Practice Management

What hospitalists need to know about health care reimbursement and denial prevention


Under a fee-for-service payment model, health care providers get paid by private and public payers for patient services such as physician visits, hospital stays, procedures, and tests. In an ideal world, providers would receive accurate, complete, and timely reimbursements. Unfortunately, the reality is far from ideal, where payment denials and delays are a common occurrence.

According to one study, out of $3 trillion in total claims submitted by health care organizations, an estimated 9% of charges ($262 billion), were initially denied.1 The good news is that 90% of all denials are preventable, and two-thirds of those preventable denials can be successfully appealed.2

Hospitalists are essential in preventing denials for hospital services and should be familiar with the basics of health care reimbursement and common reasons for denials. In this article we will provide an overview of the U.S. health care payment system, revenue cycle management and types of denials, and focus on the role of physician advisors and hospitalists in preventing and combating denials.

Overview of the U.S. health care payment system

In 2018 alone, the U.S. spent $3.6 trillion on health care. Of those dollars, 33% went to payments for hospital care and 20% went to physician and clinical services.3 So where do the nation’s health care dollars come from?

The United States has a complex multiple-payer system that includes private insurance companies and public payers funded by the federal and state governments, such as Medicare and Medicaid. Per the National Association of Insurance Commissioners’ 2018 Market Share Reports, there are 125 private accident and health insurance companies in the U.S., with the top five – UnitedHealth, Kaiser, Anthem, Humana, and CVS – holding a cumulative market share of almost 40%.4

Medicare accounts for 15% of federal budget spending and provides insurance coverage to almost 60 million people who are 65 and older, have end-stage renal disease, or have been approved for Social Security disability insurance benefits.5 Medicare Part A covers hospital, skilled nursing facility, home health, and hospice care. For example, for inpatient stays, Medicare Part A pays hospitals a predetermined rate per discharge according to the Medicare Severity Diagnosis Related Groups (MS-DRGs), which are based on the principal and secondary diagnoses, and performed procedures.6

Medicare Part B covers physician services and outpatient services and supplies, including labs and durable medical equipment, which are paid based on submitted Healthcare Common Procedure Coding System (HCPCS) codes.7 It is important to know that hospital observation stays are considered outpatient services, and are paid by Medicare Part B. Outpatient stays often are reimbursed at a lower rate than inpatient admissions, even in cases with similar utilization of hospital resources.

Medicaid is jointly funded by the states and the federal government and offers insurance coverage to more than 75 million eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities. Over 10 million people are dually eligible for both Medicare and Medicaid.5 Increasingly, government payers, both state and federal, are contracting with private insurance companies to deliver Medicare and Medicaid services, also known as Medicare Advantage and Managed Medicaid Plans.

According to the U.S. Department of Treasury, in the 2019 fiscal year (October 2018 to September 2019), 33% of the nation’s health care dollars came from private insurance, 21% from Medicare, 16% from Medicaid, 15% from other government programs (for example, Veteran Affairs), 10% from out-of-pocket, and 4% from other private sources.5


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