The inherent complexity of medical payments

It goes without saying, but I’ll say it anyway: medical billing is complex. That complexity can confuse and infuriate patients, often when they receive an enormous bill after their insurance company denies a claim. In an effort to avoid this scenario, most patients are interested in determining whether a provider accepts their insurance plan before they commit to taking on financial responsibility for a visit. Many patients have faced historic struggles to determine what insurance their providers accept, at a plan level. Why?

Well, let’s start with the providers. For now, we'll assume a health system with a substantial presence on the west coast, just because that's where I have the most experience.

In most of the areas the system services, providers are employed directly. For example, your primary care physician in Washington is typically a system employee, and while she might get paid a salary or effectively work on commission (via her delivery of RVUs, or “relative value units,” part of a reimbursement formula), she files a W2 with the system as her employer. California, as usual, is weird. In the name of separating profit motives from medical decision making, hospitals and health systems are not allowed to directly employ physicians, although they can directly employ some non-physician providers like PAs. Anyway, we’ll call these providers “non-employed,” for now. 

So, we’ve got employed providers in a few states, and then some non-employed providers in CA. There are also “affiliated” providers, who are not employed by either the system or a foundation that manages non-employed providers in California, and may choose to work for competitors or operate an independent practice. Often, these affiliated providers are in an HMO-like agreement with the system but may otherwise be completely separate from their employed and non-employed compatriots. 

Still awake? All right, let’s talk credentialing. 

If you’re a bright-eyed college graduate with dreams of being the next Dr. House, you’ll apply to medical school, get in, complete your studies, and then apply for your license and become a resident. After a few years of residency, you might decide to enter practice, or delay that for a few years as you go through your fellowship in a specialty. Eventually, a grizzled veteran on the wrong side of 30, you’ll be an attending physician. But if you want to pay down those student loans with reimbursement from commercial insurers, you’re going to need to be credentialed. This is the process where your qualifications are reviewed: did you actually go to medical school? Did you graduate?Is your licensure in line with your specialty and location? Were you actually a resident at Princeton-Plainsboro or is that just a hospital from a TV show? If you pass the test, you are “credentialed,” and can submit claims to payors with a reasonable expectation of reimbursement. Credentialing is usually something that comes with your new job at a system or foundation.

The last piece is contracting, which is typically the purview of a larger entity than a single provider. The system negotiates contracts with payors on behalf of its providers. Contracts include things like reimbursement rates per procedure (CPT) code, network definition (e.g. all these doctors are in the System West Choice network), and covered service locations. These covered service locations are typically identified by a federal tax ID number (TIN), with a TIN representing a geographic area as small as a clinic and as large as a state.

Once a provider is credentialed, she is assigned a TIN. That credential information is sent to the payor and the provider is able to bill for services rendered to payor plan subscribers in that area as long as her credential is active and the contract is live.

Let’s recap:

• provider gets a job with a health system (or a foundation, in California)
• the provider gets credentialed with help from the system or the foundation
• the system establishes a contract with a payor

If you combine those three things, you can state with absolute certainty which plans a provider accepts. If the provider is assigned a TIN of 1234, and the system signs a contract with Aetna that includes that TIN as part of a network, then the provider is now part of that network and can accept all plans assigned to that network. TINs usually represent many providers and locations, so that contract might cover 400 doctors across tens of facilities.

So, I'd call this "complex, but not especially hard." Why can’t health systems just publish this data to the web immediately? Well…

1. Contracts are big. I have reviewed contracts which are over 20 individual documents, each of which contains a variety of stipulations that affect coverage. Systems have entire teams dedicated to parsing these contracts and it still takes them a long time to get them right. they are usually amended at least annually.
2. Credentialing changes frequently. The system has to supply payors with an updated credentialing database monthly.
3. Affiliated providers have their own contracts independent of the systemand aren’t obligated to share them. Depending on the system, affiliated providers may form a substantial plurality of providers at their facilities.

Ultimately, improved contracting, credentialing, and legal procedures can make life easier for patients. Just don't expect to see it until the payors make demands.