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EOBs: What Medicare and Insurance Companies Don’t Tell You

Understanding Where the EOBs (Evidence of Benefits) Charges Come From

If your like most Americans health insurance is hard to understand. It is hard to understand how the Government system of Medicare works, how insurance pays, doesn’t pay, and how much it pays. Most people have trouble understanding EOBs (Evidence Of Benefits). We have trouble understanding why some CPTs (Clinical Procedure Codes) are paid and others are not. We can’t understand why the doctor or hospital charges so much and our insurance pays so little. We are also having difficulty even finding a doctor that takes our insurance, especially Medicare. This little story may shed some light on EOBs, private insurance and the Medicare process from the provider side.

First, Medicare is not the same for everyone in the USA. You would think a government plan would have the same rules and coverage for every citizen. Let me tell you, that is just wishful thinking.

The United States Medicare system is divided up into areas called MAC Jurisdictions. MAC stands for Medicare Administrative Contractor. These MACs are independent contracted companies who run an area of the USA. Each MAC is allowed to make their own rules on how to interpret Medicare payment. So to minimize expenses, they make rules on what tests and procedures are allowed, when they are allowed and how many are allowed per year. These rules are called Local Coverage Determinations or LCDs for short.

So what you thought was a government run program really isn’t. If you live in one state you may be covered for a service and then move to another state and you may no longer be covered for the same service even if CMS (the Centers for Medicare and Medicaid) says you should have coverage for this service.

The next strange thing about Medicare is something called a RAC (Medicare Recovery Audit Contractor). RACs became permanent with The Tax Relief and Health Care Act of 2006. The RAC is supposed to identify improper Medicare payments – both overpayments and underpayments. Here is the bad part; RACs are paid based on the errors they find on providers’ claims. In theory, it sounds good to have the company looking for errors paid by the amount of errors they find. In theory this would encourage the RAC to find errors in provider’s claims to keep costs down. Unfortunately, then RACs were given the ability to make up their own interpretations of Medicare rules. So you just put the fox in charge of the hen house! How would you like it if you had a set of complex rules you are following. Then you are audited with a new set of rules you can’t know, just so you can be heavily fined and put out of business! This is what is happening to clinical providers and clinics across the nation every day.

Then comes the confusing part of each procedure code, the payment. The system is not very accurate regarding the amount of time, equipment cost, and interpretation is involved for a procedure. CMS tries to properly adjust this, but it is based on the input of providers who may or may not be indicative of all who bill the code. First, it is a zero sum system. This means if one group lobbies to have reimbursement increased for their code or to have a code added for a new procedure, other codes must be reduced by an equal amount so that there is no change in the overall amount reimbursed for all codes. CPT code 92557, Comprehensive Hearing Test requires a minimum of 15 minutes of time if the patient is alert and cooperative to test. The test requires equipment that costs $30,000-60,000. The global CPT code is supposed to include interpretation and report time. The problem is this is based largely on providers which do not write a full report, just a line or two on the test itself and then hand the report to physician in the same office/clinic who writes a final report. The physician can bill an Evaluation and Management code for this time and the history taking time. So for a private practice audiologist who takes a case history, counsels the patient and spends time writing a report to the referring physician the time it takes is closer to an hour rather than 15 minutes. The audiologist also cannot bill Medicare for Evaluation and Management. For this hour, Medicare pays $37.47. To put this payment in perspective, a plumber charges about $250 just to walk into your house and talk to you about your plumbing issue. An audiologist, with a doctoral degree (8 years of college) would have to do over 6 tests in one hour to be paid as well. Now you can begin to understand why a provider pushes you through their office in 10 minutes. It is not what you or they want, it is what has to be done to meet the overhead of a business with payment this low.

There is a lot more wrong with the system. You have likely seen items on your EOB where your physician or hospital charged three times more than they actually received for the procedure. Why do we charge so much when we will only receive one third or one fourth of the amount we billed? Why do we bill more than “reasonable and customary”?

This is the craziest thing in medicine. In order to be paid we have contracts with insurance companies. These contracts are top secret. No provider can know what another provider is reimbursed. So Dr. Y does a test and gets $15 and Dr. X does the same test and gets $22 only because they negotiated a better contract, not because they are a better doctor. In order to keep the whole system “hush hush”, doctors must bill 2-4 times what is the Medicare reimbursed amount (the only amount everyone knows) so that all their contracts will pay the maximum they are allowed on the contract they negotiated. Then we have to write off the remainder we over billed just to get the amount our contract has agreed to.

If you are thinking that is stupid, you are right. How stupid is a system where you have to bill huge numbers to get the real number you negotiated up front(and already know), but can’t let anyone else know? Then to make it even crazier, the contracts are written to say things like 110% of 2008 Medicare RVUs (Relative Value Units). Which means you will be paid 110% of what the Medicare Rate was for that CPT code in 2008. Other contracts are written to say 40% of billed charges. So on a 40% contract, to get paid the $30 I negotiated in payment contracts from Insurance Company Y, I must bill $75 and write off $45. So the patient sees that I bill $75 for something the insurance company says is only $30 for ‘reasonable and customary’. I look like a creep for over billing the patient $45, when in reality I am just playing the game the way the insurance company makes me play.

If you got to the end of this blog confused by the insane system of medical insurance, you are in good company.

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