fundamental guide to understanding healthcare payments

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Fundamental Guide to Understanding Healthcare Payments

© 2013 The Clearing House, LLC. All rights reserved. No part of this material may be used without the prior written permission of The Clearing House, LLC. Content from other sources is used with permission and requires the separate consent of those

sources for use by others. This material is not intended to provide any warranties or legal advice, and is intended for educational purposes only.

Irfan Ahmad VP, Healthcare Payments The Clearing House

Monday April 22nd 9:30 – 10:30am

Stuart Hanson Director, Healthcare Solutions Executive Citi Enterprise Payments




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Agenda—Understanding the Healthcare Revenue Cycle

• US Healthcare Spend

• The Key Players

• The Revenue Cycle – Overview – Legislative Efforts – HIPAA Standards

• Healthcare Payments to the Provider

– Co-pay/Co-Insurance – Health Plan Payments – Patient Out-of-Pocket Responsibility




3



Total US Healthcare Spend National health expenditures were $2.6T in 2010, making up 17.9% of GDP1

Source: National Health Expenditure. CMS; Bureau of Economic Analysis

• Healthcare is the largest industry in the US, providing jobs for approximately 14 million people

• The US population is aging, driving demand for healthcare products and services

• The demand for professional healthcare services is eclipsing the supply of professionals providing services

• 15% of the population currently claims 75% of total healthcare expenditure. As chronic disease incidence is growing, associated expenditure is also likely to grow

• Innovative healthcare technologies have generally increased cost, whereas in other industries innovation usually decreases cost

1. 2012 CMS Statistics http://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ResearchGenInfo/CMSStatistics.html

0.71

1.02

1.35

2.59

2.92*

3.72*

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1990 1995 2005 2010 2013 2017

US Healthcare Expenditure

$ Tr

illion

s

* Projected number

http://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ResearchGenInfo/CMSStatistics.html




4



Healthcare Revenue Cycle – The Players • Patient

• Provider – Physician (individual, group practice) – Facility (hospital, clinic, long-term care, etc.)

• Health Plan

– Commercial Insurance • Employer based

– Administrative Services Only (ASO) – Fully Insured

• Individual Insurance – Medicare

• Part A—Hospital • Part B—Physician • Part C—Medicare Advantage • Part D—Drugs




5



Healthcare Revenue Cycle—Where’s the Money?

Check- Out & POS Charge Capture

Claims Adjudication

Medical Record & Coding

Payment Posting

Check-in & POS Cash Collections

Enrollment Scheduling

Pre-Reg & Pre Cert

Insurance Verification

Admission/ Procedure

Charge Capture & Entry

Claims Submission

Denial & Appeal

Management

Rejection Processing. Secondary,

Tertiary

1. Validate ID 2. Ensure Active Policy

1. Determine if pre-cert required 2. Obtain pre-cert 3. Update systems with pre-cert

1. Determine time needed for event

2. Review provider & patient schedule

3. Book required time and facilities

1. Provide member with plan description

2. Capture member selection 3. Update health plan system

w/ eligibility 4. Provide member with

enrollment package

1. Receive appeal or grievance 2. Review case 3. Make determination re: appeal/grievance 4. Update claim status (adj, reversal, etc)

1. Verify member identity 2. Verify date/time of

procedure & facility availability 3. Collect necessary

insurance & personal health info. 4. Update check-in/ patient tracking system

1. Validate Identity 2. Check member eligibility 3. Collect any co-pay amount

1. Reconcile remittance 2. Update system to show

check-in payment collection

1. Receive rejected claim 2. Verify secondary/tertiary coverage 3. Submit claim to secondary/tertiary payer 4. Send patient responsibility

1. Payment posted for adjudicated claim

2. System updated marking claim as paid

1. Claim edits applied 2. Claim adjudicated or rejected

1. Electronic or paper claim created 2. Claim submitted based on medical

event

1. Patient medical record updated 2. Medical procedure coded

1. Update check-out/patient tracking system 2. Member check out and any known co-pay/co-

insurance collected

Patient Copay/Coinsurance

Payment from Health Plan

Patient Out-of-Pocket Payment




6



Legislative Efforts to Improve Healthcare

• HIPAA 1996 - Health Insurance Portability and Accountability Act – Personal Health Information (PHI)—any information about health status,

provision of health care, or payment for health care that can be linked to a specific individual any information about health status, provision of health care, or payment for health care that can be linked to a specific individual.

– Covered Entities/Business Associates—must comply with the Rules' requirements to protect the privacy and security of health information and must provide individuals with certain rights with respect to their health information.

– HIPAA Transaction Set—Established standard transactions for Electronic Data Interchange (EDI) of health care data; including: claims and encounter information, payment and remittance advice, claims status, eligibility, enrollment and disenrollment, referrals and authorizations, coordination of benefits and premium payment.

HIPAA was the beginning of legislative efforts to improve quality, accessibility of care, privacy and efficiency in healthcare.




7



HIPAA Standards for Electronic Transactions

Enrollment

Pre-Certification & Adjudication

Claims Acceptance

Claims Adjudication

Accounts Payable

Functions

Providers

Functions

Payors

Enrollment

Functions

Plan Sponsors

Eligibility Verification

Pre-Authorization and Referrals

Service Billing Claim Submission

Claims Status Inquiries

Accounts Receivable (AR)

Enrollment


Claims Acceptance

Claims Adjudication

Accounts Payable

Enrollment

270 (Eligibility Inquiry)

271 (Eligibility Information)

837 (Claims Submission)

835 (Healthcare Claim Payment Advice)

834 (Benefit Enrollment & Maintenance)

811 (Invoice)

820 (Payment Order/RA)

275 (Claims Attachment)

276 (Claim Status Inquiry)

277 (Claim Status Response)

278 (Referral Authorization and Certification)

148 (First Report of Injury)

HIPAA created standards for healthcare data exchange that started to pave the way for increased automation, privacy, and fraud prevention




8



Multi-Party Payment Process in Healthcare

Consumer

Consumer

Provider Provider Payor

Payor Employer

Co-pay Claim 837

CCD+/Check 835

Pre

miu

m

820

Patient Pay Check/Credit

Check/ACH

Provider

Provider

Day 1 Day 7 - 90 Day 63 - 146

Patient Encounter Post Encounter Adjudication COB/Patient Responsibility

Healthcare is the only industry where you can receive services and leave before knowing what you owe, or paying the bill.




9



Health Plan Payment to Provider

Consumer

Consumer


Payor Employer

Co-pay Claim 837

CCD+/Check 835

Pre

miu

m

820


Check/ACH

Provider

Provider

Day 1 Day 7 - 90 Day 63 - 146


A substantial industry effort has been made to automate the process associated with health plan billing and payments to providers




10



Health Plan Payments to Providers – Overview

• Providers are paid by health plan once claims have been adjudicated. However, claims can be: Rejected due to formatting/coding issue(s), underpaid, denied

• Payments to provider can be: – Bundled to include payments for many claims – Adjusted to correct for previous billing/coding errors – Sent via Paper or EFT

• Payment must be reconciled to the original bill submitted to the health plan – Done by matching the payment to the Explanation of Payment or Electronic Remittance

Advice (ERA/835) – Often difficult as remittance advice and payment do not travel together. They may arrive at

the provider on the same day, or even weeks apart – Due to inconsistent practices by payors, automatic posting of the ERA may not process

properly—providers must then manually input remittance information and match to payments – Leads to lots of inefficiencies, errors, and numerous calls between payors and providers




11



Linking the Payment to the Remittance Advice

TCH POLICY POSITION / BUSINESS OBJECTIVE

ODFI RDFI

Payor Provider

ACH Operators

Medical Claims Clearing House

835 835

CCD+ CCD+

835

CCD+ Check

Provider must reconcile payment (EFT or check) to remittance advice (835 or paper EOP)

Paper EOP/ Check

Paper EOP/ Check




12



HIPAA Standards for Electronic Transactions

Enrollment


Claims Acceptance

Claims Adjudication

Accounts Payable

Functions

Providers

Functions

Payors

Enrollment

Functions

Plan Sponsors

Eligibility Verification

Pre-Authorization and Referrals

Service Billing Claim Submission

Claims Status Inquiries

Accounts Receivable (AR)

Enrollment


Claims Acceptance

Claims Adjudication

Accounts Payable

Enrollment

270 (Eligibility Inquiry)

271 (Eligibility Information)

837 (Claims Submission)

835 (Healthcare Claim Payment Advice)

834 (Benefit Enrollment & Maintenance)

811 (Invoice)

820 (Payment Order/RA)

275 (Claims Attachment)

276 (Claim Status Inquiry)

277 (Claim Status Response)

278 (Referral Authorization and Certification)

148 (First Report of Injury)

ACH CCD+

HIPAA transactions are focused on data exchange and B2B payments

Added to HIPAA transaction set for EFT payments under Administrative Simplification in PPACA




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Mandate for Electronic Payments

• Patient Protection and Affordable Care Act (PPACA) – Legislation calls for both standards and operating rules as key drivers in reducing

administrative cost – Medicare payments to EFT by January 1, 2014 – Established Standards and Operating Rules for Healthcare EFT Payments

• CAQH CORE responsible for drafting operating rules • NACHA selected as standards development organization for maintenance of

the healthcare EFT standard

• Health and Human Services (HHS) issued Healthcare EFT Standard Final Rule on January 10, 2012

– Became final rule on July 10, 2012 – Defined Health Care EFT as a transaction under HIPAA – Identified NACHA CCD+ as the HIPAA EFT standard format and content required

for health plans to perform EFT transactions




14



Unique Characteristics of a Healthcare CCD+

• CCD+ = Corporate Credits or Debits + one addenda record

• The CCD+ addenda record will carry the TRN segment for reassociation – Trace number segment in addenda record that links the electronic

payment (CCD+) and electronic remittance advice (ERA/835) – Includes a mix of numbers and asterisks

TRN*1*12345*1512345678*999999999




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Example: NACHA file with CCD+ with 1 addenda If requested, RDFI must deliver minimum data elements necessary to facilitate reassociationto their provider customer

Minimum ACH CCD+ Reassociation Data Elements

CCD+ Record # Field # Field Name

5 9 Effective Entry Date

6 6 Amount 7 3 Payment Related Information




16



Linking the Payment to the Remittance Advice

TCH POLICY POSITION / BUSINESS OBJECTIVE

ISSUE BACKGROUND

ODFI RDFI

Payor Provider

ACH Operators

Medical Claims Clearing House

835 835

CCD+ CCD+

835

CCD+

Provider uses Reassociation Trace Number in the CCD+ addenda record to reconcile payment to 835 (remittance advice)




17



What Does this Mean for ODFIs

• Health Plan ODFI must work with their clients to ensure they comply with new rules: – Use of HCCLAIMPMT in Company Entry Description Field – Ensure CCD+ addenda record contains the ASCX12 Version 5010 835

TRN data segment (Reassociation Trace Number) – Company Name field must contain Health Plan name that is easily

recognized by the healthcare provider (receiver)




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What Does this Mean for RDFIs

• Provider RDFI must: – Have product or service available for providing payment related

information if requested • Available by opening of business on second banking day from

settlement • Offer secure electronic delivery—minimum equivalent of 128-bit

RC4 encryption technology • Accept the “~” as a data segment terminator

– Educate staff to understand what providers are requesting: • CORE-required minimum CCD+ reassociation data elements • Trace Number (note: this is not the ACH trace number)




19



Patient CoPay to Provider

Consumer

Consumer


Payor Employer

Co-pay Claim 837

CCD+/Check 835

Pre

miu

m

820


Check/ACH

Provider

Provider

Day 1 Day 7 - 90 Day 63 - 146


Healthcare consumers have been engrained with the concept of co-pays




20



Patient CoPay/Co-Insurance Payment – Overview

• Providers are paid by patients prior to services being rendered

• Consumers are accustomed to making co-pay payments from personal, HSA, or FSA accounts:

– Cash – Check – Credit

• Co-Insurance can be challenging to collect, particularly in high deductible

situations – Providers may not know true amount to collect up front – Estimator tools – Providers holding deposits




21



Patient Out-of-Pocket Payment to Provider

Consumer

Consumer


Payor Employer

Co-pay Claim 837

CCD+/Check 835

Pre

miu

m

820


Check/ACH

Provider

Provider

Day 1 Day 7 - 90 Day 63 - 146


As patient out-of-pocket costs continue to grow, collecting patient responsibility will become increasingly critical to the provider’s bottom line




22



Patient Out-of-Pocket Payment – Overview

• Providers are paid by patients once a claim has been adjudicated by a health plan, and the provider is informed of the patient responsibility.

• Providers can often have difficulty collecting from patients once they have left the office: – Patients do not understand bills

• Receive multiple EOBs • Provider bill is not easily reconciled to EOBs

– Bills are not easy to pay— • Payment methods vary and are not consistent across providers • On-line solutions are not readily available

– Patients have competing priorities




23



Provider Receivables

Outstanding Receivables by Payer Type

Medicare, 29.3%

Private Insurance,

40.1%

Medicaid, 12.9%

Out-of-Pocket, 19.3%

Source: Hospital Accounts Receivable Analysis - 4Q 2009

• Provider accounts receivables:

– Provider receivables is comprised of approximately 42% government, 40% third-party and 19% out-of-pocket.

– As consumerism is adopted, transactions will convert from a “third-party” reimbursement insurance model to a “first-party” payment model (i.e., shift costs from employer/payer to patient).

Out-of-pocket receivables comprise approximately 19% of total provider receivables. As patient out-of pocket costs continue to increase, this further increases the likelihood of hospital bad debt.




24



Patient Out-of-Pocket Projected to Grow 42%

24

$-

$50

$100

$150

$200

$250

$300

$350

$400

2004 2006 2008 2010E 2012E 2014E 2016E

Out-of-Pocket Spend by Type of Expenditure (in billions)

Nursing Home CareDurable Medical EquipmentOther Non-durable Medical ProductsPrescription DrugsHome Health CareOther Professional CareDental ServicesPhysician and Clinical ServicesHospital Care

+42%

Source: U.S. Department of Health and Human Services, Center for Medicare & Medicaid Services. “National Health Expenditure Projections 2009-2019”




25



Paying Healthcare Bills Can be Challenging




26



Project Financial Impact to Providers

Source: Citi analysis based upon 2011 data from the US Dept. of Health & Human Services & Center for Medicare & Medicaid Services

Billed Collections

$172B 41.50%

Patient Write-Off $102B 24.53%

POS

Collections $141B 33.96%

Billed Collections

$232B 37.14%

Patient Write-Off $203B 32.49%

POS

Collections $189B 30.37%

over 8 years

Bad News In 2011, patient Write-Offs represented an estimated 25% of “collectible” patient financial responsibility, or $102 billion

Worse News The problem is expected to double to more than $200 billion; almost 33% of patient responsibility




27



Current Focus and Factors Demanding Change

• Consumer challenges: – Need for a Patient-centric focus on the revenue cycle – Patients are frustrated – Coordination between payers and providers is

lacking…patient suffers as a result – Payment methods are scattered and inconsistent…




28



A Need to Shift Focus

• Consumer challenges lead to provider problems: – Slow collections from consumers – High write-offs – Lots of customer service calls & time on the phone – Unhappy patients




29



Market Dynamics

1 2007 & 2010: the “Retailish” Future of Patient Collections, Celent, Feb. 2009, http://reports.celent.com 2. Department of Health and Human Services, CMS, Office of the Actuary; National Health Expenditure Data Projections, 2010 and Fifth Third Analysis 3. “Recession boosting bad debt at Healthcare Organizations,” Healthcare Finance News, May 11,2010 4. McKinsey Quarterly, May 2010 5. Communispace, December 2011

Consumer responsibility has grown from an average of 12% in 2007 to 30% in 2012. This is a percent of total provider revenues1

Increased member

responsibility

Providers’ difficulty in collecting

Complex payment process + + + Advances in

technology $101.4B in

uncollected revenue in 20112

Average patient bad debt is 4%-6%2 of total review

13% of providers say that higher copays and coinsurance are their most pressing issues3

More than 50% of

consumers are interested in an on-line payment solution for health care bills5

Consumers cite

confusion or inconvenience for not paying bills more than for financial reasons4

No real incentives exist to motivate consumers to pay more timely

Opportunities exist to improve both the consumer’s experience and the provider’s bottom line




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Questions?

Thank You!

fundamental guide to understanding healthcare payments

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