Healthcare payment flows are intricate and involve multiple stakeholders, including payers (insurance companies), government programs (Medicare & Medicaid) & employers (self-funded), providers (hospitals, clinics, physicians), and patients. Below is a simplified 7-step payment flow that applies to Medicare, Medicaid, Commercial Insurance, and Self-funded (Employer Plan), with key differences highlighted at each step. We’ll also discuss the complexities of medical billing, such as the use of CPT codes, ICD codes, and DRGs, and the role of payment integrity solutions in pre-pay and post-pay processes.
1. Patient Receives Care
- Medicare: The patient, typically aged 65 or older, visits a healthcare provider. Services are generally covered under Medicare Part A (hospital services), Part B (outpatient services), or Part D (prescription drugs).
- Medicaid: The patient visits a Medicaid-approved provider. Coverage varies by state, with some services mandatory and others optional, depending on state regulations.
- Commercial Insurance: The patient visits a provider within their insurance network, which could vary widely depending on the plan. The specifics of the individual or employer-sponsored policy dictate the services provided.
- Self-Funded: The patient, covered under a self-funded employer plan, visits a provider. The plan is funded by the employer but administered by a TPA (Third-Party Administrator) or ASO (Administrative Services Organization). The services provided are in accordance with the employer’s plan design and network agreements managed by the TPA/ASO.
2. Provider Submits Claim
- Medicare: The provider submits a claim using CPT (Current Procedural Terminology) codes for procedures and ICD (International Classification of Diseases) codes for diagnoses. The claim is sent to Medicare or its administrative contractors (MACs).
- Medicaid: The provider submits a claim to the state Medicaid agency using CPT and ICD codes. However, Medicaid claims must adhere to state-specific requirements, which can differ significantly from Medicare.
- Commercial Insurance: The provider submits the claim to the insurance company using CPT and ICD codes. The submission process can vary depending on the insurer's requirements and the contract terms between the provider and the insurer.
- Self-Funded: The provider submits the claim to the TPA or ASO managing the self-funded plan. Like other plans, CPT and ICD codes are used. The TPA/ASO processes the claim according to the plan’s specific rules and coverage guidelines.
3. Initial Claim Review
- Medicare: Medicare conducts an initial review for completeness and format, ensuring the claim meets the eligibility criteria. Claims are checked against standardized national rules.
- Medicaid: The state Medicaid agency reviews the claim for completeness and proper coding. This step may involve different standards and checks based on state-specific regulations.
- Commercial Insurance: The insurance company reviews the claim for accuracy and completeness, often against the terms of the specific insurance plan. There is more variability here due to the different policies across insurers.
- Self-Funded: The TPA or ASO reviews the claim for accuracy and completeness, ensuring that it complies with the self-funded plan’s specific rules and coverage guidelines. The review process is tailored to the employer's benefit design and may involve additional scrutiny depending on the plan.
4. Adjudication Process
In adjudication, CPT, ICD, DRG, and other codes are foundational for verifying the accuracy, necessity, and coverage of the services provided, regardless of whether the claim is for Medicare, Medicaid, or commercial insurance. DRG codes are specifically used in inpatient settings to simplify and standardize payments, particularly in Medicare, but they rely on the accurate input of CPT and ICD codes to ensure proper reimbursement.
- Medicare: Claims go through eligibility criteria, network, etc., during adjudication, where they are evaluated for payment. All professional and hospital claims are verified.
- Medicaid: Claims go through eligibility criteria, network, etc., during adjudication, where they are evaluated for payment. All professional and hospital claims are verified.
- Commercial Insurance: Claims go through eligibility criteria, network, etc., during adjudication, where they are evaluated for payment. All professional and hospital claims are verified. Claims are adjudicated based on specific contracts between the provider and the insurer.
- Self-Funded: Claims go through eligibility criteria, network, etc., during adjudication, where they are evaluated for payment. All professional and hospital claims are verified. The TPA or ASO adjudicates the claim based on the self-funded plan’s specific benefits and coverage rules.
5. Payment Integrity Check
- Payment Integrity is a process to ensure accurate billing and payment of healthcare claims in accordance with health plan policies. It is crucial in ensuring accurate and fair reimbursement in the healthcare industry. Payment Integrity helps to
- Reduce overcharges
- Improve cost management and
- Hold healthcare providers accountable for their billing practices.
- Payment integrity features both prepay and post-pay strategies that encompass the entire reimbursement process to ensure the proper parties are billed for the correct amounts.
Benefits of Payment Integrity
By ensuring accurate reimbursement, preventing fraud, and optimizing the use of healthcare funds, payment integrity contributes to cost containment, compliance, patient satisfaction, and overall financial stability in the healthcare system.
- Accuracy in claim payments
- Cost containment
- Timely reimbursement
- Minimizing/addressing disputes between payers and providers
- Reduce fraud and abuse
- Better outcomes for the patient and satisfaction
- Reduce administrative costs
- Improve operational efficiency
- Decreasing Medical Loss Ratio (MLR)
Following are the typical steps that are involved in Payment Integrity in Medicare, Medicaid, and Commercial Health Insurance Scenarios
- Medicare:
- Pre-Pay Review*: Payment integrity solutions validate claims before payment, focusing on coding accuracy, compliance, and fraud detection.
- Post-Pay Review*: Claims are reviewed again to catch any overpayment/inaccuracies or fraud after payment. This might involve recovering overpayments.
- Medicaid:
- Pre-Pay Review*: State Medicaid agencies or contractors use payment integrity solutions to verify eligibility and prevent improper billing before payment.
- Post-Pay Review*: After payment, claims are reviewed to recover overpayment/inaccuracies or detect fraud. Reviews might differ from Medicare due to state-specific requirements.
- Commercial Insurance:
- Pre-Pay Review*: Payment integrity solutions check claims against the contract terms, focusing on coding accuracy and fraud detection before payment.
- Post-Pay Review*: Claims are reviewed post-payment to detect and rectify any overpayment/inaccuracies or fraud. The approach can vary significantly depending on the insurer.
- Self-Funded:
- Pre-Pay Review*: The TPA or ASO uses payment integrity solutions to ensure that claims align with the plan’s coverage guidelines and to detect potential errors or fraud before payment.
- Post-Pay Review*: Post-payment reviews focus on identifying any overpayment/inaccuracies or fraud that were not caught in the pre-pay stage, with a focus on maintaining the financial integrity of the self-funded plan.
6. Payer Makes Payment
- Medicare: Medicare pays the provider directly based on the validated claim. Payment is generally straightforward, with rates determined by federal schedules.
- Medicaid: The state Medicaid agency pays the provider. Payment amounts and timing can vary significantly by state, and rates are typically lower than those under Medicare.
- Commercial Insurance: The insurance company pays the provider according to the negotiated terms of the insurance policy. Payment amounts can vary widely depending on the specifics of the contract between the insurer and the provider.
- Self-Funded: The TPA or ASO processes the payment on behalf of the self-funded employer, ensuring that it aligns with the plan’s design. The funds come directly from the employer’s reserves, and payment amounts are based on the employer's negotiated rates or plan rules.
7. Patient Responsibility
- Medicare: The patient pays any applicable deductibles, co-payments, or coinsurance. These costs are standardized but can be influenced by supplemental insurance (Medigap).
- Medicaid: Patient cost-sharing is minimal and varies by state. In some states, patients may have small co-payments or no out-of-pocket costs at all.
- Commercial Insurance: The patient’s out-of-pocket costs depend on the specific insurance plan, which may include high deductibles, co-payments, and coinsurance. The variety in plans means patient responsibility can vary significantly.
- Self-Funded: The patient is responsible for any deductibles, co-payments, or coinsurance as outlined in the self-funded employer’s plan. The TPA or ASO typically manages these aspects, ensuring that the patient’s financial responsibility aligns with the plan’s specific rules.
Conclusion
While the high-level steps in healthcare payment flows are similar across Medicare, Medicaid, Commercial Insurance, and Self-funded, the differences in eligibility, claim submission, adjudication, payment models, and patient responsibility are crucial. Payment integrity solutions play a vital role at each stage, ensuring that claims are accurate, compliant, and fraud-free. By leveraging these solutions, payers can achieve greater efficiency and accuracy in their payment processes, benefiting the entire healthcare system.
*Multiple Passes of Payment Integrity (Pre-Pay & Post-Pay)
In the realm of payment integrity, the process typically involves multiple stages of review, known as the first pass, second pass, and third pass, for both pre-pay and post-pay scenarios. These stages are designed to ensure that claims are accurate, compliant, and fraud-free.
(In a follow-up article, we will explain the differences between pre-and post-pay passes.)
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