The Maze of Medical Billing
Let me show you how the fee-for-service world affects the practice of medicine, and then you can step back out into that world, look around, and decide for yourself if my description is accurate. What I hope to show you is the system we have built and why, and give examples of the reactions to the various attempts to make a fair, cost effective way of taking care of people.
Let me show you how the fee-for-service world affects the practice of medicine, and then you can step back out into that world, look around, and decide for yourself if my description is accurate. What I hope to show you is the system we have built and why, and give examples of the reactions to the various attempts to make a fair, cost effective way of taking care of people.
To understand what is going on, you have to understand how medical billing works. Any time a bill is created in any area of healthcare, the charges are based on current procedural terminology codes, or CPT codes. These codes are used by Medicare and other insurance companies to standardize the description of what is done to a patient. This was put in place so that doctors or hospitals could not simply send crazy bills to the insurance company. They must be very specific about what that money is covering.
There are thousands of codes, and they are broken up into different levels and areas of practice (CPT Codeson wikipedia).For example, my area of medicine, pathology and laboratory medicine, is covered under the codes ranging from 80000 to 89398. These numbers include things like reading a biopsy (88305), or doing individual blood tests, of which there are hundreds upon hundreds of different codes. There are even different parts or modifiers of these codes to break down the different parts of a procedure. When my office bills for a biopsy, there are separate parts for actually making the slides from the tissue (the “technical” component), and for interpreting the slides (the “professional” component). Or in some cases it might be billed “globally,” which means giving a single code to the whole process. There are rules defining when these different codes are used.
When you go to an outpatient doctor’s office, lots of things happen to you. They may get a medical history, or take your weight, or ask you specific questions, do a physical exam, draw your blood, do a biopsy, or get an X-ray. Of course, it depends on why you are there, and what is needed to take care of you. But behind the scenes, everything is driven by the fact that you cannot be charged unless there is an associated billable CPT code. When I say billable, it means that Medicare and insurance companies have agreed to actually pay for that service. There are some things they will not pay for, other things they will pay very well for, and all of these things have conditions attached. This seems reasonable, yes? But there is an unfortunate flip-slide: everything that is done that has a billable CPT code can be billed, in the right situation.
medicalBilling-2.webp here.
The same thing happens when you go into the hospital, but on a much, much larger scale. Everything has CPT codes attached to them, from occupying a room, having an IV and the stuff that goes into it, to special imaging like a CT-scan or MRI, having your blood drawn, your vitals taken, or going to the operating room. And in that procedure room, there is more still, with anesthesia, each sealed packet of sterile tools, scalpels, suture, specialized instruments, all the way to things like the da Vinci robot. Each of these has its own codes attached, and each therefore has a monetary value related to how much insurance will pay for it, subtracting what it costs the hospital to do it.
Which brings us to the actual payment part. To keep things fair, doctors and hospitals can’t bill different amounts to different entities. When Mr. Johnson comes to see me, I can’t bill his insurance company more just because I know they will pay. In the past, doctors would do this to help patients pay their bills. If the insurance company is going to cover it, it doesn’t hurt Mr. Johnson a lick, and it helps Mr. Smith, who doesn’t have insurance at all, and I will just charge him less. It may seem harmless from the front desk of a small town family practice office, but this doesn’t go over well for Medicare and insurance companies, who suddenly see the big charges. And of course, when the same thing is happening everywhere, including hospitals – which function on a much larger scale – it becomes a big problem. Therefore, everyone now has to define up front what they are going to charge for every CPT code. You can’t bill different amounts based on what type of insurance a patient has, or whether or not they have insurance. Doing so is fraud.
In setting up those charges, doctors or administrators look at reimbursement or fee schedules. These are the rates that Medicare and insurance companies declare they will pay for all of the different CPT codes. When a doctor or hospital agrees to accept a particular insurance, they are agreeing to this fee schedule, and also to a great deal of fine print related to what they have to do to properly bill (more on that in a bit). Agreeing to the schedule is purely voluntary; there is no law saying you have to accept any type of insurance, even Medicare. But it is an all-or-nothing contract. You either sign up, or you don’t.
Let’s have a look:
Go to this page, click accept, and you are have access to the Center for Medicare Services fee schedule. Go down to the box “HCPCS” code and enter the number for a biopsy: 88305. For the modifier, pick 26 – professional component, which is the part where I sit at a microscope and use my training to figure out a diagnosis. Hit submit and you will get a table with a bunch of numbers. These are the payment amounts from Medicare for that CPT code, with that modifier. The “MAC locality” is the adjustment for different geographical areas around the country, which take into account market rates and cost of living. But note that there are twelve different columns, all from different things that can affect the agreed upon charge, such as what type of facility it was performed in (and maybe ask yourself, why should where it happened affect how much it is worth?). These things don’t affect me much, and you can see that Medicare will pay me between $35 and $55 to read a biopsy, depending on where I practice.
Since I have to pick how much I am going to charge, I want that number to be as high as the insurance company will pay. For example, if Anthem’s fee schedule says it will pay me $70 to look at a biopsy and I bill $55, Anthem will only pay me that $55. And the accountants will say, “You left money on the table! You never leave money on the table!” So, to keep the bean-counters off my back, I simply set it high enough that I don’t ever bill for less than I can get paid.
But what if some obscure insurance company will pay me really well for a procedure? In the past, some companies didn’t have a limit for some charges, so they would pay anything! I don’t want to miss out, even if there aren’t very many patients with that insurance. Remember, can’t leave money on the table. Besides, setting my bill at $150 doesn’t hurt anyone, because Anthem is still only going to pay me $70. And the bills for patients carrying that insurance get adjusted based on the fee schedule, so they only see the lower number, even if they haven’t met their deductible. This is why a medical bill will have an insurance adjustment.
But what if that patient doesn’t have insurance? Then they get a bill for $150, or $500, if that’s where I set my fee. And remember, the law says I am not allowed to not bill them. In my practice, I am able to choose how far I chase that bill; there is nothing to stop me from writing if off if a patient cannot pay. But we happen to do our own billing, involving about a third of our 35ish employees. Despite the fact that we might lose a little money in the effort, we want to maintain that control. But because of all of the complexities, many offices don’t do their own billing. They instead pay a separate billing company. And that billing company gets paid a percentage of receipts, so they may chase unpaid bills and send patients to collections, regardless of their situation. Have a look here, at an article from business news daily. It will give you an idea of the environment in which offices operate.
Setting these prices is completely up to the doctor or administrator. And when I say administrator, it is important to understand that many doctors don’t want to get involved in the billing, even in small offices. They hire an office manager to deal with the finances, and that person’s job is to see that the practice is profitable. So the doctor may not actually set those charges, or even know how much the things that they do cost the patient! (Next time you are at the doctor, ask something like, “How much will it cost me for this visit?” It’s a simple question, right? Let me know how it goes…)
But if only it were this simple. Doctors can’t just pick from the CPT code book and do a dozen things to you and bill for it and expect an insurance company to pay. (Actually, there was a time…) To hold treating physicians and hospitals accountable, payers require you to provide an indication – a reason – before you do something. You come into the office after falling on your arm, and the doctor orders an X-ray of that arm. The fall is the indication for the X-ray.
Like procedures, these indications have a code system too, the International Classification of Diseases, or ICD codes. This code system has been revised many times, and we recently adopted ICD-10.
Here is an online ICD coder.
Enter “fall” and do a search. Notice that there are fifteen pages of codes on falls, including one of my favorites, V91.20XA, Fall due to a collision between a merchant ship and another watercraft, initial evaluation. Search through them, it’s illuminating. Even though you might think “fall” is a perfectly good reason to do an X-ray, your doctor has to be much more specific. If you fall on your arm, that’s not an indication to do an X-ray on your foot. If you fall on your left arm, that doesn’t justify doing anything to the right arm. (Apparently, it matters if the ship you hit is a merchant ship). Everything has to match. If it doesn’t, the insurance company can – and will – deny the charges.
This is one of those processes that has a well-intentioned purpose, but application in the real world is profound. Doctors need to be accountable for the things they do, and not having this system in place would result in all sorts of runaway costs. But all of this is strictly related to billing – none of this information is used in the treatment of patients. So all of the time spent, all of the resources used, it does nothing to improve anyone’s health anywhere. When doctors speak of all of the additional hoops they have to jump through when taking care of patients, these are just some of those hoops.
Everything that happens in a hospital is 100 times more complex. Think about that CPT code list. When a hospital negotiates a contract with an insurance carrier, every line and every modifier of every possible service has to be considered. When a patient is in the hospital, they generate long lists of CPT codes. Every code requires a corresponding ICD-10 code, or the charges will not be covered. The billing department is completely separated from the people actually taking care of patients, and relies on the documentation done by the people on the front line. In an office, the doctor or nurse may have a sheet or page where they can check boxes corresponding to the things that were done, and when you check out at the desk, it is used to either generate your bill then and there, or it is mailed to you after being sent to the billing department. A similar sort of process happens at a hospital, but it is going on throughout your stay, and is vastly more complex. The financial survival of a hospital is dependent upon the accuracy and effectiveness of the billing.
The biggest problem with the system is that it has moved the financial part from the doctors and into the hands of business people. And those people are trained and hired to make the numbers work, to make the bottom line a number printed in black ink, not red, and have that number be as big as possible. To do that, they study the rules, and they look for the buttons they can push that fulfill that goal. They literally go over that spread sheet of CPT codes, find the boxes with the biggest numbers in them, and figure out how to bill that code as many times as possible. And to do as little as possible that doesn’t have a CPT code attached, because that’s a waste of time and money.
Think of what this all really means: imagine the perfect doctor – and I mean truly phenomenal, even magical – one who keeps his patients perfectly healthy. He would almost immediately go bankrupt. People would come to see him, and he would talk to them, and they would go away healthy, and they would never get sick and never get tests and never get X-rays. And his business manager would be unable to find CPT codes, because healthy people don’t generate CPT codes. And the first time they ran payroll, things would go poorly. Because we don’t pay doctors to keep people healthy, we pay them to do stuff.
Now imagine a really crappy doctor, where all of the patients get really sick, and they need all kinds of tests and imaging and procedures. This is much easier for the accountants. Because as we have already seen, today’s system pays doctors to do stuff to you.
Luckily, things are changing, as we are starting to move from a fee-for-service world to a system in which we pay for performance: a system where doctors get paid for keeping you healthy. A major hurdle is the transition, because it’s not too difficult to go bankrupt while moving from one plan to the other.
What may surprise you is that none of this has anything to do with Obamacare. Obamacare (and now Obamacare lite) tries to address problems in the medical system by regulating the insurance industry. But that just makes changes to those boxes in the spread sheet, and the business managers just figure out what the changes are, and now which boxes have the big numbers, and then how to push those buttons. The solution is not to shuffle the numbers around, but to pay for keeping you healthy, as opposed to paying for doing stuff. Pay for performance, not fee for service, that’s where the meaningful change will be. And hopefully we are on the right track.