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Magazines > Searcher > July/August 2010
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Vol. 18 No. 6 — Jul/Aug 2010
Whatís in the Patientís Medical Bill?
by Tara Breton
Senior Information Specialist, Health Advances, LLC

Imagine driving along a secondary road a half-day’s drive from your home. Darkness has just fallen and the fog is becoming thicker. Your headlights aren’t helping much. You slow down in hopes of avoiding an accident. That remote spa-like hotel had better be worth this effort. Dreams of a hot bubble bath start to take over the senses as you round the curve.

The small herd of deer scatters, but you have already jerked the wheel. The brakes lock, the rear wheels skid, and the rocky ditch meets the plastic fender in mere seconds. The pain in your leg fades as does the rest of the world.

It’s the lemon scent of disinfectant tickling your nose that draws you back into reality. This is no spalike room, not with the utilitarian canvas room drapes and the squawky and minute color television mounted on the far wall. Looking around, you spot jackets belonging to family members and realize they’ve been here by your side for hours.

How wonderful is the ease with which the hospital has addressed your problems and even reached your family. Living in the 21st century has its perks.

Electronic medical records are all the rage. Electronic records let a hospital in one part of the country track a person’s condition and get vital information relayed to far-away emergency rooms. Critical information on allergies, drug interactions — even contact information for key family members can be sent instantly to save time, money, and maybe even your life.

Gratitude helps the accident feel less traumatic. After a few days, you are discharged from the hospital and return home. Physical therapy begins and, after a few weeks, the bills start to arrive.

It’s clear that the expense is high, that insurance has paid for a certain percent, and the lump sum left for you is marked in bright orange along with various payment options. Everything else — and how the tally was made — is as murky as the night of the accident.

Most people just pay the sum and file the paperwork in a folder for posterity. For the curious, though, allow this article to provide a greater insight into what is on the paperwork and where it comes from … perhaps even why.

I’ve Got Bad News and — Kind of — Good News

Every system has its own separate billing process and structure. Some systems may send invoices only on the 15th of the month; others at the end of the month. Some have the patient account numbers in the upper-right-hand corner. Some use that location for the payment amount and due date. Most bills are summary ones, not showing you anything in detail but instead consisting of abbreviations that make sense only to someone in the accounting department of that specific facility.

The good news: Accounting departments in many hospitals have posted a glossary and sample invoice on the hospital website to answer many questions. Simply visit the hospital’s website and look for areas such as Pay a Bill, Patient Information, or Help.

But if you want more understanding, here are the basics of the U.S. medical reimbursement system that will hopefully assist you. Since billing does vary from country to country, I will only address the U.S. in this article, although many principles apply to all. This information will not address individual patient bills but provide the background as to why procedures and patient stays are billed the way they are.

Generally, the first piece of paper you will receive with charges listed is the Explanation of Benefits, or EOB. This is not actually a bill but a written description of the services for which you are charged and how much the insurance company is expected to pay. The EOB should state clearly that it is not a bill and that you are not to pay it but to wait for the actual bill to arrive from the hospital.

The actual bill arrives 2–8 weeks later and, for inpatients, generally lists simply a lump sum to pay (outpatient bills are more detailed). There may be summary descriptions and prices, such as “OR Services” or perhaps “Pathology Services.” Or, there may be just that single lump sum to pay. This is pretty much useless if you are trying to understand the basics behind the costs.

The single-page summary saves the hospital costs in ink, paper, and stamps, but all patients are entitled to a detailed invoice. Simply call the hospital’s accounting department and request an itemized bill. In about a week, you should receive a several-page packet in the mail that will break out all the expenses for which you have been charged, the extras as well as the included amounts.

Detailed bill in hand, you stare at it, confused as ever. What is code 78.4? Why were you billed $98 for 73718 and $296 for Pathology? It still doesn’t make any sense. This is when it helps to understand how hospital bills are created based on the background systems in place that dictate how much a particular surgery will cost.

If a person is admitted to a facility and assigned a bed, the individual is coded and billed as an inpatient. There are no time restrictions, meaning a person can be admitted and discharged during the same afternoon. That’s a rare situation, but it is possible. Most people are admitted for 4 to 5 days [].

If a person undergoes a test, a doctor visit, or a minor office-based procedure and isn’t assigned a bed on a floor, that person is coded and billed as an outpatient. It doesn’t matter if he or she went to a hospital building for the visit; the facility location will not impact the system under which the coding occurs.

Inpatient Reimbursement

Inpatient stays in hospitals are paid under the Diagnosis Related Group system, better known as DRGs. Many countries in the world have developed their own system; the U.S. policy has been in place since 1983. It was developed for the Medicare system by the Centers for Medicare and Medicaid (CMS) as a more efficient means of paying hospitals for care.

The CMS wording reads:

Hospitals submit a bill for each Medicare patient they treat to their Medicare fiscal intermediary (a private insurance company that contracts with Medicare to carry out the operational functions of the Medicare program). Based on the information provided on the bill, the case is categorized into a Medicare Severity Diagnosis Related Group (MS-DRG), which determines how much payment the hospital receives.

Translated into normal English, it means that a hospital is paid a preset lump sum for the length of time someone stays in the hospital, based on the severity and complexity of the person’s healthcare problem. There may be additional money provided for expensive items such as a knee implant, but patents aren’t invoiced for every sheet they sleep on or every bandage they wear, nor for every time the nurse gives their IV system a flush to prevent clogs.

DRGs are an efficient way to bill because there are only about 500 or so codes. Changes may be made yearly, such as the inclusion of the Medical Severity DRGs (MS-DRG) system, which became effective in October 2007.

The basis of a DRG is the ICD-9 code, or International Classification of Diseases, 9th Revision. A trained specialist within a hospital determines the appropriate ICD-9 code for the patient’s diagnosis and subsequent procedures. Then, the “coder” uses specialized materials (books, databases) to locate the DRG under which all these ICD-9 codes may fall.

Such coding is a professional career choice, with coders undergoing classroom training and receiving certification. Many coders specialize in areas such as cardiology or anesthesiology in addition to general hospital coding. Anyone who has ever really looked at the medical reimbursement system will quickly understand why this is no simple occupation. Details of the job requirements can be found at the American Academy of Professional Coders [].

One tricky aspect: ICD-9 codes are not restricted to a single DRG. For example, the code 96.72 (continuous invasive mechanical ventilation for 96 consecutive hours or more) is listed under five different DRGs. The coder determines the most suitable DRG code, as the hospital is reimbursed for only one DRG. This decision is made based on the additional ICD-9 codes provided for procedures and/or diagnosis that occurred during the same patient stay.

The coder records the information and sends it to the hospital’s accounting department, which uses other materials to determine the correct reimbursement amount. Books produced by the American Medical Association (AMA) and by Ingenix track the national average payments. This amount is then applied to the bill along with the extra items that do not fall under a DRG.

These items are generally expensive and considered as nondisposable supplies. A certain amount of the latter is expected to be incurred by inpatients and is billed under the DRG. Other materials, such as immunosuppressant drugs for an organ transplant or titanium orthopedic implants, will be invoiced in addition to the DRG. Why, you ask? Because not all patients billed under the same DRG need to have chemotherapy or the implant. All, however, do need sheets, general bandages, and meals, so those expenses are already included. Specialized laboratory tests such as a diagnostic MRI (magnetic resonance imaging) are billed outside a DRG because, again, not everyone needs the image, while some people need more than one.

The AMA produces the codes, but the CMS sets the fee schedules annually. Usually — not always, but usually — the billing amounts are used by carriers even for non-Medicare, non-Medicaid purposes. It can be simpler for payment management. In some cases, CMS doesn’t even set a price. It tags the CPT code as a “C” for status, meaning C (Carriers) price the code. Carriers will establish relative value units (RVUs) and payment amounts for these services generally on an individual case basis following review of documentation such as an operative report. These are often for uncommon events, odd/miscellaneous items, or very, very specific surgeries:

  • Unattend sleep study
  • Automated audiometry air
  • Hand/finger surgery
  • Larynx surgery procedure
  • Prep donor pancreas
  • Tear duct system surgery
  • Echo examination procedure
  • Cytogenetic study
  • Skin test, candida
  • Breath recording, infant
  • Removal of pressure sore
  • Transport portable X-ray
  • Unusual physician travel

Outpatient Reimbursement

Generally speaking, outpatient visits are limited to a few hours at most. There is a limited number of “things” that can happen during a short period, so everything is billed individually. The system used is called the Healthcare Common Procedural Coding System (HCPCS). The HCPCS system has two parts: the Current Procedural Terminology (CPT) with five numerical digits (e.g. 01490, 29358), and HCPCS Level II, with a letter followed by four numbers (e.g., Q4038, J0881). A quick-and-dirty difference (and, like everything in reimbursement, not 100% precise), the CPT is what the physician does; the HCPCS Level II is what the physician uses.

CPTs are the most common pieces seen on an outpatient bill. There are several thousand of these codes and so billing is very accurate. The coder needs to do very little guesswork as long as the physician’s notes are accurate. For example, if you have ever received a bill for bloodwork, there are two codes listed: one for drawing the blood, one for the lab test. No special instruments, drugs, or devices are needed for this, so there is no added HCPCS Level II code in the bill. The reimbursement for each CPT assumes general supplies such as bandages, alcohol swabs, cotton swabs, and topical anesthetic are included.

The Level II codes are, as noted, for the more expensive elements, e.g., chemotherapy drugs administered in an outpatient setting, medical equipment such as crutches or wheelchairs, or perhaps oxygen equipment such as a specialized mask.

Many facilities include the actual codes on the billing statement. This is the simplest method for everyone involved, especially the patient. Wondering why avoiding that dumb deer left you with a bill for the 01490, 29358, and L4360? Well, in possible order of therapies, anesthesia to have the lower leg cast removed (from the day of the accident), the application of a new long-leg cast brace, and then that walking boot they gave you to strap on over the brace for extra support as you continued to regain full use of the leg.

Every time you attend specialized rehabilitation classes, there is a CPT code charged to your healthcare provider. Someone has to pay for the physical therapist’s time. That’s why many healthcare plans only pay for a limited number of visits; the costs are very high. Severely injured patients are able to submit extra paperwork and may be granted additional weeks of therapy as necessary.

For every visit, there is a new invoice. Many times the codes will be the same, but suppose during one trip the nurse was called in to check a mole? Another CPT is added to that day’s events. If the doctor removes the mole to test it, there are a few more codes. One to remove the mole and another to test it. Good news for you — this time — it’s a simple mole and not malignant melanoma.

Some facilities will tack on extra costs they feel fall outside the supplies covered by the CPT codes. These are not common, regardless of what you hear on television shows, like Lieutenant Anita Van Buren on Law and Order tracking an acronym for a billing of more than $80 to Kleenex or MRS (mucus removal system). It’s really a matter of practicality. If you use several tissues in the office, it won’t be billed. If you take the entire brand new box, chances are it will show up on your bill.

On a side note, I have not yet located anything to verify that any hospital has, in fact, ever charged for a “mucus recovery system.” Rumors abound on the internet about it happening, but not one place has documented which hospital, when, or provided an example bill. “They” (Medical Billing Advocates of America) say it happens, but no one has yet actually posted an actual bill of it anywhere. So I wonder.

If you don’t understand what you are reading, try calling the hospital library. Many larger hospitals have them and a staff member may be able to assist. There are special books (by AMA and Ingenix, noted earlier) that list and describe what a code is and what it covers. And, of course, there is always your favorite search engine. Simply enter CPT or HCPCS or DRG followed by the numerical code.


Anytime anyone discusses reimbursement or medical insurance or bills, there simply has to be a caveat. Nothing is ever 100% cast in solid bronze. So, no matter what was written here, there will always be someone somewhere with a situation that could be affected by this lengthy caveat:

The actual amounts reimbursed by insurance companies, Medicare, Medicaid, and by those without insurance vary. Certain facilities receive different amounts based on the type (e.g., renal, ambulatory surgery, physician office, etc.). The geographic location of the facility also impacts reimbursement amounts. The above information does not comment on global payments or the fact that certain regions in the U.S. pay less or more than others based on the cost of living. I also did not address those facilities which receive a percentage add-on payment for indirect medical education or an add-on percentage for serving more low-income patients than other areas. And multiple codes can be used with each involving a different percentage than the others based on order of billing. All those nuances fall outside the scope of general information and are simply too detailed to be discussed in this basic overview.

However, I hope the general information provided here will help you understand why the seemingly more minor medical situations — outpatient treatments — have incredibly more detailed invoices than a lengthy hospital stay. There are logical reasons for the vast majority of billing charges for patients. For those that seem illogical, there are places to go to get answers. And when that doesn’t happen, stop by your hospitals’ local medical library in the larger hospitals for assistance. Staff should be glad to help.

Quick Online Coding Reference Sites

Be sure to check several sites, as no one source is ever 100% correct.

Patient Advocate: Understanding the EOB

ICD-9 Look-up

DRG Code Look-up

CPT Code Look-up

Tara Breton is a Senior Information Specialist for Health Advances, LLC. Her e-mail address is

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