A couple of weeks after claim submission the medical practice will receive a correspondence from the insurance company to tell you their decisions as to whether the claim will be paid. This is called either an explanation of benefits (EOB) or electronic remittance advice (ERA). The difference between the two is the delivery method. An EOB comes via traditional mail and an ERA is delivered electronically. If there is a payment (money) associated with the EOB or ERA, it will either be sent as a check via traditional mail or delivered by EFT (electronic funds transfer often known as direct deposit).
The purpose of an EOB and ERA is to explain payments and denials for the claims you previously submitted. The EOB/ERA will also tell you about the amounts, such as deductibles, coinsurances and copayments, that the patient is responsible for paying out of pocket. Finally the EOB or ERA will show you how to properly apply the payments to patient’s accounts so you can keep track of what is paid and what is outstanding.
To keep track of payments and outstanding balances the biller must enter information from the EOB into the practice’s medical billing software. This is called payment posting. This is very important for three reasons. First the payments and accounting data entered in to the billing software will directly affect the practices overall accounting and taxes. Next, the accounting will directly affect the patients billing (patients do not like to receive medical bills that are not legitimate). Finally, payment posting will directly affect your job. Unpaid or incorrectly paid claims need follow up. It is a waste of your valuable time to call on a claim that was already paid claim in the event of an accounting error.
Previously we discussed the “allowed amount” as it pertains to the insurances fee schedule. Just a brief refresher, the allowed amount is the amount the doctor agreed to accept as full payment when s/he signed a contract to participate with the insurance company the time of credentialing. Again you’ll recall that the insurance allowed amount is not usually the same as the amount you billed because traditionally we bill at a rate higher than insurance fee schedule as to avoid any underpayments. With that refresher done, we’ll begin.
The EOB or ERA may have information for just one patient’s claim or it may contain information regarding many patients. The EOB/ERA shows the patient’s name, the account number assigned by your medical billing software, the allowed amount, the patient responsible amounts such as copayment, deductible, and coinsurance, the payment amount, and messages from the insurance about the claims processing. Each CPT procedure code is processed separately and shown on the EOB/ERA as a separate line item.
The allowed amount is the maximum payment that you can receive on each line item. The difference between the insurance’s allowed amount and your charge amount is called the contract adjustment. The contract adjustment is a write off. It is a breach of contract and against the law to bill the patient for this difference, billing a patient for the contract adjustment is called balance billing. If you are caught balance billing you can loose your contract with the insurance or even be prosecuted for fraud.
Many times there is also a difference between the allowed amount and the payment amount, that balance is the patient’s responsibility (out of pocket). The EOB or ERA will usually give some detail about why this balance is due by the patient, such as deductible, copay, coinsurance or non-covered item or service. We will review each but first you must understand exactly how the EOBs are calculated and presented. Closely review the example and my mark ups to follow on the sample EOB from Medicare:
To follow is a sample from Aetna that we can look at item by item. Medicare’s EOB and Aetna’s are quite similar in contents (even though they look a little different). You will find that all EOBs/ERAs have the same basic information.
In the center of the page, number 21-35 is the line by line detail. Each line is called a claim line and indicates a service rendered to the patient. The date of service is in box 21 and service code (CPT) is listed in
25 shows the provider’s charge and boxes 26, 27, 31, 32 and 33 show the
payment and its distribution.
As I mentioned before, the doctor’s office sets its own prices for the services that they provide but if the doctor is in contract with the insurance he/she is obligated to accept the allowed amount noted by the insurance in
26. The allowed amount is
the total payment the doctor will receive for each service. The difference between the doctor’s charge
and the insurance’s allowed amount is written off. That write off amount is
called the “contract adjustment”.
That total payment (allowed amount) is divided between the insurance responsibility and the patient responsibility as shown in
and 33. The patient’s responsibility may
be further divided by the reason why the patient is responsible as noted in
boxes 27 (showing patient’s copay), 28 (showing non-payable services), 30
(showing deductible amounts), and box 31 (showing co-insurance). The total of
these fields will equal the total patient responsibility listed in box 32.
A deductible is a patient’s annual out-of-pocket payment before insurance will being paying. The deductible amounts vary based on policy. But a deductible can also be a sign of a problem in claim processing. If a patient’s policy doesn’t usually have a deductible but an EOB shows the patient responsible for a deductible, chances are the claim was processed out-of-network. Out-of-network processing can indicate that your claim did not have a referral, or that your practice is not the patient's chosen primary care physician (PCP) or a problem with the practice’s credentialing. This is not to say that some deductibles are not legitimate, many are... When in doubt, call the insurance and ask.
A copay is a small out of pocket amount due for each visit. It is usually paid prior to seeing the doctor. You will note on the insurance card examples in the reading insurance cards section that copays vary, not only be patient but also by provider type. Many policies will have different copays for primary care providers, specialists, prescriptions, mental health, hospital, emergency room, and urgent care. Remember that some insurance require a selection of a primary care provider prior to processing claims for the PCP. If your practice is not the PCP the patient is expected to pay the specialist copay. Some examples of specialists include surgeons, cardiologists, and neurologists.
The patient’s co-insurance is a share of the bill. It is usually a percentage of the allowed amount. For example Medicare requires a co-insurance of 20% from their patients. Here’s an example: Medicare will allow $100 for a service of that amount Medicare will pay 80% or $80 and the patient is responsible for 20% or $20. The coinsurance is usually applicable for all visits for that patient.
If there is a patient balance, the patient should receive an invoice or statement from the practice asking them to pay their portion. Usually statements are issued once per month and if the patient fails to pay the balance the outstanding amount is referred to an outside collection agency for follow up and collection.
Finally the totals listed in
box 32 (patient
responsible) and 33(insurance responsible) will equal the total allowed amount
as listed in box 26.
The insurance payment is listed in box
35 and if there is a positive payment due, the EOB will be
accompanied by a payment.
The payment listed on the EOB, would be posted in to the doctor’s office practice management system to keep track of which claims have paid and which have not been paid in addition to record the practice’s revenue.
You will notice that line item 3, CPT code 82541 is not paid by insurance. That is indicated both by the fact that the allowed amount is listed in the “not payable” field,
box 28. In order to explain why this
service is not paid, the insurance will include a “remark code” as indicated in
That code refers to a description of the non-payment reason further down on the
EOB or sometimes on a later page of the EOB.
In some cases the reason for non-payment may be due to a claim submission error by the doctor’s office or a processing error on the part of the insurance. Either way, claims that are not paid should be followed up on. In this sample the insurance states that the patient is responsible for paying for this serviced, but why? Could this be a processing error or maybe the office made a mistake with the CPT code. Although this line says that the patient is responsible, you want to avoid billing patients when it is not necessary for the sake of good relations with your patients. If this line was denied because of some error, the patient may be angry by an unwarranted bill. When in doubt, call the insurance.
Again, I will stress that it is imperative that someone follow up on unpaid claims or practice revenue will be adversely affected (and that means no money to give the biller a raise).