CHAPTER

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17Hospital Billing and

Reimbursement

Learning Outcomes

When you finish this chapter, you will be able to:17.1 Distinguish between inpatient and outpatient

hospital

services.

17.2 List the major steps relating to hospital billing and

reimbursement.

17.3 Contrast coding diagnoses for hospital inpatient cases and for physician office services.

17.4 Explain the coding system used for hospital procedures.

17-2

Learning Outcomes (continued)

When you finish this chapter, you will be able to:17.5 Discuss the factors that affect the rate that

Medicare pays for inpatient services.

17.6 Interpret hospital healthcare claim forms.

17-3

Key Terms

• admitting diagnosis (ADX)

• ambulatory care• ambulatory patient

classification (APC)• ambulatory surgical

center (ASC)• ambulatory surgical unit

(ASU)• at-home recovery care• attending physician• case mix index

17-4

• charge master

• CMS-1450

• comorbidities

• complications

• diagnosis-related groups (DRGs)

• emergency

• grouper

• health information management (HIM)

Key Terms (continued)

• HIPAA X12 837 Health Care Claim: Institutional (8371)

• home health agency (HHA)

• home healthcare• hospice care• hospital-acquired

condition (HAC)• hospital-issued notice of

noncoverage (HINN)• ICD-10-PCS

17-5

• inpatient

• inpatient-only list

• Inpatient Prospective Payment System (IPPS)

• major diagnostic categories (MDCs)

• master patient index (MPI)

• Medicare-Severity DRGs (MS-DRGs)

• never events

• observation services

Key Terms (continued)

• Outpatient Prospective Payment System (OPPS)

• present on admission (POA)

• principal diagnosis (PDX)• principal procedure• registration• sequencing• skilled nursing facility

(SNF)

17-6

• three-day payment window

• UB-92• UB-04

• Uniform Hospital Discharge Data Set (UHDDS)

17.1 Healthcare Facilities: Inpatient Versus Outpatient

17-7

• Inpatient—person admitted for services that require an overnight stay

• Inpatient services:– Those involving an overnight stay– Provided by general and specialized hospitals, skilled

nursing facilities, and long-term care facilities

• Skilled nursing facility (SNF)—facility in which licensed nurses provide services under a physician’s direction

17.1 Healthcare Facilities: Inpatient Versus Outpatient (continued)

17-8

• Emergency—situation where a delay in patient treatment would lead to a significant increase in the threat to life or body part

• Outpatient services:– Provided by ambulatory surgical centers or units,

home health agencies, and hospice staff– Ambulatory care—outpatient care that does not

require an overnight hospital stay– Ambulatory surgical unit (ASU)—hospital

department that provides outpatient surgery– Ambulatory surgical center (ASC)—clinic that

provides outpatient surgery

17.1 Healthcare Facilities: Inpatient Versus Outpatient (continued)

17-9

• Outpatient services are also provided in patients’ home settings:– Home healthcare—care given to patients in their

homes– Home health agency (HHA)—organization that

provides home care services– At-home recovery care—assistance with daily living

provided in the home– Hospice care—public or private organization that

provides services for terminally ill people

17.2 Hospital Billing Cycle 17-10

• The first major step in the hospital claims processing sequence:– Patient is admitted and registered– Personal and financial information is entered in the

hospital’s health record system– Insurance coverage is verified– Consent forms are signed by the patient– A notice of the hospital’s privacy policy is presented to

the patient– Some pretreatment payments are collected

17.2 Hospital Billing Cycle (continued) 17-11

• The second step:– The patient’s treatments and transfers among the

various departments in the hospital are tracked and recorded

• The third step:– Discharge and billing– Follows the discharge of the patient from the facility

and the completion of the patient’s record

17.2 Hospital Billing Cycle (continued) 17-12

• Health information management (HIM)—hospital department that organizes and maintains patient medical records

• Registration—process of gathering information about a patient during admission to a hospital

• Master patient index (MPI)—hospital’s main patient database

17.2 Hospital Billing Cycle (continued) 17-13

• Attending physician—clinician primarily responsible for a patient’s care from the beginning of a hospitalization

• Hospital-issued notice of noncoverage (HINN)—form used for inpatient hospital services

• Observation services—service provided in a hospital room but billed as an outpatient service

• Charge master—hospital’s list of the codes and charges for its services

17.3 Hospital Diagnostic Coding 17-14

• Diagnostic coding for inpatient services follows the rules of the Uniform Hospital Discharge Data Set (UHDDS)—classification system for inpatient health data

• Inpatient coding differs from physician and outpatient diagnostic coding in two ways:1. The main diagnosis, called the principal rather than

the primary diagnosis, is established after study in the hospital setting

2. Coding an unconfirmed condition (rule-out) as the admitting diagnosis is permitted

17.3 Hospital Diagnostic Coding (continued)

17-15

• Principal diagnosis (PDX)—condition established after study to be chiefly responsible for admission

• Admitting diagnosis (ADX)—patient’s condition determined at admission to an inpatient facility

• Sequencing—guideline for listing the correct order of a principal diagnosis

17.3 Hospital Diagnostic Coding (continued)

17-16

• Comorbidities—admitted patient’s coexisting conditions that affect the length of hospital stay or course of treatment

• Complications—conditions an admitted patient develops after surgery or treatment that affect length of hospital stay or course of treatment

17.4 Hospital Procedure Coding 17-17

• Volume 3 of the ICD-9-CM, Procedures, was replaced on October 1, 2013, by ICD-10-PCS to report procedures for inpatient services– Table format used to build codes– Sixteen sections with seven character codes

• Principal procedure—procedure most closely related to treatment of the principal diagnosis

17.5 Payers and Payment Methods 17-18

• Medicare pays for inpatient services under its Inpatient Prospective Payment System (IPPS)—Medicare payment system for hospital services– Uses diagnosis-related groups (DRGs) to classify

patients into similar treatment and length-of-hospital-stay units and sets prices for each classification group

– Diagnosis-related groups (DRG)—system of analyzing conditions and treatments for similar groups of patients

– Grouper—Software used to assign DRGs

17.5 Payers and Payment Methods (continued)

17-19

• Each hospital’s case mix index is an average of the DRG weights handled for a specific period of time

• Other factors affect the pay rate a hospital negotiates with CMS: geographic location, labor and supply costs, and teaching costs

• MS-DRGs—new type of DRG designed to better reflect the differing severity of illness among patients who have the same basic diagnosis

• Major diagnostic categories (MDC)—categories where MS-DRGs are grouped

17.5 Payers and Payment Methods (continued)

17-20

• Present on admission (POA)—code used when a condition exists at the time the order for inpatient admission occurs

• Hospital-acquired condition (HAC)—condition a hospital causes or allows to develop

• Never events—preventable medical errors resulting in serious consequences for the patient

17.5 Payers and Payment Methods (continued)

17-21

• Outpatient Prospective Payment System (OPPS)—payment system for Medicare Part B services provided on an outpatient basis

• Ambulatory patient classification (APC)—Medicare payment classification for outpatient services

• Inpatient-only list – procedures billed from the facility inpatient setting only

• Three-day payment window – Medicare rule bundling outpatient services within three days before admission into DRG payment

17.6 Claims and Follow-up 17-22

• UB-04—Current paper claim form for hospital billing– CMS-1450—another name for the UB-04 paper claim

form– UB-92—former hospital paper claim form

• The UB-04 reports:– Patient data– Information on the insured– Facility and patient type

17.6 Claims and Follow-up (continued) 17-23

• The UB-04 reports (continued):– The source of the admission– Various conditions that affect payment– Whether Medicare is the primary payer (for Medicare

claims)– The principal and other diagnosis codes– The admitting diagnosis– The principal procedure code– The attending physician– Other key physicians– Charges

Summary

Summary

Summary