How do U.S. healthcare providers bill you?

The devil is in the details and medical bills are exhaustive. A study by the American Medical Association estimated that in 2013, 7.1 percent of claims had a mistake. A study by NerdWallet in 2014 found errors in 49 percent of Medicare claims.

A closer look at medical billing shows the complexity of the billing system leading to many opportunities for mistakes. Each year, in the United States, health care insurers process over 5 billion claims for payment. Additionally, hospital bills are getting larger. According to the Sacramento Bee, in Northern California in 2000, it took 103 days in a hospital to rack up a one million dollar bill, but in 2010 it took 64 days.

When you enter a healthcare facility, all the services are being tracked and when your treatment is completed, the healthcare provider creates a report which a medical coder then translates into a coded claim, which is a detailed invoice of what services you receive. The claim includes CPT, Current Procedural Terminology, codes which are used to describe tests, surgeries, evaluations and any other procedure. It is published and maintained by the American Medical Association and includes thousands of codes. The CPT codes are used in conjunction with ICD, International Classification of Diseases, codes to give the payer a full picture of the patient visit. ICD codes are maintained by the World Health Organization. So a medical bill can be read as, “the patient came in with ICD code and we performed CPT code. Please give us this amount.”

CPT codes can be of three categories. Category 1 codes are broken down into six section which are:

  1. Evaluation and Management
  2. Anesthesiology
  3. Surgery
  4. Radiology
  5. Pathology and Lab
  6. Medicine

Each section has very specific coding guidelines and subcategories. For example, extra gloves in a surgery needs to be coded appropriately or will not be reimbursed. Category 2 codes provide optional supplemental information used in performance management and future patient care. Examples include BMI documentation, patient history, physicals, etc. Category 3 codes are for newer or experimental procedures. Category 1 has an “unspecified procedure” code but if it is in Category 3, then it is required to be used. Category 3 codes can eventually become a Category 1 code.

If the patient uses Medicare or Medicaid, their claim contains HCPCS, Healthcare Common Procedure Coding System, codes rather than CPT. There are three levels of code in HCPCS. Level are the CPT codes. Level 2 are used primarily to identify products, supplies, and services not included in the CPT codes, such as ambulance services and durable medical equipment, prosthetics, orthotics, and supplies when used outside a physician’s office. Level 3 are local codes developed by state Medicaid agencies, Medicare contractors, and private insurers for use in specific programs and jurisdictions.

Claims are most often done on a UB-04 form for institutional healthcare facilities or a CMS-1500 form for non-institutional healthcare facilities, such as private practices. HIPAA, Health Insurance Portability and Accountability Act of 1996, requires claims be submitted electronically but exceptions may be made for smaller practices or power outages.

Once the bill is coded, the bill is sent to the insurance payer, who then determines how much of the treatment is covered/how much they will reimburse the healthcare provider. The bill then goes back to the healthcare provider to be approved and to collect the balance from the patient.

After getting a second opinion on your medical issue, be sure to get a second opinion on your medical bill.


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