8.1 Insurance Verification, Eligibility (EDI 270/271) & Prior Authorization

Insurance Verification, Eligibility (EDI 270/271) & Prior Authorization

Revenue Cycle Management (RCM) in healthcare encompasses every administrative and clinical function that contributes to the capture, management, and collection of patient service revenue. Front-end revenue cycle operations—specifically insurance verification, eligibility determination, and prior authorization—form the foundation of financial sustainability for medical practices. When front-end verification is executed accurately within the Electronic Health Record (EHR) and Practice Management (PM) system, claim rejections decrease, patient collections improve, and administrative rework is minimized.

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The Insurance Verification Workflow

Insurance verification is the process of confirming that a patient has active health insurance coverage for the scheduled date of service (DOS) and determining the exact scope of covered benefits. Verification should be performed prior to every scheduled patient encounter, ideally during pre-registration or check-in.

Essential Data Elements Captured in EHR

During verification, the EHR specialist must collect, audit, and update key demographic and policy data elements in the PM/EHR registration module:

• Subscriber Information: The policyholder's full legal name, date of birth, address, and relationship to the patient (self, spouse, child, dependent).
• Patient Information: The individual receiving care (who may be distinct from the subscriber).
• Payer Identification (Payer ID): A unique 5-digit electronic routing number assigned to each health insurance company for clearinghouse claim transmission.
• Policy / Member ID Number: The primary identifier printed on the insurance card.
• Group Number: Identifies the specific employer or union group benefit plan.
• Effective and Expiration Dates: Confirms policy active status on the date of service.
• Patient Financial Responsibility: Specific copayment (copay), deductible, coinsurance percentage, and annual out-of-pocket maximum amounts.

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Electronic Eligibility Verification: EDI 270 & EDI 271

Modern EHR systems use Health Insurance Portability and Accountability Act (HIPAA) Electronic Data Interchange (EDI) transaction standards to perform Real-Time Eligibility (RTE) checks. Instead of making manual telephone inquiries or logging into individual payer portals, the EHR system communicates automatically with insurance clearinghouses and payers.

EDI 270: Health Care Eligibility Benefit Inquiry

The EDI 270 is an electronic request sent from the provider's PM/EHR system to the insurance payer or clearinghouse. It queries the payer's database regarding a specific patient's coverage status, eligibility for scheduled service categories, and financial cost-sharing requirements.

EDI 271: Health Care Eligibility Benefit Response

The EDI 271 is the automated electronic response returned by the insurance payer to the provider's EHR system. The EDI 271 transaction parses detailed benefit information directly into the patient's electronic chart, including:

• Active vs. inactive policy status on the inquiry date.
• Primary care provider (PCP) assignment requirements.
• Plan deductible totals, remaining deductible balance, and copay amounts by service type (e.g., primary care visit vs. specialist visit vs. emergency room).
• Coinsurance percentages (e.g., 80/20 cost-split after deductible).
• Prior authorization and referral requirement flags for specific CPT code ranges.

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Primary vs. Secondary Coverage & Coordination of Benefits (COB)

When a patient is covered by more than one health insurance plan, Coordination of Benefits (COB) rules dictate the order in which payers process and pay claims. COB regulations prevent double-dipping, ensuring that total payments from all insurance plans do not exceed 100% of the allowable medical expenses.

Payer Hierarchy Rules

1. Subscriber vs. Dependent: A plan covering the patient as an employee/subscriber is always primary over a plan covering the patient as a dependent spouse or child.
2. Commercial vs. Medicaid: Commercial health plans and Medicare are always primary to Medicaid, which is universally designated as the "payer of last resort."
3. Medicare Secondary Payer (MSP): Medicare becomes secondary to commercial employer group health plans (EGHP) if the employer has 20 or more employees (for working aged individuals 65+) or 100 or more employees (for disabled individuals).

The Birthday Rule for Pediatric Dependents

When a child is covered as a dependent under employer-sponsored health plans maintained by both parents, the primary plan is determined by the Birthday Rule:

• The insurance policy of the parent whose month and day of birth occurs earlier in the calendar year is designated as the primary insurance plan.
• The year of birth is completely disregarded; age has no bearing on primary status.
• If both parents share the exact same month and day of birth, the plan that has been in effect the longest becomes primary.
• Exceptions: In cases of divorce or legal separation, court custody decrees or specific legal orders override the Birthday Rule.

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Reimbursement Systems the Test Plan Names

Knowledge statement 3.K11 lists the reimbursement systems an EHR specialist has to recognize on sight, because each one changes what you verify at registration and how the encounter is built.

Workers' compensation is the exception exam items like to test. When the encounter is for an accepted work-related injury, the patient is not the guarantor and there is no copay, deductible, or coinsurance to collect — the employer's carrier pays for the accepted injury. Registration must capture the employer name, the date of injury, and the carrier's claim number and adjuster contact, and the visit has to be built as a separate case or episode so work-injury encounters never merge into the patient's group-health financial record or generate a patient statement. Disclosure is handled under the HIPAA workers' compensation provision rather than as a routine treatment disclosure, which permits release to the extent authorized by the applicable workers' compensation law; unrelated conditions documented in the same note stay outside what the carrier is entitled to receive.

Prior Authorization & Referral Workflows

Prior authorization (also known as pre-authorization or pre-certification) is a mandatory requirement imposed by health plans where providers must obtain approval before rendering specific non-emergent procedures, outpatient surgeries, advanced imaging (MRI, CT scans), or high-cost medications.

Prior Authorization vs. Referral

• Referral: A formal written or electronic order from a patient's Primary Care Provider (PCP) recommending that the patient see a specialist (common in HMO networks).
• Prior Authorization: A formal administrative determination by the health plan that a requested service meets established medical necessity criteria.

Step-by-Step Prior Authorization Workflow in EHR

1. Identification: The provider orders a service (e.g., CPT 72148 for lumbar MRI). The EHR flags the CPT code as requiring pre-certification based on the patient's EDI 271 eligibility response.
2. Documentation Assembly: The EHR specialist compiles clinical rationale, including progress notes, conservative treatment history (e.g., 6 weeks of physical therapy), and diagnostic ICD-10 codes.
3. Submission (EDI 278): Request details are submitted electronically via payer portals or the EDI 278 Health Care Services Review transaction standard.
4. Tracking & Receipt: The payer issues a decision (Approved, Denied, or Pend for Additional Information). Upon approval, an Authorization / Pre-certification Number is generated.
5. EHR Entry: The EHR specialist documents the authorization number, approved CPT codes, authorized unit limits, and expiration date in the encounter record.

Critical Exam Tip: If a service requiring prior authorization is performed without obtaining approval, the insurance payer will issue an administrative denial. Contractual agreements forbid the provider from billing the patient for unauthorized services; the practice must absorb the financial loss.