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Medical Bills Explained (Medical Bills 101)

Updated: Sep 29, 2023

My entire career I have always told friends and family alike, if you ever get a medical bill and have questions, please do not hesitate to reach out to me. The fact is that most people do not understand their bills. And why would they? The healthcare system is a complex set of words, numbers, and codes all overlapping into what the market says occurred. I know many people who work in healthcare and still do not have the foundational knowledge to accurately translate their bills.

It is not that the information for translation is hidden; it is out there, one or two web searches away. However, it is very difficult to look for something if you do not know what to search. It reminds me of those old "I Spy" books, where you are looking endlessly at pages cluttered with items, knowing the one thing you are searching for is right there but you cannot see it. This is how it is with the deciphering tools that are publicly available for translating healthcare.

For someone familiar with the healthcare system, the full revenue cycle (RC), then looking at a bill and translating it upstream to the rendered services is fairly easy. I work in mainly unscheduled care RC management, and the services are pretty standard when it comes to translation. For someone in surgery, or primary care, I am sure they can read a bill without any tools like I can for unscheduled care. So, let me share the tools I used to help people understand their bills.

Itemized Statement: If you ever get a bill, make sure you get the itemized statement version. This version of your bill should have both the CPT/HCPCS code(s), the code(s) description, and the gross charge description amount that was set by the company doing the billing. This statement should also have unit amounts. For a provider bill, many of the codes will be one unit. For the facility bill, there may be many units of the same thing.

Explanation of Benefits (EOB): By the time you have received your patient statement, the RC has already been churning for awhile. While the Itemized Statement is your breakdown of responsibility, the EOB is the payors/insurance breakdown of responsibility. First a claim goes to the payor, that results in an EOB, then the remaining goes on a statement to the patient. The key on understanding any bill is having both of these breakdowns.

General Knowledge: For every type of care, you need to understand your service line criteria. There are many questions that help narrow down the search. There are a few of the ones I would need to know if possible.

  • What was the physical address where care was rendered?

  • What was the POS?

  • What was the DOS?

  • Was your care IP, OP, OBS, or ED?

  • Were your services INN or OON?

  • What insurance coverage do you have; what benefits?

  • How many different bills did you get?

  • How long were you under medical care?

  • Is the bill you are wanting to understand FAC or PROFEE?

Quick side note, the art of translating patient documented care into a CPT/HCPCS codes is not easy to explain. It can be explained, but since it is a bit different depending on each service line, it does not make sense to go into here. Just know that documented patient care is translated during coding into codes that have set prices by the billing entity.

CMS Fee Schedule: CMS, or rather Medicare, sets the baseline for medical costs. Besides Medicaid, this is the lowest something can be charged in healthcare. If you are billing entity, you never want to set your charge master lower than the CMS rate. If you do, you likely will be unable to sustain a business model (again, a topic for another time). The link below is to the "Physician Fee Schedule" search tool. This a public tool that allows anyone to search a CPT/HCPCS code and see what Medicare would pay.

The Search: If you have all this information, you can now start translating your bill(s). I am sure if you read those questions above and looked at your bill and went to this link, you are even more confused. So lets run a super simple (probably not 100% accurate because who wants a colonoscopy without anesthesia) scenario. That may help with understanding the process. I would recommend you try this search yourself to understand how this all works.

The Scenario

We are going to assume a man went in for an Outpatient (OP) Colonoscopy procedure in a Dallas, TX facility in January 2022. The patient is confused about his bill. He just wants to check the bill to understand how the billing entity was processing his services, and ensure that his care was processed In-Network (INN). He has his Explanation of Benefits (EOB) from his insurance company (i.e.. how his insurance processed the claim before any remainder was assigned to his responsibility). He requested his Itemized Statement after the initial bill only summarized his care, and not the codes assigned for billing. The itemized statement had the code 45378 for gross charge of $1,109.00 and shows that he owes: $646.63 and the payor paid nothing.

On the CMS tool, we are going to enter the following selections:

· Year: 2022

· Type of Information: Pricing Information

· HCPCS Criteria: Single HCPCS Code

· HCPCS Code: 45378

· Modifiers: All Modifiers

· MAC Option: Specific Locality

· Specific MAC Locality: 0441211 DALLAS (type Dallas and it will come up)

Then click "Search fees". This tool will search the Medicare Administrative Contractor (MAC) for the specific geographic area your service was located in, for that specific service date, and determine what the Medicare cost is for that specific code.

There may be more than one result due to modifiers. Within the results there are prices for facility and non-facility price based on the Place of Service (POS), such as an outpatient clinic, vs within a facility health system linked to the facility. You might also have several line item results if there are situations in which coding modifiers could alter the service. To understand how services could be altered and if they would apply to your services, you would need to research the modifier. Also note, that the modifier should be on your itemized statement and EOB.

If you want to understand which modifiers apply to your area, you need to understand your MAC, since CMS does not actually process claims, they have 12 areas split by state. There are MACs that compete to run the programs and claim processing for the state (there are 7 MACs currently). See the link below to see the MAC alignment as of June 2021.

Continuing on with our search, we will assume there are no modifiers applicable for the services; we will disregard the line result with the 53 modifier. Moving on, we now just have the one result for our CPT with the following prices.

  • Non-Facility: $359.44

  • Facility: $184.75

Remember, our patient was seen at an outpatient facility. If this patient has Medicare, no matter what the billing entity has loaded in their Charge Description Master (CDM), Medicare is saying the allowable for this services, to be reimbursed by a combination of payor and patient, is $184.75 for CPT 45378.

If the patient has some other insurance, and it is INN, then the total rate will be some % of this CMS rate. If the payor is INN with the billing entity, then they will have a set %, that you as the consumer cannot see, which results in the allowable. If it is Out of Network (OON), then there will be a "Usual & Customary" rate set, usually by the payor, in place of the allowable. The payor (insurance company) will process the CPT charge, and define based on the patients benefits, and if there is a contract with the billing entity what portion the payor and patient will pay...(Did you catch that? The payor/insurance company tells the billing entity what the patient should pay, what they are responsible for, after they process their portion).

We are going to take this one step further. This is going to get really complex for a minute. Try your best to follow along. Or grab a paper and write it out and see the math breakdown.

Let's say that the insurance is INN and they have a contract with the billing entity (let's say it is PROFEE right now), and for something like CPT 45378 for a diagnostic colonoscopy you want to understand the % of Medicare rate approximation they are contracted.

On the EOB, you can see the initial claim was sent to the payor for CPT 45378 with a CDM fee of $1,109.00. The payor has a field that indicates the allowable for this CPT is $646.63 per their contract with the billing entity. So, we take the allowable amount on the EOB of $646.63 and divide by the CMS rate amount of $184.75 to get around 350%. Looks like this insurance contract and billing entity rate is found for this CPT. Note that each CPT can have a different rate.

To adjudicate the bill, we now take the difference between the two amounts of billed ($1,109.00) and the allowable ($646.63), which will likely show up as a contractual adjustment (usually has something like a CO-45 CARC code next to it). In our case, the CO-45 contractual adjustment would show up as $462.38. This is basically how the billing entity and payor talk. They are saying, "You can bill me whatever (AKA the $1,109.00), but per our contracted rate of 350% for this CPT code, we agreed the allowable would be $646.63. So, this is the difference you need to adjust-off."

Then the payor will break down the allowable, the $646.63, by processing with the patient's benefits. It usually looks something like one of these two results.

(1) The patient has not met their deductible, and so I, the payor, will not be paying anything until they meet that, so please bill the patient (via PR-1 code language on the EOB) the entire balance of $646.63.

(2) The patient has an 80:20 benefit plan (for example), and so I, the payor, am paying $517.30 as my 80%, while the patient needs to be billed the other 20% of $129.33.


Our guy can rest easy that his bill was processed correctly, and that now he knows he was given the large balance (patient responsibility) because this was his first medical care of the calendar year, and that he also has an $1000.00 deductible, and so he now knows why he is having to pay so much of the bill while his insurance paid nothing.

Please note, this was a SUPER simple example, looking at just 1 CPT. We did not look at Facility verses PROFEE bills, or the other anesthesia providers charges, or anything of the supporting costs of services. All we looked at was the specific, performed procedure CPT. I think it helps though. It took one search, and a lot of deciphering of information we should already have, to get to our answer. But the kicker is that most people, and I do mean most, will never get here. They do not understand many of the terms, codes, and processing that has occurred behind the scenes after they left their treatment. They also have no visibility into what the rate is that their insurance company (the payor) contracted with the billing entity (the various provider groups, or the facility). It is a lot of basic math, so you can often work back to it, but it does take time, and an understanding of the revenue cycle.

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