CHAPTER

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1Introduction to the

Medical Billing Cycle

Learning Outcomes

When you finish this chapter, you will be able to:1.1 Identify three ways that medical insurance

specialists help ensure the financial success of physician practices.

1.2 Differentiate between covered and noncovered services under medical insurance policies.

1.3 Compare indemnity and managed care approaches to health plan organization.

1.4 Discuss three examples of cost containment employed by health maintenance organizations.

1.5 Explain how a preferred provider organization works.

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Learning Outcomes (continued)

When you finish this chapter, you will be able to:1.6 Describe the two elements that are combined in a

consumer-driven health plan.1.7 Define the three major types of medical insurance

payers.1.8 Explain the ten steps in the medical billing cycle.1.9 Analyze how professionalism and etiquette

contribute to career success.1.10 Evaluate the importance of professional

certification for career advancement.

1-3

Key Terms• accounts payable (AP)• accounts receivable (A/R)• adjudication• benefits • capitation • cash flow• certification• coinsurance• compliance• consumer-driven health plan

(CDHP)• copayment • covered services

• deductible• diagnosis code• electronic health records

(EHR)• ethics• etiquette• excluded services• fee-for-service• healthcare claim• health information technology

(HIT)• health maintenance

organization (HMO)• health plan

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Key Terms (continued)• indemnity plan• managed care• managed care

organization (MCO)• medical billing cycle• medical coder• medical insurance• medical insurance

specialist • medical necessity• network• noncovered services• out-of-network

• out-of-pocket• participation• patient ledger• Patient Protection and

Affordable Care Act (ACA)• payer• per member per month (PMPM)• PM/EHR• policyholder• practice management program

(PMP)• preauthorization

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Key Terms (continued)

• preexisting condition• preferred provider

organization (PPO)• premium• preventive medical

services• primary care physician

(PCP)• procedure code• professionalism• provider

• referral• revenue cycle

management (RCM)• schedule of benefits• self-funded (self-insured)

health plan• third-party payer

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1.1 Working in the Medical Insurance Field

• Spending on healthcare in the United States is rising due to costs of advancing medical technology and an aging population

• Many rewarding career paths in the healthcare field require knowledge of medical insurance and reimbursement options

• Financial success of a healthcare facility depends on revenue cycle management (RCM) to maintain a balance of cash flow through management of accounts receivable and accounts payable

• Excellent interpersonal skills assist in communication with everyone involved

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• Health information technology (HIT) incorporates practice management programs (PMPs) to streamline the process of scheduling, billing, and financial management

• Electronic health records (EHR) are rapidly being adopted and many are integrated with the Practice Management Programs

• Accuracy of the medical insurance specialist will contribute largely to the usefulness of emerging technology

1.1 Working in the Medical Insurance Field (continued)

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• Medical insurance is a written policy stating terms of an agreement between a policyholder (an individual) and a health plan (an insurance company)

• Health plans provide benefits (payments for medical services)

• Health plans are often referred to as payers• A third-party payer is a private or government

organization insuring or paying for healthcare on behalf of beneficiaries

1.2 Medical Insurance Basics 1-9

1.2 Medical Insurance Basics (continued)

• Insurance policies contain a schedule of benefits that summarizes payments that may be made for medically necessary medical services

• Payer’s definition of medical necessity determines coverage and payment

• A provider must meet the payer’s professional standards– Providers include physicians, nurse practitioners,

physician assistants, therapists, hospitals, laboratories, long-term care facilities, and suppliers such as pharmacies and medical supply companies

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1.2 Medical Insurance Basics (continued)

• Covered services may include primary care, emergency care, medical specialists’ services, and surgery

• Preventive medical services include physical examinations, pediatric and adolescent immunizations, prenatal care, and routine screening procedures

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1.2 Medical Insurance Basics (continued)

• Noncovered services are those not included in a plan’s benefits

• Excluded services may include:– Dental services, eye care, employment-related

injuries, cosmetic procedures, or experimental/investigational procedures

– Other specific items such as prescription drugs– A preexisting condition—a medical condition

diagnosed before the policy took effect (rule may change under healthcare reform legislation)

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1.2 Medical Insurance Basics (continued)

• Group or individual policies available with varying restrictions and pricing

• Other types of health-related insurance available– Disability insurance– Automotive insurance related to injuries– Workers’ compensation (determined by state law)

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1.3 Health Care Plans

• An indemnity plan provides protection against loss

• Physicians send the health care claim—a formal insurance claim reporting data about the patient and services provided—to the payer on behalf of the patient

• Patients pay a premium—the periodic payment required to keep the policy in effect

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1.3 Health Care Plans (continued)

• Most policies have a deductible—the amount the insured pays for covered services before benefits begin

• Coinsurance is the percentage of each claim paid by the insured

• Some patients must pay out-of-pocket expenses prior to benefits

• Fee-for-service is a retroactive charging method based on each service performed

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1.3 Health Care Plans (continued)

• Managed care offers a more restricted choice of providers and treatments in exchange for lower premiums, deductibles, and other charges

• Managed care organizations (MCOs) establish links between provider, patient, and payer

• Participation allows provider to contract with health plan to gain more patients and lower fees

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1.4 Health Maintenance Organizations

• A health maintenance organization (HMO) combines coverage of medical costs and delivery of healthcare for a prepaid premium

• Capitation is a fixed prepayment to a provider for all medically necessary contracted services provided to each plan member– Per member per month (PMPM) is the capitated rate

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1.4 Health Maintenance Organizations(continued)

• A network is a group of providers having participation agreements with a health plan– Visits to out-of-network providers are not covered

except for emergencies• HMOs often require preauthorization before the

patient receives services• When HMO member sees a provider, they pay a

specified charge called a copayment• HMO members may be required to choose a

primary care physician (PCP) to direct all aspects of their care

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1.4 Health Maintenance Organizations(continued)

• Referral is transfer of patient care from one physician to another

• Point-of-service (POS) plans allow visits to specialists in the plan’s network without a referral at one level of charge

• POS plans also permit patients to receive medical services from non-network providers at a higher level of charge

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1.5 Preferred Provider Organizations

• A preferred provider organization (PPO) is an MCO where a network of providers supply discounted treatment for plan members– Most popular type of health plan– Creates a network of physicians, hospitals, and other

providers with negotiated discounts– May require preauthorization– Controls use of services– Requires payment of a premium and often of a

copayment for visits

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1.6 Consumer-Driven Health Plans

• A consumer-driven health plan (CDHP) combines a high-deductible health plan with a medical savings plan– The health plan is usually a PPO with a high

deductible and low premiums– The savings account is used to pay medical bills

before the deductible has been met– Increases patient awareness of healthcare costs

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1.7 Medical Insurance Payers

• Three major types of medical insurance payers:1. Private payers—dominated by large insurance

companies2. Self-funded (self-insured) health plans—

organizations paying for health insurance directly by setting up a fund from which to pay

3. Government-sponsored healthcare programs—includes Medicare, Medicaid, TRICARE, and CHAMPVA

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Healthcare Reform

• Patient Protection and Affordable Care Act (ACA)– Signed into law in 2010 and phasing in until 2014– Changes guidelines for preexisting conditions– Young adults can remain on parent’s policy until 26– Payers cannot impose lifetime financial benefits limits– 80 cents of every dollar must be spent on healthcare– Preventive services for women included– Many future benefits to patients, including major changes

to Medicare and Medicaid

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1.8 The Medical Billing Cycle

• A medical insurance specialist is a staff member who handles billing, checks insurance, and processes payments

• To complete their duties, medical insurance specialists follow a 10-step medical billing cycle– Series of steps leading to maximum, appropriate,

timely payment

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1.8 The Medical Billing Cycle (continued)

• Step 1 – Preregister patients• Step 2 – Establish financial responsibility• Step 3 – Check in patients• Step 4 – Review coding compliance

– A medical coder has specialized training to handle diagnostic and procedural coding

– The patient’s primary illness is assigned a diagnosis code

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1.8 The Medical Billing Cycle (continued)

• Step 4 – Review coding compliance (continued)– Each procedure the physician performs is assigned a

procedure code– Transactions are entered in a patient ledger—a

record of a patient’s financial transactions• Step 5 – Review billing compliance

– Compliance means actions that satisfy official requirements

• Step 6 – Check out patients• Step 7 – Prepare and transmit claims

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1.8 The Medical Billing Cycle (continued)

• Step 8 – Monitor payer adjudication– Accounts receivable (A/R) is the monies owed to a

medical practice– Adjudication is the process of examining claims and

determining benefits• Step 9 – Generate patient statements• Step 10 – Follow up payments and collections

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1.9 Achieving Success

• Professionalism is acting for the good of the public and of the medical practice

• Medical ethics are standards of behavior requiring truthfulness, honesty, and integrity

• Etiquette is made up of the standards of professional behavior

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1.9 Achieving Success (continued)• Requirements for success

– Knowledge of medical language and coding– Communication skills– Attention to detail– Flexibility– Health information technology skills– Honesty and integrity– Team player

• Attributes– Appearance– Attendance– Initiative– Courtesy

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1.10 Moving Ahead

• Continuing education required for certification so lifelong learning is needed

• Certification is recognition of a superior level of skill by an official professional organization– Provides evidence to prospective employers that the

applicant has demonstrated a superior level of skill on a national test

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Summary 1-31

Summary1-32

Summary 1-33