What are two ways electronic claims can be submitted?

The health insurance claims process is an interaction between the healthcare provider and an insurance company (third-party payer). Sometimes referred to as the insurance billing cycle, this interaction can take anywhere from several days to several months to complete, depending on the number of exchanges in communication required. The cycle begins when a patient visits a healthcare provider, where a medical record is created or an existing one is updated. This record contains demographic information including, but not limited to, the patient’s name, address, Social Security number, date of birth, sex, telephone number(s), and insurance identification number(s). Also included in the record are examination details, medication prescribed, diagnoses, and suggested treatment. If the patient is a minor, information of the guarantor (a parent or an adult related to, or legally responsible for the patient) is recorded. The medical record can be paper, electronic, or a combination of both. It is a legal document and the information it contains is protected by privacy laws.

Once the patient visit is over, the health insurance professional (or medical biller) transmits information from the record to the insurance company in the form of a claim. Historically, claims were submitted using a paper form—the CMS-1500 form—named for its originator, the Centers for Medicare and Medicaid Services (CMS) (see later). After federal legislation was passed in 1996 (Health Insurance Privacy and Portability Act [HIPAA]), CMS directed providers who submitted claims to Medicare to do so electronically, with few exceptions. However, some providers, for example, dentists and small, rural practices, may still be using the paper form.

After the insurance company receives the claim, it is reviewed, evaluated for validity—patient eligibility, provider credentials, and medical necessity—and processed. (To meet the medical necessity criteria, services or supplies must be appropriate and necessary for the symptoms, diagnosis, and/or treatment of the medical condition and they meet the standards of good medical practice.) Approved claims are reimbursed according to pre-negotiated rates between the provider and the insurance contract. Failed claims are rejected, and notice is sent to both the provider and the patient. An explanation of benefits (EOB) or a remittance advice (RA) is generated for both approved and rejected claims. EOBs and RAs are discussed in a later chapter.

With the development and growth of computer technology, specifically medical practice management software (a type of software that deals with the day-to-day operations of a medical practice), the way claims are generated and processed has changed. Practice management software allows users to enter patient demographic information, schedule appointments, maintain lists of insurance payers, perform billing tasks, and generate reports. Also known as health information systems, this category of software has made it possible to manage large numbers of insurance claims with various payers accurately and efficiently. Currently, many companies offer such software programs. Computer technology has also made claims submission faster and more accurate at a cost savings to the practice using it.

Although new technologies improved some facets in the administration of healthcare, others made it more complex. Just as in dealing with the many types of paper insurance claim forms and specific standards for completing each, payers once more developed individualized methods for providers to submit claims electronically. The result was added administrative costs for providers and the necessity for their staffs to learn various, often complicated, computer programs.

A very significant change that impacted medical billing was the legislation passed by Congress in 1996—the Health Insurance Portability and Accountability Act (HIPAA). HIPAA initiated changes to promote uniformity in healthcare claim submission by adopting standards for electronic health information transactions. This adoption eliminated most of the unique forms used by individual health insurance carriers and the different requirements for processing claims. By October 2003, every HIPAA-covered entity (healthcare plans, healthcare providers, and healthcare clearinghouses) was asked to begin using these standard formats for processing claims and payments as well as for the maintenance and transmission of electronic healthcare information and data. Prior to HIPAA, there were over 400 different ways to submit a claim. With HIPAA there are only two—submitting them electronically using the new standard transaction formats or (if the provider meets certain criteria) using the universal CMS-1500 paper form (discussed later in this chapter). This standardization of submitting claims and simplifying the processes involved makes getting paid quicker, easier, and less costly. The HIPAA mandates also help providers take advantage of new technologies, ultimately improving their overall business practices.

As a result of HIPAA, CMS directed all healthcare providers to submit Medicare claims electronically in a HIPAA-compliant format beginning in October 2003. Recognizing that this ruling could generate some challenging situations, the Administrative Simplification Compliance Act (ASCA) of 2001 identified limited exceptions to this requirement, which include:

Also qualifying for exemption are small entities, or small providers—those with 25 or fewer full-time employees (FTEs)—and physicians, practitioners, and suppliers with 10 or fewer FTEs. This small entity exemption applies only to billing Medicare electronically, not to implementing HIPAA transactions and code sets.

The intent of HIPAA’s Administrative Simplification law was to provide consumers with greater access to healthcare insurance, to protect the privacy of healthcare data, and to promote more standardization and efficiency in the healthcare industry. Although HIPAA covers a number of important healthcare issues, this chapter focuses on the Administrative Simplification portion of the law—specifically HIPAA’s Electronic Transactions and Code Sets requirements. There are four parts to HIPAA’s Administrative Simplification:

Following is a brief summary of each of these four parts. For more detailed information on HIPAA’s Administrative Simplification Act, visit the Evolve site.

HIPAA Tip

An organization that routinely handles protected health information in any capacity is, in all probability, considered a covered entity.

Imagine This!

The Rolling Prairie Health Clinic holds a senior health fair every fall. Many Medicare beneficiaries come to the clinic for their annual flu and/or pneumonia shots. Amelia, Rolling Prairie’s health insurance professional, uses roster billing as a quick and convenient way to bill Medicare for these vaccinations. Nina, the clinic manager, reminds Amelia that when submitting a roster bill, the provider must have given the same type of vaccination to five or more people on the same date of service and that each type of vaccination must be billed on a separate roster bill. Amelia cannot combine pneumococcal pneumonia vaccines (PPVs) and flu vaccines on the same roster bill.

Up until January 2012, HIPAA required the use of Standard X12 transactions to report and inquire about healthcare services. Providers who submitted claims electronically used the 4010/4010A1 version of HIPAA transactions, which are nearly a decade old. A new transaction standard–Version 5010–will be implemented in 2012, and the old Version 4010A1 will no longer be valid. Currently, the date for all entities to be in full compliance with Version 5010 is June 30, 2012; however, it is important that the health insurance professional check the CMS site periodically to see if the compliance date has changed. This new version addresses many of the deficiencies in the former version and accommodates the reporting of NPIs and the new ICD-10 codes (see Chapter 12). The following entities are affected by the switch to Version 5010:

The following transactions are included in the 5010 Final Rule:

Providers who submit claims electronically must use Version 5010 unless they qualify for Exceptions to Electronic Claim Submission Requirements (Box 5-1). Non-compliant transactions received after the compliance deadline, will be rejected as directed by CMS.

Although HIPAA does not require healthcare providers to use electronic transactions, ASCA does impose such a requirement for those who bill Medicare. ASCA requires that all claims submitted to the Medicare program be submitted in electronic form, with limited exceptions. The implication of this requirement is that because the claims are submitted electronically, they are also required to comply with HIPAA. Physicians who qualify for exemption under the small provider exemption may continue sending paper claims. A small provider or supplier is defined as a provider of services with fewer than 25 full-time equivalent employees or a physician, practitioner, facility, or supplier (other than a provider of services) with fewer than 10 full-time equivalent employees (see Box 5-1).

For more detailed information about 5010, visit the

HIPAA Tip

Small providers who can use paper forms (i.e., CMS-1500 and UB-04) for submitting claims can continue to do so, because the most recent versions of these paper claim forms accommodate the relevant data reported in Version 5010.

Regardless of how claims are submitted, the insurance claims process begins when the patient arrives at the medical facility, at which time he or she is given various forms to read and fill out. The front office staff then enters the information into the medical facility’s computer using the practice management software that meets electronic filing requirements as established by the HIPAA claim standards. It is from this information that the claim is generated through the internal functioning of the software.