USA Medical Billing accounting terms

[bobjase]

I work at a software firm and we were recently hired by a medical practice to help build them custom billing software. The world of medical billing is complex and strange, but the terms this client is using seem wrong to me and I was hoping someone could provide accurate accounting terms.

The way a claim is typically made to an insurance company is as follows:

1. The practice will have a number that they "charge" to the insurer for the services provided to the patient (this number is often pulled out of nowhere, with zero basis in reality, because it doesn't really matter). Let's use "Charge = $600" for this example
2. The payer may outright reject or deny (they are different, don't ask) the claim, but presuming they pay, they will typically pay a pre-set amount that they "allow" for the given set of services.
   1. Most doctors/practices will have contracts with insurance companies specifying their reimbursement rates and the insurer will often reference these in the claim response. The amount they can expect to get paid is often NOT provided to the practice in advance (don't ask)
   2. The response from the insurer may look something like
      1. Charged = $600
      2. Allowed = $100
      3. CO-45 ("Charges exceed your contracted/legislated fee arrangement") = $500 (b/c we charged $600 and they only allow $100)
      4. Coinsurance (because the patient is often responsible for a fixed % of the "allowed" amount, e.g. 10%) = $10
      5. Deductible (assuming it hasn't yet been met) also goes here, but let's leave it off for now
      6. PAID = $90 (b/c they allowed $100 and the patient is responsible for $10 of that so the insurer only pays $90
3. The doctor/practice will typically send a bill to the patient for their coinsurance/deductible and/or whatever part of the claim wasn't covered by the insurer
   1. The patients will often not pay these and, in some scenarios, the practice will simply give up on getting this money

The medical firm we are working for refers to the $500 (which is the amount in the first bold line that the insurer said was in excess of their contractually agreed rate) as an "Approval Writeoff" and, if they choose to walk away from the money that the patient owes them (the last line, in bold, of the numbered elements) they refer to that as a "Writeoff".

Are those the correct terms?

Some cursory research led me to think that the words "Writedown" or "Allowance" or "Bad debt" or "Uncollectable" might be more appropriate terms, but I don't really know what I'm talking about

TIA!

 

[kirby]

"Si fueris Romae, Romano vivito more"
roughly "When in Rome, do as the Romans do"
So you are "in Rome" and your client has an established jargon. Whether it is technically right or wrong, I suggest you leave this alone and not potentially irritate them over minutia.
As a "custom" job, they get to call things what they want.

 

[bobjase]

"Si fueris Romae, Romano vivito more"
roughly "When in Rome, do as the Romans do"
So you are "in Rome" and your client has an established jargon. Whether it is technically right or wrong, I suggest you leave this alone and not potentially irritate them over minutia.
As a "custom" job, they get to call things what they want.

The customer indicated that they would like to use correct accounting terms

 

[kirby]

Those are indeed writeoffs. And they use a different term to identify writeoffs based on approvals from those where customer did not pay. So they are good to go as is.

 

[bobjase]

In case anyone comes back to this and is interested, the appropriate medical billing terms are:

1. Discount - "A provider discount for an insurance carrier is the difference between the charge rate for health care services and the contractually determined reimbursement rate. "
2. Adjustment - "The portion of your bill that your provider has agreed to write off. "

 

[kirby]

I know you are just seeking the ultimate truth here but the world, as always, is more complex than having an ultimate truth. Check this site out

Contractual allowance vs. bad debt for healthcare providers

Knowing the difference between contractual allowance and bad debt is critical to healthcare providers. The IRS wants bad debt clearly separated in tax returns. LBMC can help with revenue recognition standards and tax reporting.

www.lbmc.com

so for example they use the term contractual allowance THEN also say it is AKA contractual adjustment. Hey, no ultimate truth from those guys!
And I found the same hodgepodge of terms on other authoritative sites - "Policy discounts, payer discounts, uncompensated care, contractual discount" ad infinitum.
Anyway, the terms you found also work just as well. So go for that. Just know there is no ultimate gold standard out there.

 

[Dave In Capital]

They might call it write off colloquially, but i would guess that in their books it's called doubtful accounts or along those lines. And yes that would typically be for patient debts. And also yes to contractuals being the industry nomenclature for billing adjustments. But, from an accounting side of it, you want to be aware that it's not uncommon for contractuals to be a contra account on the expense side of the p&l also. This can create timing issues with recognition. For example, Clinic A incurs liabilities payable to a medical supplies vendor which are arranged under a prepayment plan. Under accrual basis accounting, the related expenses are recognized as incurred. The prepayment is recorded as an asset. However, the vendor later reconciles usage reports and remits an allowance to the clinic. If said clinic records it at all, then it sometimes appears as a contractuals adjustment, which as you might imagine can create some confusion. If you're focused soley on the billing side of it instead of the ledger side, then this wouldn't be your concern.