July 13, 2020


The time before a doctor ever treats a patient has a lot of possibilities for health insurance problems later. Contracts between the health insurer and provider aren't negotiated carefully or provisions aren't fully understood.This section deals with the beginning of the medical billing process known as the revenue cycle. Nothing disrupts it like an unexpected denial: A service is assumed to be covered and then a denial EOB arrives instead of a check. The provider must be familiar with all insurance contracts entered into in order to know when claims are denied in error or aren't paid correctly.
Reimbursement Terms  Health insurer contracts are essentially agreements in which one party, the insurer, pledges to pay for the services of another party, the physician. However, many health insurer contracts not only fail to to set forth which services they cover but also do not provide enough information for the physician to determine what the health insurance company will pay for. For instance, many contracts refer to an attached fee schedule, which the insurer can modify “from time to time” - but the health insurer may not even have attached the fee schedule.

Physicians are supposed to assess whether the contract provides enough information to determine reimbursement for a service rendered? If the contract does not include a comprehensive fee schedule, ask the insurer to provide it. The insurer must also provide detailed information on their payment methodology, including their recognition of Current Procedural Terminology, (CPT) codes guidelines and conventions. A physician practice cannot tell whether a claim is paid correctly without this comprehensive information.

Changing the Terms  A health insurer contract may include language that essentially gives the it the right to unilaterally change the reimbursement terms. For example, when a contract provides for a fee schedule that can be modified “from time to time”, it permits the insurer to unilaterally reduce reimbursement amounts. If a contract includes such a term, physicians should note whether the contract requires the insurer to provide notice of any reimbursement change. It is also important to note whether there is a mechanism for the physician to terminate the contract if the change in reimbursement is not acceptable. Without advance notice of a change in the insurer’s payment policy, the practice staff finds it difficult to assess why they receive health insurance claims denied or reimbursements that appear to be underpaid.

Prompt Payment Delayed payment of claims by health insurers is a chronic problem for physician practices. When a contract is silent about prompt payment, it does not give the physician any rights to prompt payment or the health insurer any responsibilities to pay promptly. When insurers delay payments, the result is increased administrative follow-up, billing and patient inquiries for the physician practice.
administrative follow-up, billing and patient inquiries for the physician practice.
Many states now have laws requiring prompt payment of claims. If their state has such a law, physicians determine whether the insurer contract complies with the time frames, interest penalties and other claims processing and payment provisions. If their state does not have such a law, it becomes more important for the contract to contain such a timely payment provision.  
Determining how the contract defines a clean claim is also important. A health insurer may deny a claim that does not meet its definition of a clean claim - timely or not. Such claims add an additional administrative cost for the physician practice because the practice staff has to resubmit the claim.
Define “ Medically Necessary" A health insurer generally pays for covered services if they are medically necessary. The insurer contract contains an objective standard for determining medical necessity. The AMA defines medically necessary care as “health care services or products that a prudent physician would provide to a patient for the purpose of preventing, diagnosing, or treating an illness, injury, disease, or its symptoms in a manner that is: (a) in accordance with generally accepted standards of medical practice; (b) clinically appropriate in terms of type, frequency, extent, site, and duration; and (c) not primarily for the convenience of the patient, physician, or other health care provider.”  

Physicians should be aware that some contracts define medical necessity according to the insurer’s own arbitrary cost criteria, such as the “least costly alternative.” A health insurer’s contract also can designate medical  necessity decisions as the responsibility of the health insurer’s own medical director. When a physician determines that a particular service or procedure is medically necessary, that clinical decision does not determine whether the patient’s health insurance will cover the service or procedure. Physicians must closely review the insurer’s contract to determine whether or not it poorly defines or does not define the services the insurer covers. This lack of specificity works to the insurer’s advantage, giving them more discretion to deny medically necessary care and affect otherwise payable claims into denied claims.
Prior Authorization  If a physician provides medically necessary care to a patient and finds out after the fact that the health insurer requires prior authorization, the insurer may deny the claim and refuse to pay for the service. If neither the health insurer contract does not stipulate them, physicians must obtain a list of services and/or procedures that require prior authorization in writing before signing the contract. Physicians also determine whether the insurer provides an efficient, reliable mechanism through which the practice can obtain prior authorization 24 hours a day, seven days a week.  

Going to the doctor is often stressful, particularly if you are ill or if you are anxious about what your diagnosis might be. Having your claims denied is the last thing that you need. So it’s important to make sure that you have all the information you need regarding your health plan. The first step to understanding your coverage is to get a written copy of the policy from your employer or insurance company and become familiar with its most important provisions beginning with what kind of plan you have: 

Fee-for-Service Health Plans  This is the traditional kind of health care policy. Health insurance companies pay fees for the services provided to the insured people covered by the policy. This type of health insurance offers the most choices of doctors and hospitals. You can choose any doctor you wish and change doctors any time. With fee-for-service health plans, the insurer pays only part of your doctor and hospital bills. You pay a monthly fee, called a premium.  
A certain amount of money each year, known as the deductible, is paid for by you before the health insurance payments begin. In a typical plan, the deductible might be $250 for each person in your family, with a family deductible of $500 when at least two people in the family have reached the individual deductible. The deductible requirement applies each year of the health insurance policy. Also, not all health expenses you have count toward your deductible. Only those covered by the health insurance policy do.

After you have paid your deductible amount for the year, you share the bill with the health insurance company. For example, you might pay 20 percent while the health insurer pays 80 percent. Your portion is called "coinsurance".

To receive payment for fee-for-service health claims, you may have to fill out forms and send them to your health insurer. Sometimes your doctor's office will do this for you. You also need to keep receipts for drugs and other medical costs. You are responsible for keeping track of your own medical expenses.

There are limits as to how much a health insurance company will pay for your health claim if both you and your spouse file for it under two different group health insurance plans. A coordination of benefit clause usually limits benefits under two health plans to no more than 100 percent of the claim.

Most fee-for-service health plans have a "cap," the most you will have to pay for medical bills in any one year. You reach the cap when your out-of-pocket expenses (for your deductible and your coinsurance) total a certain amount. It may be as low as $1,000 or as high as $5,000. The health insurance company then pays the full amount in excess of the cap for the items your policy says it will cover. The cap does not include what you pay for your monthly health insurance premium.

Some health services are limited or not covered at all. There are two kinds of fee-for-service health coverage: basic and major medical. Basic protection pays toward the costs of a hospital room and health care while you are in the hospital. It covers some hospital services and supplies, such as x-rays and prescribed medicine. Basic coverage also pays toward the cost of surgery, whether it is performed in or out of the hospital, and for some doctor visits. Major medical insurance takes over where your basic coverage leaves off. It covers the cost of long, high-cost illnesses or injuries.

HMO: Health Maintenance Organizations  A health maintenance organization, or "HMO", is a prepaid health plan. As an HMO member, you pay a monthly premium. In exchange, the HMO provides comprehensive health care for you and your family, including doctors' visits, hospital stays, emergency care, surgery, laboratory (lab) tests, x-rays, and therapy.

The HMO arranges for this health care either directly in its own group practice and/or through doctors and other health care professionals under contract. Usually, your choices of doctors and hospitals are limited to those that have agreements with the HMO to provide health care. .

There may be a small co-payment for each office visit, such as $5 for a doctor's visit or $25 for hospital emergency room treatment. Your total medical costs will likely be lower and more predictable in an HMO than with fee-for-service health insurance.

HMOs typically provide preventive care, such as office visits, immunizations, well-baby checkups, mammograms, and physicals. The range of health services covered varies in HMOs. Some services, such as outpatient mental health care, often are provided only on a limited basis.

Many people like HMOs because they do not require claim forms for office visits or hospital stays. Instead, members present a card, like a credit card, at the doctor's office or hospital. However, in an HMO you may have to wait longer for an appointment than you would with a fee-for-service health insurance plan.

In some HMOs, doctors are salaried and they all have offices in an HMO building at one or more locations in your community as part of a prepaid group health practice. In others, independent groups of doctors contract with the HMO to take care of patients. These are called individual practice associations (IPAs) and they are made up of private physicians in private offices who agree to care for HMO members. You select a doctor from a list of participating physicians that make up the IPA network.

In almost all HMOs, you either are assigned or you choose one doctor to serve as your primary care doctor. This doctor monitors your health and provides most of your medical care, referring you to specialists and other health care professionals as needed. You usually cannot see a health care specialist without a referral from your primary care doctor who is expected to manage the health care you receive. 

POS: Point-of-Service Plans  Many HMOs offer an indemnity-type option known as a Point-of-Service or "POS" health care plan. The primary care doctors in a POS plan usually make referrals to other providers in the health plan. But in a POS plan, members can refer themselves outside the plan and still get some coverage.If the doctor makes a referral out of the network, the health care plan pays all or most of the bill. If you refer yourself to a provider outside the network and the service is covered by the health plan, you will have to pay coinsurance.

PPO: Preferred Provider Organizations  The preferred provider organization, or "PPO", is a combination of traditional fee-for-service and an HMO. Like an HMO, there are a limited number of doctors and hospitals to choose from. When you use those providers (sometimes called "preferred providers", other times called "network providers"), most of your medical bills are covered. When you go to doctors in the PPO, you present a card and do not have to fill out forms. Usually there is a small co-payment for each visit. For some health care services, you may have to pay a deductible and coinsurance.

As with an HMO, a PPO requires that you choose a primary care doctor to monitor your health care. Most PPOs cover preventive care. This usually includes visits to the doctor, well-baby care, immunizations, and mammograms. In a PPO, you can use doctors who are not part of the plan and still receive some health insurance coverage. At these times, you will pay a larger portion of the bill yourself (and also fill out the claims forms). Some people like this option because even if their doctor is not a part of the network, it means they do not have to change doctors to join a PPO. 


Related Resources:
1. "PPO Contracts Can Hide Traps; Scrutinize Before You Sign.", Steven M Harris, AMA News. (Sept. 1, 2003). 
2. "Understanding Your Health Insurance Coverage", Kathleen Michon, J.D., NOLO (2010).
3.  "Revenue Cycle Management for Your Physician Practice", Rosemarie Nelson, Physician (2010)

Health insurance can be confusing. HMO? PPO? EPO? What does it all mean? Get the basics in this video.