CBCS Payment Adjudication 2 — Questions and Answers
Question 1: What is the adjudication process for a health insurance claim?
- The process of submitting a claim electronically to the payer
- The process by which an insurance company evaluates a claim, determines coverage, applies benefits, calculates payment, and issues a determination (Correct answer)
- The billing department's process of coding diagnoses and procedures
- The process of sending a claim to collections when unpaid
Correct answer: The process by which an insurance company evaluates a claim, determines coverage, applies benefits, calculates payment, and issues a determination
Adjudication is the payer's internal process of reviewing a claim, verifying eligibility and coverage, applying contract terms, calculating the allowed amount, determining patient liability, and issuing payment or denial.
Adjudication steps: (1) Receipt and acknowledgment — payer logs claim, assigns transaction ID, (2) Eligibility check — verifies patient was covered on date of service, (3) Duplicate check — ensures same claim not already paid, (4) Benefit verification — confirms service is a covered benefit, (5) Medical necessity review — compares diagnosis and procedure to coverage criteria, (6) Code editing — applies NCCI edits, MUEs, fee schedule, (7) COB — applies primary/secondary payment rules, (8) Calculation — determines allowed amount, patient share, insurer payment, (9) Payment or denial — generates RA with payment or denial codes.
Question 2: What does 'allowed amount' mean in insurance payment adjudication?
- The maximum amount a provider can charge for any service
- The maximum amount the insurance plan will recognize for a covered service, based on the contracted fee schedule or UCR rates (Correct answer)
- The amount the patient must pay before insurance kicks in
- The total amount paid by all payers for a single service
Correct answer: The maximum amount the insurance plan will recognize for a covered service, based on the contracted fee schedule or UCR rates
The allowed amount (also called 'approved amount' or 'eligible expense') is the maximum amount the payer will recognize for a given service, derived from the contracted rate (for in-network) or usual, customary, and reasonable (UCR) rate (for out-of-network).
For in-network providers: allowed amount = contracted fee schedule rate (e.g., Medicare fee schedule amount, or negotiated PPO rate). Provider accepts this as payment in full. For out-of-network providers: allowed amount = UCR rate based on claims data, geographic norms, or a percentage of Medicare. Patient may be billed the difference (balance billing), unless the state has balance billing protections. The allowed amount appears on the EOB/RA as the 'approved amount.' Payment = Allowed amount minus applicable cost-sharing (deductible + coinsurance + copay).
Question 3: What is an Explanation of Payment (EOP) or Electronic Remittance Advice (ERA)?
- A report sent to the patient detailing their remaining deductible balance
- An electronic document (835 transaction) sent from payer to provider detailing how claims were processed, amounts paid, adjustments applied, and denial reasons (Correct answer)
- A document the provider sends to explain how they calculated their charges
- A federal form required for Medicare claim submission
Correct answer: An electronic document (835 transaction) sent from payer to provider detailing how claims were processed, amounts paid, adjustments applied, and denial reasons
The ERA (HIPAA 835 transaction) is the electronic remittance advice sent from payer to provider, providing detailed information on claim adjudication including payment amounts, contractual adjustments, and denial codes.
ERA/835 contains: claim-level information (claim number, patient, dates of service, billed amounts, paid amounts), service-line detail (each procedure code, billed amount, allowed amount, adjustment amounts), CARCs and RARCs explaining adjustments/denials, check/EFT information. Providers use ERAs for: automated payment posting (ERA auto-posting reduces manual entry errors), identifying denials for follow-up, reconciling accounts receivable, and identifying systemic billing issues. 835 ERA auto-posting requires validation to catch mispostings. CMS requires payers to provide ERA upon provider request under HIPAA.
Question 4: What is 'balance billing' and when is it prohibited?
- Billing the patient the balance of a claim after insurance pays its portion — always permitted
- Billing the patient the difference between the provider's charge and the insurer's payment, which is prohibited for in-network providers (covered by contract) and in states with surprise billing protections (Correct answer)
- Billing for the patient's deductible and copay — always required
- Billing a secondary insurer for the balance after the primary pays — always prohibited
Correct answer: Billing the patient the difference between the provider's charge and the insurer's payment, which is prohibited for in-network providers (covered by contract) and in states with surprise billing protections
Balance billing is when a provider bills the patient the difference between their charge and what insurance paid. It is prohibited for in-network providers (contractually barred) and for out-of-network providers in emergency and certain surprise billing situations.
The No Surprises Act (effective January 1, 2022) protects patients from unexpected balance bills in: emergency services from out-of-network providers at in-network facilities, non-emergency services from out-of-network providers at in-network facilities when patient didn't have choice, air ambulance services. For these situations, providers can only charge the patient in-network cost-sharing. The Independent Dispute Resolution (IDR) process handles payment disputes between providers and payers. Many states also have additional balance billing protections. Balance billing of in-network patients remains a contract violation and can result in termination from the network.
Question 5: What is the purpose of the 835 reconciliation process in medical billing?
- To reconcile the practice's paper records with electronic claims submissions
- To match ERA/835 payment data against outstanding claims in the practice management system, ensuring accurate payment posting and identifying discrepancies (Correct answer)
- To reconcile employee payroll records with Medicare timesheets
- To reconcile the CMS fee schedule with the practice's charge master
Correct answer: To match ERA/835 payment data against outstanding claims in the practice management system, ensuring accurate payment posting and identifying discrepancies
ERA/835 reconciliation involves matching the payer's payment explanation to outstanding claims in the billing system, verifying that each payment is posted correctly and identifying underpayments, overpayments, or missing payments.
Reconciliation process: (1) Match ERA transactions to specific claims in the PMS, (2) Verify payment amounts against contracted rates (identify underpayments for follow-up), (3) Post contractual adjustments correctly, (4) Identify denied lines for reworking, (5) Post patient balance to the patient's account, (6) Match EFT/check deposits to ERA totals. Automated ERA posting must be audited for accuracy — overpayments must be reported and refunded. Unmatched ERA transactions (claims not found in PMS) must be researched. Reconciliation is a key internal control preventing revenue leakage.
Question 6: What happens when a payer identifies an overpayment to a provider?
- Nothing — overpayments are considered provider income
- The payer sends a recoupment notice or offset notice, and the provider must return the overpaid amount or dispute it within the specified timeframe (Correct answer)
- The provider can apply the overpayment as a credit toward future claims
- The patient is billed for the overpayment amount
Correct answer: The payer sends a recoupment notice or offset notice, and the provider must return the overpaid amount or dispute it within the specified timeframe
When a payer identifies an overpayment, they issue a recoupment demand or offset the amount from future claim payments. The provider must refund the amount or dispute it within the specified timeframe.
Overpayment recoupment process: (1) Payer sends demand letter identifying the claim(s) and overpayment amount with reason, (2) Provider reviews — if overpayment is valid, refund within payer's deadline (typically 30–60 days), (3) If disputed, submit written dispute with supporting documentation within the response window, (4) For Medicare overpayments: 60-day rule requires repayment within 60 days of identification (self-reported overpayments avoid fraud liability), (5) Recoupment offset may begin during dispute if not addressed. OIG views failure to repay identified overpayments as potential False Claims Act violations.
CBCS Payment Adjudication 2
What is the adjudication process for a health insurance claim?