Unless you are involved in billing for medical claims, the 1500 Health Insurance Claim Form has probably escaped your radar, at least up to now. This is the form health care entities fill out and submit to Medicare, Medicaid, and insurance companies in order to be paid for the care they provide patients.

If you haven’t already nodded off at the mere mention of a government-like form, please give me a chance to explain why the 1500 is the basis of what’s wrong with our dysfunctional health care system.

Wait a minute, you say? How could that be?

Very simple.

Medicare, Medicaid, and insurances use this form as the basis to “adjust” payments to practitioners. That is, the charges submitted to third-party payers on this form are “adjusted” down from $130—after several lengthy and circuitous trips around Robin Hood’s barn—to $72.

Got it?

Yes, this form is the basis of the $3.00 carton of milk going for $1.40 mentioned in my previous post on “Why Some Physicians Do Not Accept Insurance.”

As horrifying as it may seem to tip toe through the really boring example which follows, please do whatever you normally do to force yourself to slog through really unpleasant things you can’t get away without doing. You’re continued access to reasonable health care depends upon every single person knowing why real health care is disappearing from this country. Why patients, for the most part, no longer have a personal relationship with a primary care physician.

Coding for Medical Care

Billing for patient care requires two kinds of codes besides the information anyone would expect on a form, such as name, address, insurance carrier, and who provided the care where.

Practitioners assign one or more International Statistical Classification of Diseases and Related Health Problems codes (ICD-9s), that is, diagnosis codes, for short, to the patient chart for each visit. These codes describe the patient problems leading to the office visit.

The other required item is the Current Procedural Terminology (CPT) code, the generally five-digit number associated with the cost of the visit. These codes include, for example, the charges for the office visit, the price of an injection, or the cost of antibiotics.

The 1500 Form

The completed 1500 form shown here is a very simple one. I have deliberately selected a straightforward example for starters. The complex one comes in the next post, assuming you are still able to tolerate exploring this draconian process.

The Mother Lode: Boxes 21 and 22

The diagnosis codes are in box 21. On this 1500, these include one for diabetes which is not well controlled (250.02); an open, uncomplicated foot wound (892.0); and an indication that the visit was to have wound dressings changed (V58.30).

The procedural codes are in box 22. In this 1500, there is only one CPT code, the office visit, in this case termed a “detailed” office visit. The long definition?

Office or other outpatient visit for the evaluation and management of an established patient, which requires at least 2 of these 3 components: an expanded problem focused history; an expanded problem focused examination; medical decision making of low complexity.

Further explanation indicates this type of visit involves low to moderately severe patient problems and typically involves 15 minutes of face-to-face time with the patient.

I won’t go into the problem focused history and problem focused exam at this point, but suffice it to say that whenever a patient sees a practitioner, there is a list of 14 or 15 items in each of these two categories, and practitioners must be sure they have evaluated the patient on the required number of items to justify billing for this level of care.

So, looking at the diagnosis codes, this patient came to the clinic with an open foot wound that needed a change of dressing, and the wound is complicated by the patient’s diabetes, which is not well controlled.

Perhaps now you understand why your practitioner, when you are discussing what brought you to the clinic, is busy checking boxes on the electronic medical record screen instead of looking in your eye and listening to what you have to say. If your practitioner is actually listening to you, he or she will be checking those boxes after all the patients have been seen, possibly  between trips to the emergency room, if he or she is on call.  Forget dinner.

In this area, the standard charge for the level three visit is $130. This price is recognized by those who set reimbursement fees every year as the going rate for this type of visit. This fee is not some number the practitioner draws out of a hat, or pads for his or her own benefit.

Linking CPT Codes to Diagnosis Codes

So there are ICD-9 codes and CPT codes on the 1500. But there’s one more task to getting this 1500 ready for submission to the third-party payer. The person filling out the 1500 must link each diagnosis with the relevant CPT charge (block 24E). With a claim this simple, this is not much of a problem.  However, with claims involving several CPT codes, the job gets dicey. Insurances are very happy to pay $0 for a CPT code linked to what they perceive as an unjustified diagnosis. Even if a diagnosis justifying the CPT code is included in the list of ICD-9 codes.

So, the 1500 claim is now filled out and ready to submit to the third party payer, in this case, Medicare. Most clinics use what are called claims clearinghouses to submit the 1500s to payers, although some small practices still fill out these forms by hand and send them directly to payers.

The Explanation of Benefits (EOB)

Once submitted to the payer, the practitioner can wait anywhere from 2 weeks to as much as 3 or more months before the payer actually releases funds for the claim, along with what is called an Explanation of Benefits (EOB).  EOBs are a bit less foreign to many patients because practitioners often include some version of the EOB in patient bills. The EOB tells the patient what part of the bill the patient has to pay, such as a copay or deductible.

Take a careful look at the EOB for this claim. Medicare is paying the practitioner $60 for a visit which the practitioner charges $130, even though the practitioner’s fee is well within the range of normal for this service.

If this Medicare patient has no supplemental insurance policy, this is the end of the road for payment. Medicare forbids a practitioner from collecting the difference between their deeply discounted payment and the actual charge by the physician.

However, this patient has a supplemental policy with Blue Cross/Blue Shield (see box 9d of the 1500 Form). Medicare, after receiving the claim, will issue an EOB indicating what Medicare will pay, and then Medicare will forward the 1500 claim on to the supplemental insurance company, in this case BC/BS. Then there will be a second EOB for this 1500 indicating that BC/BS paid $12 on this claim. You got that? $12 (doesn’t even cover the cost of issuing the EOB). Now we’re up to a $72 payment on a charge of $130. Of course, there’s no one looking at how much it cost to actually collect this payment discounted by 60 percent .

If a patient has a tertiary insurance (usually Medicaid), the secondary payer does not send the claim on to the tertiary payer.  The practitioner’s staff will  have to somehow keep track of the fact that a secondary payment is going to come back and the 1500 will have to be caught and sent manually to Medicaid.  Which will probably pay about $3 on the claim. That doesn’t even cover the cost of the paper and stamp.

Many clinics refuse to even try to process tertiary claims because they are so triffling. Instead, they tell the patients to file themselves for the tertiary insurance payment.

Are You Still With Me Here?

So now, at long last, you have it. For an office visit that took up 15 minutes of one practitioner’s time, plus the time of a nurse or CNA to help with the wound dressing change, and the cost of the wound dressing supplies as well (about $10—we’re not talking bandaids here), the clinic received $72 in payment.

And you ask why physicians are beginning to transition into cash only practices?  The initial payment by Medicare is for all intents and purposes an insult. The secondary insurance payment of $12 is costing BCBS far more to process than $12. And let’s not bother discussing Medicaid.

Those trying to bring meaningful, cost saving reform to the provision of health care, to my knowledge, have never given a moment’s consideration to what practitioners are actually paid to take care of their patients, or the cost of the process they have to go through to extract even 60 percent of their charges from payers. This is a tragedy. But it’s also a recipe for disaster.

The media can sure whip up public anger at a highly paid physician here or a fraudulent physician there, but the fact remains that most physicians are honest and most really want to provide good care to their patients. But the reimbursement policies of the federal and state governments as well as insurance companies are draconian in every sense of the word. This is one of the primary reasons driving practitioners who care about patients to transition into cash practices, or leave the practice of medicine entirely.

As in the old song of yore, sort of…

Do not ask where all the doctors have gone…when will they ever learn.