipment, supplies, drugs and biologicals, and technical staff
PROFESSIONAL CHARGES  The professional component consists of services performed by a physician or other non-physician clinical provider.  A hospital can only bill professional services when the physician is employed by or under contract with the hospital. An example of this is billing professional charges for services rendered in a hospital-based primary care office or clinic.
Facility charges are captured through the chargemaster and submitted on the UB-04.
An outline of hospital facility charges that are captured through the chargemaster is provided in Figure 5-12.
Professional charges are generally not billed by the hospital, unless the physician is under contact or employed by the hospital.
It is important for hospital personnel to understand the difference between facility and professional charges.

19. CHARGE DESCRIPTION MASTER (CDM) HOSPITAL CATEGORIES OF SERVICES AND ITEMS
ACCOMMODATIONS (ROOM AND BOARD)
OPERATING ROOM AND RECOVERY ROOM
MEDICAL/SURGICAL SUPPLIES
PHARMACY
ANCILLARY SERVICES
OTHER CLINICAL SERVICES
Charges for services and items provided are captured at various points in the patient care process, as outlined in Table 5-4.

20. CONTENT OF THE CHARGE DESCRIPTION MASTER (CDM) DATA ELEMENTS
Chargemaster number
Department number
Item or service description
Procedure or item code
Revenue code
Quantity or dose
Charge
Services, procedures, and items provided by the hospital are listed in the chargemaster with various data elements required for charging patient accounts and billing services and items on the claim form.

21. CONTENT OF THE CHARGE DESCRIPTION MASTER (CDM) DATA ELEMENTS
Chargemaster number is an internal number assigned to each service or item provided by the hospital.
Department number is assigned by the department that provides the service.
Item or service description is given to describe the service or item. Some hospitals assign a clinical description while others may utilize the billing description.
Review the common data elements found in a Charge Description Master. (See Figure 5-15, Sample hospital Charge Description Master of common data elements.)
See Figure 5-16, Sample revenue code list for various categories.
Hospital billing and coding professionals are becoming more involved in chargemaster functions.

22. CONTENT OF THE CHARGE DESCRIPTION MASTER (CDM) DATA ELEMENTS
Procedure or Item Code Each item in the chargemaster is assigned the appropriate code from the HCPCS coding system or a National Drug Code (NDC)
HCPCS Level I and II modifiers are also recorded in the chargemaster where appropriate.
The NDC may be assigned to various drugs provided by the hospital in accordance with payer specifications.
Chargemaster data elements vary by hospital; however, basic information will include the chargemaster number, department number, item and service description, HCPCS and modifier, general ledger codes, quantity or dose, and the charge as outlined in Figure 5-15.

23. CONTENT OF THE CHARGE DESCRIPTION MASTER (CDM) DATA ELEMENTS
Revenue Code A revenue code is a four-digit number assigned to each service or item provided by the hospital that designates the type of service or where the service was performed
The National Uniform Billing Committee (NUBC) defines revenue code categories
Revenue codes are required for completion of the CMS-1450 (UB-04)
Information regarding revenue codes can be obtained from many sources such as the CMS website at or the NUBC website at

24. CHARGE MASTER MAINTENANCE
The Health Information Management (HIM) Department is generally responsible for maintenance and update of the chargemaster.
The hospital chargemaster must be maintained and updated regularly which involves changes, revisions, and deletions of codes, and incorporation of changes in payer guidelines
The appropriate revenue code must be assigned to each HCPCS code used
Many hospitals assign a committee to update the chargemaster or conduct chargemaster audits to identify discrepancies
The challenge for hospitals is to develop and maintain a chargemaster that incorporates required information for claim submission such as the National Correct Coding Initiative (NCCI) and other payer guidelines.

25. CODING SYSTEMS
Coding systems are used to provide descriptions of procedures, services, items, and patient conditions. The codes are recorded on a claim form. Coding systems for procedures and diagnosis are:
PROCEDURE CODING SYSTEMS
Health Care Common Procedure Coding System (HCPCS)
 Level I—CPT
 Level II—Medicare National Codes
 International Classification of Diseases, 9th Revision, Clinical Modification (ICD-9-CM), Volume III—Procedures
DIAGNOSIS CODING SYSTEM
International Classification of Diseases, 9th Revision, Clinical
Modification (ICD-9-CM) Volumes I and II
Historically, providers submitted a written description of conditions, services, and items on claims.
Coding systems consist of numeric and alphanumeric codes that represent a translation of the written descriptions of conditions, services, or items provided as documented in the patient’s medical record.
Procedure coding systems are utilized to provide descriptions of procedures, services, and items provided.
Diagnosis coding systems are utilized to describe the patient’s injury, illness, condition, disease, or other reason for hospital visit.

26. CODING SYSTEMS OUTPATIENT INPATIENT
Coding systems used vary by payer according to whether the service is provided on an outpatient or inpatient basis.
OUTPATIENT
Coding systems for hospital outpatient services are HCPCS Level I CPT and Level II Medicare National Codes for procedures and ICD-9-CM Volumes I and II for diagnoses.
INPATIENT
Coding systems used on the claim form for hospital inpatient services are ICD-9-CM Volumes I and II for diagnoses and Volume III for significant procedures.
HCPCS Level I and II codes are utilized to identify services and items; however, many payers do not require them on the claim form. They are generally listed on the detailed itemized statement.
Coding systems utilized vary by payer according to whether the services are provided on an outpatient or inpatient basis, as illustrated in Table 5-5.
Transposition of numbers can result in denial of a claim.

27. UNIVERSALLY ACCEPTED CLAIM FORMS
Claim forms are used to submit charges for services and items rendered to third-party payers. Two universally accepted claim forms are:
CMS-1500
CMS-1450 (UB-04)
It is important to remember that payer guidelines define what claim form is required for outpatient, inpatient, and non-patient services.

28. UNIVERSALLY ACCEPTED CLAIM FORMS
CMS-1500
Used to submit charges to payers for professional and specified outpatient services provided by physicians and other providers
Medicare requires the CMS-1500 to submit charges for payment under Medicare Part B
Hospitals may use the CMS-1500 to submit charges for professional services rendered by providers who are employed by or under contract with the hospital
CMS-1450 (UB-04)
Required for submission of charges for services provided by facilities such as a hospital (facility charges)
Medicare requires the CMS-1450 to submit charges for payment under Medicare Part A
Refer to figure 5-18 and 5-19 for review:
CMS-1500
CMS-1450 (UB-04)
Sample patient statement in Figure 5-22.

29. UNIVERSALLY ACCEPTED CLAIM FORMS DETAILED ITEMIZED STATEMENT
Payers may require submission of a detailed itemized statement, which is a listing of all charges incurred during the patient visit. The data outlined on the statement are obtained throughout the patient care process. Charges are posted and maintained through the chargemaster during the visit. The details for the charges are summarized on the CMS-1450 (UB-04). The content of a detailed itemized statement will vary by hospital; however, it generally includes:
Facility, patient, and insurance information
Detailed information for each charge
Revenue code for each charge
Procedure code, description, quantity, dose, and total charge for each item.
Charges are posted and maintained through the chargemaster during the patient’s visit.
The detailed itemized statement contains all charges included on a claim.
An example of a detailed itemized statement can be found in Figure 5-20.

30. UNIVERSALLY ACCEPTED CLAIM FORMS
CLAIM FORM SUBMISSION
Two methods for submitting claim forms are:
MANUAL
ELECTRONIC
Discuss the highlights on the slide

31. UNIVERSALLY ACCEPTED CLAIM FORMS
CLAIM FORM SUBMISSION
MANUAL
Printed paper claim and/or detailed itemized statement sent by mail
ELECTRONIC
Sent in electronic format via electronic data interchange (EDI), a term that describes sending information from one place to another via computer
The claim form sent via EDI is called an electronic media claim (EMC)
Most payers are requiring electronic claim submission.
Most payers do not allow faxed claims unless they are resubmissions.

32. CLAIM FORM SUBMISSION CLEARNINGHOUSE
Many hospitals use a clearinghouse to submit
claims electronically
The clearinghouse receives claim information from the hospitals and other providers in various formats
The clearinghouse converts the claim information into the required format for each specific payer
The clearinghouse reviews the claim for completeness and verification of accuracy The claim is transmitted electronically to the payer
The claim is converted to the required format for each specific payer and submitted electronically.
All payers now accept electronic claims.
Discuss the advantages of electronic claims. (Claims sent electronically are processed more quickly and take less manpower to process.)

33. THE HOSPITAL BILLING PROCESS
The billing process begins with patient registration at admission and ends when payment is received for hospital services. The process involves all functions required for claim submission and obtaining reimbursement including:
PATIENT ADMISSION/REGISTRATION
PATIENT CARE/ORDER ENTRY
CHARGE CAPTURE
CHART REVIEW AND CODING
CHARGE SUBMISSION
REIMBURSEMENT
ACCOUNTS RECEIVABLE (A/R) MANAGEMENT
Discuss the highlights on the slide

34. THE HOSPITAL BILLING PROCESS CHARGE SUBMISSION
The Patient Financial Services (PFS) Department uses patient information gathered during the stay to prepare documents required for charge submission. Charges are submitted to patients and third-party payers.
Patient invoice/statement Patient statements and/or invoices are printed in batches and sent.
Claim forms
Claim forms and detailed itemized statements are prepared for submission as required. Before a claim is submitted, the hospital computer billing system “edits” the claim. Edits are computerized checks of claim data to detect claim problems. A report outlining potential claim problems is reviewed by the hospital billing and/or HIM staff. Corrections are made before submitting the claim.
The hospital billing process begins at admission and ends when the account balance is paid.
There are numerous in-between steps and many people who are responsible for playing a role in reimbursement.

35. THE HOSPITAL BILLING PROCESS CHARGE SUBMISSION AND PAYER EDITS
Computer edits are designed to detect potential claim problems. Common edits included in most systems are:
Procedure vs. patient’s gender
 To verify that the procedure is appropriate for the patient’s gender
Procedure vs. patient’s age
 To ensure that the procedure is age-appropriate
Procedure vs. patient’s diagnosis
 To ensure that the procedure is appropriate based on the patient’s condition
Ask your students for some procedures, services, items that would not be done to the opposite sex, or for certain age groups.

36. HOSPITAL BILLING PROCESS REIMBURSEMENT PAYMENT DETERMINATION
Claims received by payers are processed after computer edits and/or manual review of the claim is performed. Payment determination can result in the following actions:
Claim paid
Claim pended
Claim denied
Explain the payment determination process .
Emphasize there will be variations in the process by payers.

37. HOSPITAL BILLING PROCESS PAYMENT DETERMINATION-CLAIM PAID
Claims are processed for payment by the payer. Payers prepare and send a remittance advice with payment. The remittance advice (RA) explains charges submitted, deductible, coinsurance, co-payment, allowed charges, and amount paid on the claim.
Payments are processed by hospital personnel:
Payments are posted to the patient’s account
Contractual adjustments are applied where applicable
The balance is billed to the patient or to a secondary or tertiary payer where applicable
Remind students that a clean claim is one that is processed and paid without further investigation by the payer.

38. HOSPITAL BILLING PROCESS PAYMENT DETERMINATION-CLAIM PENDED
When payers identify a potential problem related to medical necessity or coverage based on the claim review, they may request additional information.
The claim is placed in a pending status until the information is received
A remittance advice is sent to the hospital that indicates payment cannot be processed until requested information is received
Hospital personnel review the request and forward information to the payer
Many payers send a notification to the patient advising the claim is in a pended status and the reason for nonpayment of the claim.
A claim pending is in need of further information or review. It is put into a hold status until information has been received by the payer and reviewed again for reimbursement.

39. HOSPITAL BILLING PROCESS PAYMENT DETERMINATION-CLAIM DENIED
The payer may deny the claim entirely or a specific charge on the claim may be denied. Claim denials are communicated on the remittance advice that is sent to the hospital. The remittance advice contains reason codes that provide an explanation of why the claim is denied. Common reasons for claim denials include:
Patient’s identification number and name may not match any in the payer file
Coverage for the patient may not be in effect
The plan may not provide coverage for a particular service or item
Services or items may not be considered medically necessary
Services may be included in a package and therefore are not separately billable
Services may be considered duplicate
The hospital may not be a network provider through the plan
If the payment is not correct, the hospital billing professional will gather information regarding the incorrect payment and pursue payment of the correct amount from the payer.
Denied means the payer will not pay the item or claim.
The provider may be able to appeal that decision.

40. HOSPITAL BILLING PROCESS ACCOUNTS RECEIVABLE (A/R) MANAGEMENT
Accounts receivable (A/R) management refers to required functions for monitoring and follow-up on outstanding accounts to ensure that reimbursement is received in a timely manner. The functions performed by the Credit and Collections Department include:
Monitoring accounts by payer type, aging categories, and the amount outstanding. Computer-generated reports are printed to identify accounts that are outstanding, based on specified criteria such as payer type or age of the account:
Accounts receivable (A/R) aging report
Financial class report
Credit and collection personnel utilize these reports to identify accounts that require follow-up for the purpose of pursing payment.