116 ◾ Cost-Based, Charge-Based, and Contractual Payment Systems
While the concept of secondary payer is straightforward, in real-life situations circumstances
may become ambiguous when determining if there is a secondary-payer situation. Here is a slightly
modied version of Case Study 1.2:
Case Study 6.20: Fractured Hip from Slippery Stairs
Sarah, an elderly resident of Anywhere, USA, visited a neighbor across the street and down two
houses. On leaving her friend’s home, she slipped on the snowy steps and fell. Everything seemed
ne. She went ahead and walked home. An hour later, she was in great pain; an ambulance was
called, and she was taken to the hospital, where she was admitted for a fractured hip. e ambu-
lance report indicated that she slipped on her steps.
e basic facts in Case Study 6.20 are not unusual. Sarah will receive services and then return
home or possibly go to a skilled nursing facility. Her insurance, whether Medicare or private, will
pay for the services according to the insurer’s payment mechanisms (i.e., coverage, coinsurance,
deductible, etc.). ere may even be a secondary policy that is involved; particularly for Medicare,
there are often supplemental policies. However, for this case the proper primary payer has not been
correctly identied. Because this accident occurred at Sarah’s neighbor’s home, the homeowner’s
policy of Sarah’s neighbor is primary. Payment would typically be made through a combination of
medical payments and then liability coverage.
Note: For the Medicare program, this issue of being secondary is a major concern. ere is awhole
program, the Medicare secondary payer* (MSP), devoted to making certain that Medicare is
appropriately determined as secondary. In the past several years, a whole new mandatory reporting
program has been established.
†
While there are many much more complicated cases, Medicare as well as other insurance com-
panies have taken steps to automate, as much as possible, the identication and proper cross-over
of claims. ere are the COBA (Coordination of Benets Agreement) that can be put into place
along with the Medicare coordination of benets contractor (COBC). In addition, the Medicare
program has special monitoring and compliance eorts in this area. Here are several additional
case studies that illustrate some of the diculties encountered in this area.
Case Study 6.21: ED Visit with Injuries in the ED
Sarah is out with her speed walker and is walking by the Apex Medical Center. ere is construc-
tion taking place; unfortunately, there is some construction debris outside the fence on the side-
walk. Sarah encounters the debris and takes a tumble. Luckily, her speed walker is not damaged.
However, she has several lacerations. In the ED, the lacerations are repaired, but in the middle of
the procedure Sarah attempts to get up, falls slightly, and sprains her wrist. X-rays are taken, and a
splint is applied to the wrist.
Now, whether Sarah is a Medicare beneciary or has some other coverage, there are really two
issues. First, there is the accident with the building debris. What coverage is primary for the lacera-
tion repairs? Eventually, it will probably be the construction company’s liability insurance. Certainly,
Sarah’s coverage is not primary. en, there is the incident in the ED in which Sarah sprained her
wrist. What coverage applies here? is is a more dicult question. Chances are very good that the
*
See CMS publication 100-05, Medicare Secondary Payer Manual.
†
See the CMS website: https://www.cms.gov/MandatoryInsRep/.
Claim Adjudication and Compliance ◾ 117
hospital will assume liability and not even bill Sarah. Of course, this would have to be coordinated
with the hospital’s liability coverage. Again, Case Study 6.21 illustrates the fact that secondary-payer
considerations can become quite complex, and they can represent signicant compliance issues.
Here is another case study that illustrates how diculties can be encountered when there are
diering claim-ling requirements between healthcare payers.
Case Study 6.22: Consultation Services with Medicare Secondary
Stephanie received services at the Acme Medical Clinic, a provider-based clinic operated by the
Apex Medical Center. Among other services at the clinic, there was an extended consultation with
one of the physicians. e primary payer was billed using only the 1500 claim form with the con-
sultation code. Some payment has been received, and now Medicare is secondary. However, the
billing personnel at Acme are in a quandary. First, Medicare does not recognize consultations, so
the coding must be changed. Second, for Medicare both a 1500 and a UB-04 are led (i.e., split
billing), so the charges must be adjusted and split between professional and technical components.
e billing sta is not certain how to proceed.
Case Study 6.22 illustrates the fact that coding and billing properly for both a primary payer
and a secondary payer using dierent payment systems can create a signicant challenge.
Note: e HIPAA TSC is referenced several times in this text. If all healthcare payers used a
standard claim format and followed the coding and billing guidance relative to the various stan-
dard code sets, then these complications relative to secondary payers could generally be avoided.
ere will still be some challenges because signicantly dierent payment systems are used by the
healthcare payers.
Here is a nal case study relative to the overall primary, secondary payer issue.
Case Study 6.23: Divorced Parents, Children under Two Policies
Susan and Stan have divorced. While this is a reasonably amicable situation, it turns out that their
children have dual coverage. e children are covered under Susan’s policy from work and by Stan’s
policy from his employer. A signicant problem has arisen in that when their children need medical
services, the two respective insurance companies each refuse to be primary. Both of the insurers
want only to be secondary.
Needless to say, for situations like that described in Case Study 6.23, there can be signicant
frustration in getting everything in order.
Healthcare Provider Credentialing
In Chapter 4, we briey discussed credentialing for managed care contracting. e two major
aspects for credentialing are:
1. Clinical credentialing
2. Billing privileges
Because credentialing is a signicant compliance issue that spans all types of payment systems, a
separate discussion is provided in this chapter.
118 ◾ Cost-Based, Charge-Based, and Contractual Payment Systems
Clinical credentialing addresses establishing the competency of a healthcare provider to pro-
vide medical services of various types. is ranges from individual providers such as physicians,
nonphysician practitioners (NPPs), and nurses on up to institutional providers such as hospitals,
skilled nursing facilities, and the like. From a payer perspective, payment should be made only for
services that are provided by qualied individuals and entities. One of the fundamental steps in
adjudicating claims is that the services must be provided by a qualied medical person.
At the institutional level, clinical credentialing quickly becomes a licensing and accredita-
tion issue. Most institutional providers are licensed at the state level. Accreditation is normally
provided by one of several national accrediting bodies. e specic accrediting body will depend
on the type of provider. For instance, for hospitals one of the main accrediting bodies is the Joint
Commission.* Physicians and NPPs (e.g., nurse practitioners, physician assistants, and clinical
nurse specialists) must provide credentials such as academic degrees and special training along
with appropriate licenses from state medical boards.
To enroll with a given third-party payer, healthcare providers of all types must provide not
only their clinical credentials, but also information about who they are, what they are, who owns
or employs them, adverse legal history, and the like. e most formal of the enrollment processes
is with the Medicare program, which has six dierent CMS-855 forms that are quite lengthy.
Private third-party payers generally have less-stringent requirements, although the concerns are
basically the same.
One of the challenges with obtaining billing privileges is that third-party payers may or may
not choose to recognize certain healthcare providers. While hospitals and physicians are almost
always eligible for recognition, NPPs may or may not be recognized for billing purposes. Also,
there are scope-of-practice issues that may arise. Scope of practice is delimited by state laws. Let
us join the Apex Medical Center, which has just hired a nurse practitioner to provide a variety of
services at the hospital.
Case Study 6.24: Nurse Practitioner Coming to Apex
e Apex Medical Center has been fortunate enough to hire a nurse practitioner (NP). ere are
a number of dierent ways in which the hospital wants to utilize this NP. ese include being a
part-time hospitalist, on call to the ED during certain periods, and seeing patients in one of Apex’s
provider-based clinics. e NP will be joining the medical sta organization. While clinical cre-
dentialing has basically been accomplished, the hospital will now start gaining billing privileges for
Medicare and other private third-party payers so that the NP can bill professionally.
e question then becomes, what information and documents need to be pulled together to
gain billing privileges for Medicare and other private third-party payers? Here is a general outline
of the types of information and documents. In this case, the orientation is that of NPPs.
1. NPP title, denition, and areas of service
2. National certifying/accrediting organization(s)
3. State statutes/administrative laws
4. Licensing board/process (if any)
5. Scope of practice: covered versus noncovered services
*
See http://www.jointcommission.org/.
Claim Adjudication and Compliance ◾ 119
6. Site(s) of service: hospital, clinic (provider-based vs. freestanding), physician’s oce, skilled
nursing facility, rural health clinic, other
7. Physician relationship: formal collaboration, agreement, or plan? Does the arrangement
have to be approved? If so, by whom?
8. Supervisory requirements
9. Documentation requirements
a. Physician cosignature necessary?
b. Documentation reviews
10. Drug Enforcement Agency (DEA) license
11. Professional liability coverage
a. Medical malpractice liability claims history
12. Professional history, including academic degrees with references
is list is only a general guide, and the specic elements will change depending on the specic
type of healthcare provider involved.
Credentialing for both clinical privileges and billing privileges is not a straightforward process
in many cases. Some third-party payers may make relatively few demands for allowing billing of
physicians or practitioners as long as the individuals are clinically credentialed through a hospital
medical sta organization. In other cases, particularly with the Medicare program, enrolling and
gaining billing privileges may be a real hassle.
Summary and Conclusion
e adjudication and payment of claims are major parts of any payment system. Adjudication
systems can be relatively simple or exceedingly complex. A healthcare payer may pay a hospital
on the percentage-of-changes basis. Assuming the billed services are covered, medically necessary,
and ordered by a qualied medical person, the calculation of payment on a percentage-of-charges
basis is relatively straightforward.
Prospective payment systems tend to have the most complicated adjudication processes. For
instance, for DRGs and APCs there is a detailed computer program, called the grouper, that is
used, including a number of edits that must be passed before the claim can be processed. For
contractual arrangements, there may be a combination of payment mechanisms. For instance,
in a hospital setting most of the services may be paid under some sort of prospective pay-
ment system with signicant carve outs for special payment consideration. ere may also be
cost-based reimbursement for certain expensive items, such as drugs and implantable medical
devices (IMDs).
Due to the complexity of the payment systems and the possible use of certain combinations of
payment mechanisms, the adjudication process becomes equally complicated. If adjudication of
claims is complicated, then compliance also becomes a major issue. Healthcare providers struggle
to understand just how claims are to be led for each of the payers with whom the provider has a
relationship. Of course, there are the payers with whom the healthcare provider has no relation-
ship. How will these claims be adjudicated and paid? What compliance standards are in place for
these unknown payers?
e basis for compliance standards for both healthcare providers and payers lies with the
HIPAA TSC rule. is is a law along with federal regulations that requires the use of standard
claim formats and the use of standard code sets to enable electronic data interchange (EDI) for
120 ◾ Cost-Based, Charge-Based, and Contractual Payment Systems
healthcare transactions. While the goal is standardization for healthcare claims processing, this
goal is yet to be achieved.
Healthcare compliance breaks down into two areas: statutory compliance and contractual
compliance. Statutory compliance resides primarily with the government healthcare programs
such as Medicare and Medicaid. Most healthcare providers are extremely sensitive to statutory
compliance because the penalties can include criminal prosecutions along with civil monetary
penalties (CMPs). us, healthcare providers rst tend to establish their compliance programs
around Medicare and Medicaid issues to avoid possible criminal prosecution. Secondarily, and
sometimes quite secondarily, healthcare providers then address their contractual situations for
both compliance and reimbursement optimization.
Contractual compliance involves the contracts that the healthcare provider enters into to see
covered patients and to be paid by the payer. A physician’s oce may have a dozen such contracts,
while the hospital can have upward of a hundred contracts. Larger integrated delivery systems
can have even more. ese contracts, including companion manuals, provide for the benets
and obligations of both the healthcare provider and the healthcare payer. ese contracts tend to
include more than a single payment system or payment methodology. Maintaining full compli-
ance with these contracts becomes an ongoing challenge because dierent payers may often have
signicantly dierent coding, billing, and claims-ling requirements.
To add to the challenges is the secondary-payer issue. While there is normally a primary payer
and possibly a secondary payer, there may also be a tertiary payer. If we just consider primary
and secondary payers, the fact that there are two payers involved means that there may be vastly
dierent payment systems used by the two payers. us, providers have the challenge of obtain-
ing primary payment under one set of adjudication rules and then moving to a dierent set of
rules for the secondary payer. Luckily, for Medicare beneciaries who also have one of the stan-
dard Medicare supplemental policies, there is a very smooth interface between Medicare and the
supplemental carrier.
Claim adjudication and the concomitant compliance issues really highlight the complexities of
dierent payment systems, dierent payment methodologies, and the way that payment processes
must t together.
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