1. 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.

2. 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.

3. 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).

4. 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).

5. 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.

6. 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.

7. THE HOSPITAL BILLING PROCESS INSURANCE CLAIMS AND PATIENT STATEMENTS CHARGE SUBMISSION
Claim forms utilized to submit charges:
CMS 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.)

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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

14. 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.)

15. 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

16. 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.

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.)

23. 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.

24. 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.

25. 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.

26. 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

27. 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.

28. 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.

29. 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.

30. 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.

31. 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.

32. 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.

33. 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.