Follow that claim Claims submission processing adjudication and payment This booklet is a result of efforts of the Private Sector Advocacy unit of the American Medical Association in consultation with Sheldon I Dorenfest Associates Ltd a health care information technology consulting and market research firm Acknowledgements American Medical Association Private Sector Advocacy Lisa Albu Tammy Banks Marcy Basrawala Patricia Holmes Matthew Katz Integrated Communications Services Todd Bake Stephen Perez Kristin Reynolds Sheldon I Dorenfest Associates Ltd Laura Dorenfest Lawrence Pawola Linda Valsoano 2002 American Medical Association Follow that claim Claims submission processing adjudication and payment According to the Centers for Medicare Medicaid Services CMS approximately 1 4 trillion was spent on US health care in 2001 1 Of that amount analysts estimate that 300 billion or slightly more than 20 was spent on paperwork unnecessary or duplicate tasks and improper billing 2 1 Centers for Medicare Medicaid Services CMS formerly HCFA Advance HIPAA HQ Secure Solutions for paperless Health Insurance 2 Ibid 1 Claims submission It is estimated that 500 million health plan claims are filed each month yielding approximately six billion claims per year 3 Of all claims submitted only 40 are filed electronically 4 About 60 are still filed manually on a paper claim form called the CMS 1500 formerly HCFA 1500 5 the required form for Medicare claims submission by CMS The CMS 1500 has become the standard claim form for the reporting of physician services However within the public and private sectors there are a number of health plans that still require their own version of a claim form that may or may not resemble the CMS 1500 There has been a pronounced increase in the percentage of physician practices that submit claims electronically According to a recent American Medical Association AMA survey on technology usage 88 of physician practices submit at least some of their claims electronically while 23 of these physician practices outsource this electronic submission function to a billing entity 6 This increase is due in part to the recent rise in the number of health plans that have instituted processes to receive electronic claims The percentage of physicians submitting claims electronically is likely to grow in the next few years as more health plans provide for electronic receipt of claims information or mandate through contractual agreements with physicians the electronic submission of claims 3 American Medical Billing Association Electronic Claims Processing Facts Claims Transit 1998 2002 4 Ibid 5 Ibid 6 American Medical Association Technology Usage in Physician Practice Management Benchmark Study 2001 CMS 1500 The universal claim form with instructions used by non institutional providers and suppliers to bill Medicare Part B for covered services It is also used for billing some Medicaid covered services and is the claim form accepted by most health plans 2 HIPAA The Health Insurance Portability and Accountability Act of 1996 HIPAA requires the Department of Health and Human Services DHHS to adopt national standards for conducting health care transactions electronically The original deadline for compliance with the electronic transaction rule was October 16 2002 for all covered entities except small health plans which by law have an additional year Last year in the Administrative Simplification Compliance Act Congress authorized a one year extension to October 16 2003 for those covered entities that filed an extension and submitted a compliance plan to the DHHS on or before October 15 2002 7 Billing entity service and or system Physician office managers office billing managers and other office personnel dedicate a major part of their time to claims processing follow up cash posting and adjustment activities To effectively process claims they need industry specific knowledge about governmental and private health plans In light of the ever changing requirements imposed by health plans and government agencies it is difficult for physician practice personnel to remain current with claims processing requirements To resolve this problem physician practices have started to outsource these processes to billing entities services for completion However physicians who use practice management software with a billing component or maintain a separate billing application in their office are more likely to maintain this process internally 7 Department of Health Human Services DHHS Public Affairs Office Medicare News March 29 2002 Billing entity service A company that has been contracted to complete and submit health claims for a physician s practice The billing entity may provide some additional services on behalf of the physician s practice including verifying physician and physician practice information on the claims forms as well as making sure that the necessary fields have been completed information has been entered in all fields requested by the clearinghouse or health plan 3 Clearinghouse definition and functions A clearinghouse often serves as a middleman between physicians and payers health plans A physician may only have to establish a relationship with one clearinghouse provided a health plan does not require submission to a specific clearinghouse Physicians employ some clearinghouses Other clearinghouses are contracted with or are a subsidiary of a specific health plan A number of health plans require submission to specific clearinghouses and an increasing number of plans have launched their own clearinghouse that physicians must use in order to submit claims 8 When a physician practice is employing a clearinghouse careful evaluation is necessary to select one that supports the majority of the health plans billed by the practice Most clearinghouses use a print image electronic flat file format of the CMS 1500 form The physician practice prepares a batch file and sends the print image of its claims to the clearinghouse The clearinghouse then sorts formats and submits the claims directly to the health plan and or third party payer for payment The clearinghouse may also run certain claims edits either to verify that all fields are completed on behalf of the physician or to initiate certain claims edits at the discretion of the payer Often this depends upon whom is contracting with the clearinghouse On occasion the clearinghouse may have contracts with both the physician and the health plan Most