7.3 Insurance, Billing, Prior Authorization, and Denials
Key Takeaways
- Eligibility verification confirms active coverage but never guarantees payment for a specific service.
- Copay is a fixed per-visit amount; the deductible is paid before benefits begin; coinsurance is a percentage the patient owes after the deductible.
- Prior authorization is payer approval obtained before certain services, drugs, or equipment; without it, the claim is denied.
- ICD-10-CM codes report the diagnosis (medical necessity); CPT/HCPCS codes report the service performed.
- Never change a code to force payment; upcoding or unbundling is fraud and the explanation of benefits (EOB) versus the bill must reconcile against contracted rates.
The Revenue Cycle in Plain Terms
Billing questions on the CCMA reward precise definitions and ethical communication. You are not the coder of record, but you must verify coverage, explain cost terms, route prior authorizations, and recognize why a claim was denied.
Cost-Sharing Terms (Know the Exact Differences)
| Term | Definition | Example |
|---|---|---|
| Premium | Monthly cost to keep the plan active | $300/month |
| Copay | Fixed amount per visit/service | $30 office visit |
| Deductible | Amount the patient pays before the plan starts paying | $1,500/year |
| Coinsurance | Percentage the patient owes after the deductible | Plan pays 80%, patient 20% |
| Out-of-pocket maximum | Annual cap after which the plan pays 100% | $8,000/year |
Worked example: A patient has a $1,500 deductible (not yet met) and 20% coinsurance. A covered service is billed at the contracted rate of $1,000. Because the deductible is unmet, the patient owes the first $1,000 toward the deductible. If the bill were $2,000, the patient would pay $1,500 (deductible) plus 20% of the remaining $500 = $100, totaling $1,600.
Diagnosis vs. Procedure Coding
- ICD-10-CM codes describe the diagnosis and establish medical necessity (e.g., E11.9 type 2 diabetes without complications).
- CPT and HCPCS codes describe the service or procedure performed (e.g., 99213 established-patient office visit).
- A claim pays when the diagnosis supports the service. A mismatch produces a medical-necessity denial.
Verification, Authorization, and Referral
| Step | What It Means |
|---|---|
| Eligibility verification | Confirm the plan is active and the service is a covered benefit; does not promise payment |
| Referral | A primary provider's authorization for the patient to see a specialist (common in HMOs) |
| Prior authorization | Payer approval before a service, imaging, drug, or equipment is provided |
| Assignment of benefits | Patient authorizes the payer to pay the practice directly |
If prior authorization is required and not obtained, the payer denies the claim and the patient may be billed. The CCMA should obtain it before the scheduled service.
Working a Denial
When a claim is denied, read the explanation of benefits (EOB) or remittance advice for the reason code:
- Eligibility lapsed or service not covered.
- No prior authorization / no referral on file.
- Medical necessity not supported by the diagnosis code.
- Coding error (wrong code, missing modifier).
- Timely filing deadline missed.
Fix what is legitimately fixable (correct a true clerical coding error, attach documentation, submit an appeal with provider notes). Do not alter a diagnosis to one the record does not support.
Ethics and Communication Traps
- Upcoding (billing a higher-level service than performed) and unbundling (splitting a packaged service to bill more) are fraud.
- Never tell a patient "insurance will definitely pay" because eligibility is active; coverage and payment are different.
- Estimates are estimates; do not guarantee an exact out-of-pocket amount.
- Collect copays at the time of service per policy, but route disputed balances to the billing department.
Plan Types You Should Recognize
The exam may name a plan and expect you to predict the access rules.
| Plan | Referral to specialist? | Out-of-network? |
|---|---|---|
| HMO | Usually required from a primary provider | Generally not covered except emergencies |
| PPO | Not required | Covered at a higher patient cost |
| EPO | Usually not required | Generally not covered |
| POS | Often required | Covered with a referral, higher cost |
| Medicare/Medicaid | Program-specific rules | Program and state specific |
Knowing that an HMO patient needs a referral before seeing a specialist explains many "why was this denied" items: the referral was the missing step, not the coding.
Reading an Explanation of Benefits
The explanation of benefits (EOB) is sent to the patient and the remittance advice to the practice. Both show the billed charge, the allowed amount (contracted rate), the plan payment, any adjustment (the write-off of the difference between billed and allowed), and the patient responsibility (copay, deductible, coinsurance). A patient confused by a bill often misreads the billed charge as what they owe; the CCMA explains that the allowed amount and patient-responsibility lines are what matter, then routes a true dispute to billing.
Self-Pay, Estimates, and the No Surprises Act
For uninsured or self-pay patients, many practices provide a good-faith estimate of expected charges, a practice reinforced by federal surprise-billing protections. Frame estimates as estimates, document that the patient received the financial policy, and never promise an exact final cost before the claim adjudicates.
Fraud vs. Legitimate Correction (the Core Trap)
The most dangerous wrong answers in this section ask you to make a number work. Correcting a genuine clerical error (a transposed code, a missing modifier the record supports) is legitimate. Changing a diagnosis the record does not support, billing for a service not rendered, upcoding, or unbundling are fraud regardless of intent. When an option's logic is "do this so it gets paid," suspect a fraud trap and choose the option grounded in documentation.
A patient's plan has a $1,500 deductible that is not yet met and 20% coinsurance afterward. A covered service is billed at the contracted rate of $2,000. How much does the patient owe?
A claim is denied with the reason "no prior authorization on file" for an MRI that required it. Which CCMA action is appropriate?
What does verifying a patient's eligibility before a visit confirm?