Has a patient ever asked you, “How much will this visit cost me?” Have you ever wondered the same thing? The world of billing is complicated, but it's extremely important to incentives in healthcare and also to your bottom line. Let's go over some basics. To make things more tangible and slightly easier to understand, we'll use the following scenario to guide the discussion: a patient, Goldie, presents to your emergency department with chest pain.
The Front End: What's the Deal with Copays, Co-Insurance and Deductibles?
Private insurance plans nearly always incorporate some form of cost-sharing into their plans, This can come in the form of copayments, co-insurance and deductibles. Copayments are a fixed amount paid by the insured for certain services (like visiting the emergency department). Co-insurance on the other hand is the idea that patients are still responsible for a certain percentage of the cost of services – for example, insurance covers 80% of ED visits and the patient is responsible for 20%. A deductible is a set dollar amount that must be paid by the patient before insurance coverage “kicks-in.” Of note, one of the components of the Affordable Care Act is that cost-sharing for emergency services must be the same regardless of whether a patient visits an in-network or out-of-network provider (more on networks later). Assuming our patient, Goldie, has private health insurance, there is likely a standard copayment amount for any emergency department visit. Let's pretend it's $150.
The Back End: How do You Get Paid and What Will the Patient's Bill Look Like?
Figuring things out from here gets a little complicated. An emergency department bill is divided into facility fees and physician fees. We'll examine both. Before we start, let's define a few more terms and review some background. When looking at billing, it's important to recognize the difference between cost, charge, and payments. Cost refers to the actual expenses incurred by a hospital for providing care to a patient. Charge is the price of services set by a hospital. Payment is the amount of money that a hospital/provider actually receives for the care provided. Every hospital has a “chargemaster,” or a list of prices for each service offered. Likewise, providers have prices they charge for services.
Insurance companies negotiate with hospitals and providers to establish discounted, “in-network” rates for its enrollees. This means a hospital or provider might charge $400 for a service but is willing to accept $200 as payment if they are contracted with the insurer. In order for the hospital and physician to stay in business, the payments they receive must be equal to or greater than the true cost of providing care.
Back to our scenario. We'll assume Goldie has risk factors for coronary artery disease and has a decent chest pain story. Her visit includes serial ECGs and troponins, a chest x-ray, administration of aspirin and your medical decision-making. She is eventually discharged home. The charges for her care will come from two sources: provider fees and facility fees.
Hospitals charge a facility fee to cover the overhead for the ED and the hospital, as well as for the supplies and equipment used to provide emergency care.
Provider fees will come from you, the radiologist reading the chest x-ray, and the cardiologist reading the EKG. To simplify things, we'll just consider your reimbursement as an emergency medicine physician. It's hard not to get lost in the weeds when discussing coding and billing, so bear with me. Physician billing is based on CPT codes and RVUs. What are CPT codes? What are RVUs? Current Procedural Terminology (CPT) codes are numerical descriptors of the complexity of your medical decision-making for a given case. They are established by the American Medical Association (AMA) and are determined by coders who review your charts for elements of complexity. Relative Value Units (RVUs) are the mechanism by which physician services are quantified relative to one another. They are established by the AMA's Relative Value Update Committee (RUC) and then adopted by the Centers for Medicare & Medicaid Services. Each physician service represented by a CPT code is assigned RVUs based on three components of the service: (1) physician work, (2) practice expense, and (3) the malpractice cost associated with the service. The total RVUs are then multiplied by a conversion factor. CMS sets its conversion factor annually. When providers contract with private insurers, they establish their own conversion factor, which may or may not be based on CMS's number. Lastly, coders use ICD-9 codes, which signify the diagnosis for the visit, to justify the services provided and the charges incurred.
So what the heck does that mean? Here's what it would look like in practice. When you complete Goldie's care, your documentation in the chart determines the level of complexity of the visit (Levels 1-5, with higher numbers indicating a higher level of reimbursement). In this case, we've decided it's a level 4. A level 4 chart corresponds to the CPT code 99284. The three components of RVU reimbursement are each assigned a certain value by the RUC (physician work, practice expense, and malpractice cost) as follows:
1Total RVUs = Work RVU + Practice expense RVU + Malpractice RVUs
Total RVUs = 2.56 + 0.53 + 0.21 = 3.3
The total RVUs are then multiplied by the conversion factor. For this example, your practice uses a conversion factor of $100 per RVU (this represents your typical charge), but your in-network rate with the private insurance company is $50 per RVU.
2Your charge: Total RVU x Conversion factor = 3.3 x 100 = $330
Your received payment: Total RVU x Conversion factor = 3.3 x 50 = $165
Hospitals charge a facility fee to cover the overhead for the ED and the hospital, as well as for the supplies and equipment used to provide emergency care. Much like physicians, the hospital must code
a patient's visit according to predetermined criteria and then charge the insurance company or patient based on their coding. The coding system “reflects the volume and intensity of resources utilized by the facility to provide patient care.”3 This is very different from how physician services are coded, and as a result, there is not a strong correlation between RVUs for a visit and the facility fee. In fact, though there are CMS guidelines for how a hospital should determine facility fees, each hospital is supposed to create its own fee schedule. In general, there are two types of codes used for determining facility fees:4 Ambulatory Payment Classification (APC) and Diagnosis-Related Groups (DRGs). APC are used for outpatient care (when a patient is discharged from the emergency department), while DRGs are used for inpatient care (when a patient is admitted from the ED). In the case of Goldie, APC codes would be used and according to ACEP guidelines, the highest category of facility fees would be met, APC 616. Like was the case for physician fees, your hospital determines the charge associated with that code but their payment from the insurance company is based on their negotiated discount rate. Let's pretend that the facility fee charge was $2,500 but the payment is $1,250.
The End Result
Provided Goldie has no deductible and no co-insurance, her out-of-pocket cost would be $150. She would receive a statement that said you charged a $300 physician fee but she received a discounted rate of $165 and her bill was paid in full by her insurer. Likewise, she was charged a $2,500 facility fee but received a discounted rate of $1,250 that was also paid by her insurance company. Ultimately, the total charges were $2,800 and the total payments made by the insurer were $1,415. How much did the care actually cost? Well, that's a good question”¦
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- This is a simplified formula and doesn't include the adjustment made for regional variability in costs. This adjustment is called the Geographic Price Cost Index and is used to adjust all three RVU components.
- This is a simplified formula that does not include the Sustainable Growth Rate and the Medicare Economic Index. It also doesn't include the Medicare Physician Quality Reporting System and Value-Based Modifiers.
- ACEP ED Facility Level Coding Guidelines. Available at http://www.acep.org/Content.aspx?id=30428.
- Procedures such as EKGs, x-rays and lab tests are often billed separately using other distinct codes. These other codes won't be discussed here.