67
Chapter 4
Contractual Payment Systems
Introduction
us far in this book, we have discussed cost-based and charge-based healthcare payment. Both
of these types of payment systems can be contractual. We have already encountered a number of
concepts that go beyond either cost-based or charge based. Prospective payment systems (PPSs)
and fee schedule payment systems were discussed in two previous books that are part of this
healthcare payment series. For our purposes, the term contractual is used in a very general sense,
basically to distinguish:
◾ Contractual payment agreements and
◾ Statutory payment laws and regulations.
Statutory payment systems are established in law with voluminous rules and regulations and con-
tinuously evolving guidance. e prime examples are the Medicare program and various state
Medicaid programs. ese two major programs provide for healthcare payment covering a wide
variety and types of services. us, a number of dierent types of payment systems may be incor-
porated in statutorily established payment systems.
Contractual payment systems generally involve the establishment of a contract between a pri-
vate third-party payer, such as an insurance company, and a given healthcare provider, such as
a physician, clinic, or hospital. Sometimes, you may see the phrase managed care contract. We
will use the generic acronym MCO, which stands for managed care organization. e full range
of possible MCOs is quite broad, and we use this concept in its general form. MCOs typically
establish contracts so that healthcare providers agree to certain terms, conditions, and payment
mechanisms that generally limit payments.
Note: In using the acronym MCO in its broadest form, insurance companies and various types
of third-party administrators (TPAs) will be included. Even insurance companies often introduce
delimitations on services, such as preauthorization for surgeries. In some cases, the given MCO,
using our denition, may have little management of services, while others may have signicant
management of services and demands related to quality of care. Virtually all MCOs do provide
healthcare payment mechanisms, often through contractual arrangements.
68 ◾ Cost-Based, Charge-Based, and Contractual Payment Systems
Establishing a managed care contract implies that there is some sort of management of
healthcare provision along with dierent payment arrangements. In some cases, the payment
arrangements may encourage or discourage the provision of certain services or dispensing of phar-
maceuticals or medical devices. In other cases, these contracts address primarily payment mecha-
nisms with little concern for management of services or quality concerns.
Note that the word negotiated is used relative to these contracts. Depending on the specic
healthcare provider and the given third-party payer, there may be virtually no negotiating. For
example, a physician clinic may simply accept a number of contracts without requesting any
changes. On the other hand, an integrated health care system may devote considerable resources
to analyzing a proposed contract and then negotiating changes to the contract. Note also that
many of these contractual arrangements, once established, will automatically renew unless one or
both of the parties requests termination or changes well in advance of the renewal date.
Case Study 4.1: Acme Medical Clinic Contracts
A consultant has been called into the Acme Medical Clinic to perform an extended coding, billing,
and reimbursement audit. Acme has ve family practice physicians, two surgeons, and three nurse
practitioners. One of the rst requests of the consultant is to review the dierent managed care
contracts that the clinic has in eect.
In Case Study 4.1, what do you suppose the consultant will nd? Typically, the clinic will have
a dozen or more contractual arrangements. However, even locating the contracts may be dicult.
Once located, it may be noted that the contracts have not been reviewed, revised, or renegotiated
for years. For larger healthcare providers such as hospitals or integrated delivery systems (IDSs),
more resources will be applied to carefully reviewing, negotiating, and maintaining contractual
relationships.
In some cases, a healthcare provider may not even have a contract, but the provider will still be
paid according to a standard contractual process that is used by the third-party payer. For instance,
a physician or hospital may be ling a claim with an insurance company with which the physician or
hospital has no relationship. In theory, because there is no relationship, the third-party payer should
pay the entire charged amount. However, in practice, the third-party payer may well adjudicate the
claim and make payment using a default process that approximates a standard contract used by
the third-party payer for particular types of services. us, healthcare providers must understand
contractual payment processes even if a formal contractual arrangement is not established.
Case Study 4.2: Hospital Remittance Advice
A reimbursement specialist at the Apex Medical Center is reviewing the remittance advice (RA)
from a claim that was led with an unknown insurance company several states away. While some of
the charges have been paid in full, certain charges have no payment, with a notation of being pack-
aged. Some services have been denied because they do not meet medical necessity criteria. Including
patient copayments, overall, about 70 percent of the charges have been paid.
In Case Study 4.2, there is no contractual relationship. What should the reimbursement specialist
do? What payment should Apex receive? Apex should receive full payment on its claim. Most likely,
Apex will simply accept the payment made because the realization rate of 70 percent on this claim
may be considered reasonable. To pursue additional payment from this insurance company would
require signicant eort and a full understanding of how the claim was adjudicated, thatis, how
Contractual Payment Systems ◾ 69
the overall payment process is set up. As indicated, the entire claim should be paid, but thecosts in
pursuing full payment may outweigh any additional payments that might be gained. Note that cases
of this type can become quite involved because of deductibles, copayments, and secondary coverage.
Another question is subtly embedded in Case Study 4.2: If there is no contractual relationship
between the Apex Medical Center and the distant insurance company, what rules and require-
ments apply for Apex to le a claim? e answer to this question is that there are requirements for
all healthcare providers and all entities making payments to healthcare providers. ese require-
ments are found in the HIPAA (Health Insurance Portability and Accountability Act) legislation.
In terms of ling claims, standard code sets and standard claim forms are required, as are standard
remittance information from the payer. So, in some sense even if there is no formal contract,
there are still requirements for claims ling and reporting of payments. See the HIPAA TSC
(Transaction Standard/Standard Code Set) discussion in this chapter.
e variety of contractual arrangements is almost overwhelming, and the provisions within
the contracts can range from the very simple to highly complex payment arrangements.
Case Study 4.3: Hospital Per Diem Payment
e Apex Medical Center has been approached by an insurance company that wants to establish
a per diem (per day) payment process for inpatient services. For patients who are admitted with a
medical condition, one payment rate will apply, while for surgical admissions, a dierent, higher
payment rate is to be made.
What do you think about the arrangement proposed in Case Study 4.3? ere are a number of
rather important assumptions made with this kind of arrangement. First, a critical factor in this
kind of arrangement is how long the patient needs to be in the hospital. Also, there is a presump-
tion that more severe surgical procedures will involve longer stays in the hospital so that the surgi-
cal costs can be recouped by the longer stay. us, the per diem payments (one for medical, one
for surgical) will require very careful scrutiny. Models may need to be developed to approximate
payment for certain types of cases. Medical admissions for conditions such as pneumonia or knee
replacement surgeries as surgical admissions may need to be carefully modeled for average length
of stay and then the amount of reimbursement to be gained.
While we will look at some possible contractual features, the list of potential features, even
those pertaining to payment, is very long and continues to evolve. Negotiating managed care
contracts is a major challenge for healthcare providers. Also, once a contract is in place, great care
must be taken to ensure that proper payment under the contract is actually occurring. Both parties
to these contracts have contractual benets and obligations.
Case Study 4.4: Venipuncture Payment
e Apex Medical Center, a small integrated delivery system, has a managed care contract with a
large third-party payer in the state. While there are various payment mechanisms in the contract,
for outpatient services, including clinics, there is supposed to be a separate payment for venipunc-
ture (CPT [Current Procedural Terminology] 36415) of $8.00. A review of remittance advices
shows that payment is sometimes occurring, but on many occasions, there is no separate payment.
e issue identied in Case Study 4.4 is not that unusual. Similar types of apparent payment
discrepancies arise all the time. Careful monitoring of payments must be made to identify any
aberrations. Now, the question for this case study is: What is happening? e answer to this ques-
tion may vary signicantly. For instance, the claim adjudication system may have been changed
70 ◾ Cost-Based, Charge-Based, and Contractual Payment Systems
so that with certain laboratory tests the venipuncture payment is bundled on an averaged basis
into the payment for the laboratory tests, which is most likely on a fee schedule. ere may also be
a new adjudication requirement that the venipuncture is payable only if a certied phlebotomist
performs the venipuncture, and this has to be indicated by a special notation on the claim. ere
may suddenly be limitations on paying for venipuncture more than once per day per patient or
more than eight times per month per patient.
e number of possible circumstances can cover a large range of issues. e important point
is to track payments and then contact the third-party payer to see what is happening so that issues
can be identied and resolved as appropriate. Note that if tracking is not performed on a timely
basis, such issues can become major over months or years of inattention.
Case Study 4.5: Skilled Nursing Services
e Apex Medical Center has a managed care contract with a large third-party payer in its region.
e hospital itself does not provide skilled nursing care. ere is a step-down unit at the hospital,
but this is still an inpatient service. Skilled nursing services are provided at several skilled nursing
facilities (SNFs) in the area. With increasing frequency, Apex has inpatients who are ready to be dis-
charged to skilled nursing, but there are no SNF beds available. e patients are kept in the hospital,
but there is no provision under the contract for payment for these interim services.
As Case Study 4.5 illustrates, there can be gaps when contracts are established. With the
circumstances indicated in this case study, the third-party payer is probably willing to pay for
these services, but there is no agreement concerning how payment should be made, the amount
of payment, or the process that needs to be used. Here, general contract language should aord
the ability of the parties to negotiate and place into eect an interim arrangement for payment.
HIPAA Transaction Standards
e HIPAA legislation* was passed by Congress and signed into law in 1996. While there are a
number of dierent areas addressed by this legislation, two areas of interest for our discussions are:
◾ Administrative simplication and
◾ Health information privacy.
Health information privacy revolves around the concept of protected health information
(PHI). is topic may arise from time to time throughout our discussions. Of greater interest is
what is called administrative simplication. e intent of administrative simplication is to stan-
dardize healthcare transactions and bring electronic data interchange or EDI to healthcare. In
terms of a healthcare provider ling claims, there are two key elements:
◾ Standard transaction formats
◾ Standard code sets to use with the standard transactions
We will use the contracted acronym TSC to refer to the Transactions Standard and Standard
Code Sets.
*
See Public Law 104-191.
Contractual Payment Systems ◾ 71
In a very real sense, the HIPAA TSC provides a default contract through a set of rules for
healthcare providers to le claims. While there are guidelines for ling claims, there certainly are
no guidelines regarding how the given third-party payer will or will not pay for a given claim.
ere are several dierent health care claims transaction standards. e two that we reference
for the most part are:
1. 837-P and
2. 837-I.
For 837-P, the P is for professional; this is the electronic implementation of the 1500 claim form
or, for Medicare, the CMS (Centers for Medicare and Medicaid Services) 1500 claim form. e
837-I (the I is for institutional) is the electronic implementation of the UB-04 (Universal Billing
2004) or, for Medicare, the CMS-1450.
ere are numerous standardized code sets. ree that are often referenced are:
1. CPT-4 published by the American Medical Association,
2. HCPCS or the Healthcare Common Procedure Coding System published by CMS, and
3. ICD-10 or International Classication of Diseases, Tenth Revision, published, in the United
States by the American Hospital Association.
ere are many other standard code sets. For instance, on the UB-04 claim form, reve-
nue codes must be used. e revenue code set is maintained by the National Uniform Billing
Committee (NUBC). As with other standard code sets used on the claim forms, revenue codes
are updated annually, and the NUBC provides ocial guidance on how the code set is to be used.
Conceptually, if a healthcare provider has a standard claim format and a series of standard
code sets to use in developing claims, then the same claim can be led for the same services pro-
vided to dierent patients. While this degree of standardization is certainly the goal of EDI for
healthcare, we are many years from achieving this goal. Currently, third-party payers often make
demands on healthcare providers to le their claims in unusual ways that do not conform to the
ocial guidelines for the standard code sets. Often, these directives from payers occur because of
the way in which the payers’ payment systems have been established.
Case Study 4.6: Variable Claims Filing Requirements
An auditor has been reviewing claims led by the Apex Medical Center for emergency depart-
ment (ED) services. e auditor has discovered that similar types of services result in very dierent
claims. In point are three dierent claims to three dierent payers for essentially the same services,
in this case, the repair of a laceration along with an assessment of the patient. In one case, the
evaluation and the laceration repair are separately coded. For a dierent third-party payer, only
the laceration repair is reported because the payer insists that the assessment be bundled into the
reporting of the laceration repair. e third payer insists that only the evaluation be reported, and
that the minor surgery is paid through the payment for the evaluation.
e circumstances in Case Study 4.6 may seem rather awkward. What if Apex included both
services on the claim to a payer that has requirements that only one service be reported and then
an associated code also appears on the claim? At best, the claim would be returned to the provider
for adjustment. At worst, the claim might be adjudicated so that both services were paid, and the
payer might later insist that an overpayment had occurred.
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.