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)].
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
Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
2
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
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
3
The Business of Healthcare
• Revenue to HCOs different than typical business
– Payments made by 3rd party
• 1st party – insured or patient
• 2nd party – the HCO or provider
• 3rd 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
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
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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
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
5
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
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
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Reimbursement & Claims
• Reimbursement: compensation or payment for
healthcare services already provided
• Methods of reimbursement include fee-forservice 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
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
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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
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
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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
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
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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
Health IT Workforce Curriculum
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Financing Healthcare (Part 2)
Lecture a
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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
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
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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
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Financing Healthcare (Part 2)
Lecture a
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Importance of Charge Capture
• Ensures proper reimbursement for services
provided
• Permits reevaluation of episode of care
reimbursement arrangements
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
13
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
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
14
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
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Lecture a
15
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
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Lecture a
16
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
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Lecture a
17
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
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CPT Examples
Auditory System
External Ear
Incision
69000 Drainage external ear, abscess or
hematoma, simple
69005
complicated
69020 Drainage external auditory canal, abscess
69090 Ear piercing
Health IT Workforce Curriculum
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Lecture a
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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
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
20
Claim Submission
• Claim elements
– Demographic and insurance identification information
– Encounter elements
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•
•
•
•
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
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Financing Healthcare (Part 2)
Lecture a
21
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
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Lecture a
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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
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Lecture a
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3rd 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
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
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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
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
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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
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
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Self-pay
• 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
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Lecture a
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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
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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
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
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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
Health IT Workforce Curriculum
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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)
Health IT Workforce Curriculum
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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
Health IT Workforce Curriculum
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Lecture a
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Global Payment
• Payer makes one payment for multiple providers
treating a single episode of care
• Extends the concept of capitation to a larger
group
Health IT Workforce Curriculum
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Financing Healthcare (Part 2)
Lecture a
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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
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
34
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
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
35
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/solutionsmanaging-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.
•
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.
•
HIPAA Code Sets. (n.d.). Retrieved December 16, 2011, from Centers for Medicare and Medicaid Services
website: https://www.cms.gov/ICD9ProviderDiagnosticCodes/
Health IT Workforce Curriculum
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Introduction to Healthcare and Public Health in the US
Financing Healthcare (Part 2)
Lecture a
36