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PART ONE
The Hospital
Billing
Environment
Chapter 2
The Hospital
Billing Process
© 2009 The McGraw-Hill Companies, Inc. All rights reserved.
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LEARNING OUTCOMES
After completing this chapter, you will be able to define
the key terms and:
1. Describe the main steps in the hospital billing process.
2. List the items that are entered into the patient
accounting system to establish the patient’s account
during preregistration or registration.
3. Compare and contrast routine charges and ancillary
charges.
4. Discuss the content and purpose of the charge
description master.
5. Identify the main causes of billing errors.
6. Identify the advantages and disadvantages of using
information technology in the hospital billing process.
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© 2009 The McGraw-Hill Companies, Inc. All rights reserved.
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KEY TERMS
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accounts receivable (AR)
adjustments
admission
aging
ancillary charges
appeal
attending physician
charge description master (CDM)
charge explode
charge slip
compliance
discharge
DNFB (discharged/not final bill)
list
• electronic health record (EHR)
system
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• encounter form
• explanation of benefits
(EOB)
• guarantor
• inpatient-only procedures
• medical necessity
• precertification
• professional services
• Quality Improvement
Organization (QIO)
• referring physician
• remittance advice (RA)
• routine charges
• uncollectible account
• utilization review (UR)
© 2009 The McGraw-Hill Companies, Inc. All rights reserved.
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THE BILLING PROCESS
Business goal is to collect accounts receivable (AR) as
quickly as possible based on the following landmarks:

Admission

Treatment

Discharge
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BUSINESS OFFICE DUTIES
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Admissions (also called registration or access)
Insurance verification
Health information management (HIM)
Information systems (IS)
Patient accounting (claim preparation and submission,
posting payments, billing)
Collections
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BILLING PROCESS STEPS
Step 1: Preregister or Register Patients
 Scheduling
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Physician requests services
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Services scheduled
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Referring physician, patient, department, attending physician
notified
 Establish Patient Account which contains:
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Personal data
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Basic billing data
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Medical information
o
Account number
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Medical record number
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Step 2: Establish Financial Responsibility
 Patient Payment Policy Explained
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Remind patients of their obligation to their health plan (e.g.,
copayments, coinsurance, deductibles)
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Inform patients of estimated amount they will owe
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Explain to patients without insurance that they are
responsible for complete payment
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Prepare patients scheduled for outpatient procedures to pay
expected amount at time of service
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Tell inpatients they will be billed after discharge and after
insurance payments are received
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Explain financial counseling is available
o
Review acceptable forms of payment (e.g., cash, check,
credit card)
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Step 2: Establish Financial Responsibility (cont.)
 Insurance Verification and Precertification
o
Verification: insurance coverage verified; first payer
determined if more than one health plan
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Precertification: payer authorizes payment or recommends
another course of action; Medicare often requires
preadmission and preprocedure review
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Medical Necessity: treatment/procedure must meet generally
accepted standards of medical practice to be considered
medically necessary
 Inpatient-Only Procedures
o
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Certain procedures designated “inpatient-only” by Medicare;
if performed as outpatient, the entire claim will be denied
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Step 3: Check Patients In
 Check In
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Complete demographic and medical information verified;
outstanding issues resolved; copayments and deductibles
collected, as appropriate
 Patient Consent
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Consent in writing for planned procedures must be obtained
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HIPAA Privacy Disclosure signed to consent to disclosure of
information regarding the patient’s stay
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Hospital’s Notice of Privacy Practices given to patient
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Any other legal forms or waivers necessary are signed at
this time
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Step 4: Check Patients Out
 Inpatients
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Physician provides discharge order/plan
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Discharge planning recommendations prepared
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Time and date of discharge noted in system to determine
length of stay
 Outpatients
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Post-discharge care instructions provided if needed
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Time and date of services received noted in system for
billing
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Step 5: Review Coding Compliance
 Coding Compliance
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Medical record reviewed by health information management
(HIM) department to determine diagnosis and procedure
codes that are compliant with official guidelines
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Patient account specialists and HIM personnel ensure
documentation in medical record supports coding
 Patients’ Records: Working with the HIM
Department
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Medical record standards set by the Joint Commission
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Medicare and hospital by-laws influence standards
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Each record has a unique number
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HIM Department responsible for three tasks: medical
transcription, medical records, medical coding
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Step 6: Check Billing Compliance
 Billing Compliance
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Applying knowledge of various payer guidelines to
determine what can be billed
 Charge Collection
Gathering all charges from all departments that provided
services…either from automated system or manually
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Routine Charges: inpatient room and board charges and
outpatient visits (total of costs of all supplies customarily
used to provide the service)
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Ancillary Charges: additional charges such as medications,
anesthesia, radiology services, etc.
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Step 6: Check Billing Compliance (cont.)
 Charge Slips
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Each department has its own charge slip (also called
encounter forms or charge tickets) listing the major services
provided
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Ordering physician or technician checks off the general
heading of the service provided
o
When posted, patient accounting system “explodes” the
charge and bills all the components of the major service
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Hold Period: charges typically must be reported in one to
five days after discharge for inpatients; seven to ten days
after outpatient services
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Step 6: Check Billing Compliance (cont.)
 Charge Description Master (CDM)
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Computerized list of charge codes for all services and items
that a hospital can bill to a patient, payer, or other provider
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Includes description of service or item, price, and other data
required for creating an insurance claim
o
Maintaining the Charge Description Master: accuracy of
codes in CDM is vitally important for accurate claims; CDM
should be updated/maintained on an ongoing basis
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Step 7: Prepare and Transmit Claims
Patient account specialists are typically responsible for
preparing accurate, timely insurance claims and patient bills.
 Timely Claims
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Each payer has a timeline for the submission of claims
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Many facilities use “scrubber” software to test claims before
sending them
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Most hospital claims sent electronically
 Billing Errors
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Possible results: 1) claims are not paid or only partially paid;
2) investigations by government regulators who suspect
fraud
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Step 7: Prepare and Transmit Claims (cont.)
o
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Common billing errors:
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services and/or supplies not documented in patient’s medical
record
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double billing
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medically unnecessary services
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services included in other charges
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inaccurate or incorrect provider information
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Step 8: Monitor Payer Adjudication
Payers put claims through a series of steps to judge whether
they should be paid; this process is called adjudication.
 Claims Follow-up
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Patient account specialists contact insurance companies
when claims have not been paid
 Payment Processing
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Payments received are posted to the appropriate patient
account
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If a claim is denied or not paid in full, an appeal can be
submitted
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If a claim is rejected, it can be corrected and resubmitted
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Step 9: Generate Patient Statements
After receiving all insurance payments, patients with balances
due are periodically sent statements
Step 10: Follow up on Patient Payments and
Handle Collections
Patient account specialists analyze patient accounts regularly
and begin collection procedures for overdue bills.
 Writing Off Uncollectible Accounts
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If no payment is received after the collection process and the
cost of continuing is higher than the amount owed, the
account is considered uncollectible or a bad debt and written
off
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THE HOSPITAL BILLING PROCESS AND
INFORMATION TECHNOLOGY
The next major step in health care information technology is the
implementation of electronic health record (EHR) systems to replace
paper files and interface with accounting systems.
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Some advantages:
Immediate access to health information
Computerized management of physician orders
Clinical decision support
Electronic communication
Error reduction
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Some disadvantages:
Cost
Learning curve for staff
Confidentiality and security concerns
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CHAPTER REVIEW

The business goal of the billing process.
[To collect the facility’s accounts receivable as quickly as possible]

Collecting and entering the basic demographic and
insurance information required to establish a
patient account in advance.
[Preregistration]

When is the patient normally informed of his or her
financial responsibility?
[registration or preregistration]

What does Medicare hire QIOs to do?
[assess medical necessity]
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CHAPTER REVIEW (cont.)

Patients’ protected health information (PHI) can be
used and disclosed without authorization for what
purposes?
[treatment, payment, health care operations]
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Categorize the following charges as either routine
or ancillary: room charges, pharmacy, laboratory,
oxygen, gloves.
[Routine: room charges, oxygen, gloves]
[Ancillary: pharmacy, laboratory]

The central file in the facility’s patient accounting
system that maintains details of each charge is
the:
[charge description master (CDM)]
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CHAPTER REVIEW (cont.)

Billing errors lead to unpaid or partially paid
claims, and?
[investigations that suspect fraud]

If a claim is rejected, what recourse does the
facility have?
[correct and resubmit it]
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If a claim is denied or partially paid, what
recourse does the facility have?
[submit an appeal]

What is the next logical step when all collection
attempts have been exhausted?
[account is written off as uncollectible]
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TERMINOLOGY QUIZ

Type of transaction entered to write off or change an entered
transaction.
[adjustment]
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Physician responsible for patient care while in the hospital.
[attending physician]
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Another name for an inpatient or outpatient charge slip.
[encounter form]
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Document that accompanies payment from an insurance company.
[remittance advice (RA)]

Accounts receivable (AR) report that classifies charges according
to the number of days since the charge was incurred.
[aging report]
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TERMINOLOGY QUIZ (cont.)

Based on the invasive nature of the procedures, Medicare
classifies certain procedures as:
[inpatient-only procedures]

Actions that satisfy official requirements are in:
[compliance]

Next major step in health care information technology.
[electronic health record (EHR) systems]
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