Medical Billing Horror Stories

Medical Billing Horror Stories

by Sharon Hollander

ASIN: B07922BH36

Publisher AbbottPress

Published in Medical Books/Administration & Medicine Economics, Medical Books, Health, Fitness & Dieting, Nonfiction

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Book Description


Anecdotes and real case studies ripped from the headlines about what doctors did which got them into trouble either with Medicare, HIPAA, The Office of Inspector General (OIG) or worse the FBI. The case studies are true stories of medical professionals: Some are about providers just like you trying to navigate the complex maze of the medical billing process. This guide will help you recognize the red flags and triggers so you can avoid a Medicare Audit.

Sample Chapter

History of Medical Billing

Medical billing has been around for almost 500 years. The first outbreak of bubonic plague in the 1660s is believed to be the first form of medical coding when officials started using statistics for tracking the disease.

In 1983 a French physician named Jacques Bertillon created a system of distinguishing diseases and classification of cause of death by anatomical body parts.

In 1898, the American Public Health Association (APHA) recommended that the registrars of Canada, Mexico, and the United States also adopt it. The APHA also recommended revising the system every ten years to ensure the system remained current with medical practice advances. As a result, the first international conference to revise the International Classification of Causes of Death convened in 1900 with the following revisions occurring nearly every decade thereafter:

• 1908 – The United States government established the first work compensation program for employees

• 1910 – The first insurance policies were offered

• 1923 – AMA Code of ethics allowed physicians to be "Free to choose whom he will serve"

• 1940 – The first pre-paid healthcare plan introduced by President Nixon

• 1950s – Lyndon Johnson signed Medicare and Medicaid into law

Health insurance in the U.S. has been made available to help offset the expenses of the treatment of illness and injury. The first "sickness" clause was inserted in an insurance document in 1847. However, health insurance did not become established until 1929 when Blue Cross first started covering schoolteachers in Texas. In 1932, a citywide plan was initiated in Sacramento, California. As an industry, health insurance became widespread after World War II.

In 1948, the World Health Organization took over the classification system and then created International Classification of Diseases that is still used today. The first coding was the ICD-1, and we are now currently using ICD-9 coding.

In 1957, the AMA Code of Ethics revised the practice to include that physician fees "should be commensurate with services rendered and the patient's ability to pay". American Medical Association created the first Common Procedural Terminology (CPT) codes in 1966.

Richard Nixon was the first politician to try to change healthcare from a not for profit business into a for-profit business. In 1973, Congress passed the Health Maintenance Organization Act, which started the rapid growth of Health Maintenance Organizations (HMOs), which was the first form of managed care.

Medical billing claims became automated in the 1980s through the submission of claims via computer and software. Prior to that, all medical billing claims were submitted on paper. Also, the only type of reimbursement for doctors and hospitals were fee for service. The Diagnosis Related Group (DRG) was introduced as the mechanism how hospitals were paid, and this opened up new coding trends and efforts on cost containment.

Health Care Portability Act was made into law in 1997, which forever changed the landscape of medical billing.

The Affordable Care Act, commonly referred to as Obamacare, is scheduled for implementation in 2014.

The Justice Department went after another pharmaceutical company that had to pay back $700 million dollars in criminal fines.

Both cases are financial extremes. However many solo practitioners and physicians in private practice are experiencing the same pressure from the Federal Government, and third party insurance companies responsible for overseeing the physicians.

In order to comprehend the issues facing providers, it is necessary to explain the medical billing process and explain about the agencies and regulators who monitor these processes.

The medical billing process is the interaction between the provider (doctor) and the insurance company, regardless if the insurance company is owned by a private firm or the government. To understand the process, it is necessary to identify the key players: the regulators, the payors, the providers, the billers, and the patients.

Healthcare is ranked 3rd among the most heavily regulated industries in the United States, and it follows behind nuclear testing facilities and aviation as the first two most heavily regulated industries. In the course of a physician's career, he or she will have interactions with one or all of the regulatory organizations, with their maze of laws, rules, and guidelines.

The government regulators are controlled under the auspices of either the State or the Federal Government. Each State is responsible for the following:

• Licensure of physicians

• Testing and approval of pharmaceuticals and medical devices by the FDA

• Health insurances

• In 2010, the Patient Protection and Affordable Care Act (PPACA) was passed which includes various new regulations. One of the most notable being a health insurance mandate which requires all citizens to purchase health insurance

• State and county health programs

• State Medical Board

The Federal Government is responsible for the following:

• The United States Department of Health and Human Services (DHHS) oversees the various federal agencies involved in health care

• Health care agencies are part of the United States Public Health Service

• The Food and Drug Administration, which certifies the safety of food, effectiveness of drugs, and medical products

• The Centers for Disease Prevention, which prevents disease, premature death, and disability, The Agency of Health Care Research and Quality, and The Agency Toxic Substances and Disease Registry, which regulates hazardous spills of toxic substances

• National Institutes of Health, which conducts medical research

• JCAHO- Joint Commission on Accreditation of Hospital Organizations

• CMS- Centers for Medicare and Medicaid Services

• EMTALA- Emergency Medical Treatment and Active Labor Act

• National Institute of Health

• AHRQ- Agency Healthcare Research and Quality to improve the safety of healthcare

• OSHA Occupational Safety and Health Administration

• Department of Veteran's affairs

• Department of Defense

• Department of Agriculture

• HSRA- Health Resources and Service Administration

• CLIA Clinical Laboratory Improvement Amendments

• American Medical Association

American Medical Association

The first meeting was of delegates met on May 7, 1847. Those delegates formed the AMA. Dr. Nathan Smith Davis served 10 years after getting his Medical Degree in January 1837. His goal was to elevate the standard of medical education in the United States. In 1876, Sarah Hackett Stevenson, MD was the first woman physician to join the AMA.

The above graph represents the expenditures of the percentage of the Health Care budget is spent on each sector of the Healthcare market. The total amount of expenditures is 2.6 trillion dollars in 2012. Healthcare represents 16 % of the Gross National Product. Physicians and Hospitals account for a little more than half of the total budget. The Congressional Budget Office estimates that Medicare, Medicaid and the Social Security Administration will consume 75% of the Federal Budget by the year 2030.


The Payors

In order to gain a better understanding of the issues facing health care providers, it is necessary to review the mechanisms of the healthcare reimbursement system and the general billing cycles.

By definition, individuals who administer care are referred to as Providers. Providers includes, physicians, nurses, nurse practitioners and allied health professionals.

Payors are entities that reimburse the provider for care and are divided into 3 categories:

• Commercial insurance carriers

• Government payors include Medicare and Medicaid, Tricare and the Veteran's Administration

• Third party administrators, such as Health Net and American Insurance Administrators

Some insurance carriers outsource pricing the claims and participate in provider networks. Medicare outsources their claim processing functions to an insurance company formally known as a Fiscal Intermediary, and now a Medicare Administrative Contractors (MAC). The Center for Medicare and Medicaid oversees the process of payment, claims, and billing rules and guidelines. The Centers for Medicare Services, referred to as CMS, govern the Medicare Program.

The Medicare Administrative Contractor's responsibilities include:

• Claim adjudication

• Receipt, Disbursement and accounting of funds paid to providers

• Education to Providers and Patients

• Assistance with technical issues

• Education and Training

• Provider Enrollment

The above graph represents the breakdown of American population by the percentages covered by each category of insurance.


Reimbursement is the healthcare term that refers to the compensation or repayment for healthcare services. Reimbursement is being repaid or compensated for expenses already incurred or, as in the case of healthcare, for services that have already been provided. In healthcare, services are often provided before payment is made.

Unlike the car dealership, in which customers pay for a car or arrange a loan before driving the car off the lot, patients walk out of the hospital treated but aren't billed until later. Therefore, the physicians and clinics must seek to be paid back for services that they have already provided and for expenses, such as supplies, that they have already incurred. The physicians, clinics, hospitals, and other healthcare organizations and practitioners are requesting reimbursement for health services.

The U.S. healthcare system is complex. Multiple methods exist to reimburse hospitals, physicians, and other health providers for the healthcare they render to patients.

Providers of healthcare are paid after services are rendered and expenses, such as supplies, are incurred. The process of obtaining payment is called reimbursement and physicians are reimbursed in a few different ways:

• Discounted fee for services (PPO) A Preferred Provider Organization

• Capitated fixed per capita payment over a period of time, per member of the health plan (patient), per month, regardless if the patient presents themselves or receives care

• RBRVS formula calculated based on the cost of providing healthcare services divided into effort, practice expenses (overhead), and malpractice insurance

• DRG – Mostly inpatient and hospitals (some skilled nursing facilities)

• Ambulatory Surgery Center – Group rates

• Fee for services

Medicare publishes their fee schedule annually, and it is available on their website at Increasingly, health plans are publishing their rates of reimbursement on their websites, including Aetna, Cigna, and Healthnet.

In the 1950s, a system was established to identify Relative Values of Medical Services or Units (RVU). The original RVU's were divided into five sections: medicine, surgery, anesthesia, radiology, and pathology respectively (it was updated again in 1974). Historically, prior to 1992, visits to a physician's office and the hospital were reimbursed based solely on time. The relative relationship of each code was multiplied by a conversion factor to arrive at an allowable payment. Insurers used the RVU and produced fee schedules based on Usual and Customary charges from data collected nationwide. In 1992, the Common Procedural Terminology (CPT) codes were revised and the mechanisms for reimbursement for Part B services changed dramatically.

Medicare was established in 1965. In the first ten years of its existence, Medicare paid physicians based on charges and allowed providers to bill Medicare beneficiaries for more than Medicare's reimbursement. In 1975, the Medicare Economic Index (MEI) was introduced in order to limit the amount of annual increases in physician fees. The MEI was introduced to measure the operating expenses and the costs of the physician's time. Legislation became involved from 1984 through 1991 as physician fees were rising faster than originally projected.

In 1989, The Omnibus Budget Reconciliation Act was introduced which made 3 significant changes in the Medicare reimbursement system:

1) In 1982, the Act implemented the Medicare Fee Schedule, which took effect in 1992.

2) It limited the amount Medicare non-providers could balance bill Medicare beneficiaries.

3) It introduced the Medicare Volume Performance Standards (MVPS) as a way to control costs.

At present, the physician reimbursements and upcoming budgetary cuts are at the discretion of Congress. The proposed 26.5% Medicare fee cut has been postponed until January 1, 2014. This is not the first time that the proposed cut has been delayed, and one would expect that with the future uncertainty it could be postponed again as 2014 approaches. Especially since the physicians and their advocacy groups continue to lobby against this significant impact to their incomes.

Features of Managed Care

"Managed care defined as the mechanism of an organization to provide healthcare services with the goal of reducing health care expenditures and contain costs delivered to the select patient population. The growth of managed care in the U.S. grew by the introduction of the Health Maintenance Organization Act of 1973."

The goal of managed care model was to form a health care delivery system that had a built in incentive for physicians and hospitals to provide healthcare more efficiently and ultimately cut costs for the health plan. The integrated delivery system includes a panel of doctors, hospitals and health care facilities to form a provider network. In addition to the plan's primary focus of financial incentives to cut costs, the HMO model introduced case management, wellness incentives, patient education and utilization management and review.

Common features of managed care include:

• Coordination and planning

• Education of patients and providers

• Assessment of quality

• Control of costs

• Comprehensiveness

Purposes of Managed Care

Reducing 3rd party reimbursement to providers and the control of healthcare costs is the main purpose of Managed Care controls to ensure quality of care and still save money. Managed care payers have instituted many means to control the costs and quality of healthcare. One example of a provision is the requirement that patients obtain prior authorization for care such as for prior approvals for surgeries.

Another example of managed care, is a mixture of the discounted fee-based system in which the payer reimburses the provider up to a percentage of the allowable fee and the insured must pay the remaining percentage. Having one primary care provider to oversee and coordinate all aspects of healthcare improves the quality of healthcare.

Forms of Managed Care

There are numerous forms of managed care. These forms include:

• Exclusive provider organizations (EPO)

• Health Maintenance Organizations (HMO)

• Point-of-service plans (POS)

• Preferred provider organizations (PPO)

• Episode-of-care reimbursement is a healthcare payment method in which providers receive a flat fee for all the services they provide related to a condition or disease.

• Global Pay Method Block Grant

• Physician Care Groups (PCG)

In the episode-of-care payment method, the unit of payment is the episode, not each individual health service. Therefore, the episode-of-care payment method eliminates individual fees or charges. The episode-of-care payment method is an attempt to correct perceived faults in the fee-for-service reimbursement method.

The global payment method is when the third party payer makes one combined payment to cover the services of multiple providers who are treating a single episode of care. Thus, this payment method consolidates payments. A block grant is a fixed amount of money given or allocated for a specific purpose. There will then be a transfer of governmental funds to cover health services. Also, there is no additional payment for higher volumes of services or more expensive or complex services.


Excerpted from "Medical Billing Horror Stories" by Sharon Hollander. Copyright © 2013 by Sharon Hollander. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher. Excerpts are provided solely for the personal use of visitors to this web site.
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Author Profile

Sharon Hollander

Sharon Hollander

Sharon Hollander is an author, entrepreneur, and a healthcare consultant in the area of practice management for over 30 years. She is a leading expert in the area of physician billing and reimbursement. Currently the President of STAT Medical Consulting, a comprehensive medical billing service in Encino, California providing billing services to physicians and surgeons in solo practice or small group practices. She has given many seminars on Billing, Coding, Fraud and Abuse, and has published a monthly column in MD News in the Inland Empire edition. Her first novel, a medical thriller called His Final Notice, is awaiting publication. Drop me a line I would love to hear from you.

View full Profile of Sharon Hollander

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