Asked by Mimi
Health care is a unique service industry because patients usually do not know the total cost of care at the time of service, and payments are often delayed and shared between patients, insurers, and other third-party payors. As a business, it’s vital to collect payments and reimbursements from both insurance companies and patients. Understanding the various reimbursement methods and sources is a key part of this process.
Review the following resources as you prepare your response:
NHA Study Guide: Module 2
This week’s videos in PlayPosit
“Understanding Capitation“ from the American College of Physicians.
Respond to the following:
What does it mean when a provider is considered participating or non-participating in a health care plan? How does this affect patient coverage?
What is a contract allowable amount? What impact does it have on reimbursement to the provider?
What are patient cost shares, including deductible, copayment, and coinsurance?
What is the impact on reimbursement to the provider and on costs to the patient?
How does understanding the differences among patient cost shares and their effects on reimbursement help you with billing and coding functions?
All Answers 1
Answered by
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Below are clear definitions and practical implications you can use in billing and coding work.
1) Participating vs non-participating provider (in‑network vs out‑of‑network)
- Participating (in‑network): the provider has a contract with the plan and accepts the plan’s terms, including the plan’s negotiated “allowed” or “contract” amount as full payment (subject to patient cost shares). The provider usually accepts assignment of benefits and cannot balance‑bill the patient beyond the patient’s deductible/copayment/coinsurance.
- Non‑participating (out‑of‑network): the provider does not have a contract (or doesn’t accept assignment of benefits). The insurer may pay a lower percentage or a reduced amount based on its out‑of‑network fee schedule. The provider can often bill the patient for the difference between its charge and the insurer’s payment (balance billing), making the patient’s out‑of‑pocket responsibility larger.
Effect on patient coverage:
- In‑network care typically results in lower patient cost and higher insurer coverage.
- Out‑of‑network care usually leads to higher patient financial responsibility and may be covered at a lower benefit level or denied except in emergencies.
2) Contract allowable amount (allowed amount)
- Definition: the negotiated rate the insurer agrees to pay for a specific service under the contract. It is the maximum the insurer recognizes for reimbursement for a covered service.
- Impact on provider reimbursement: the insurer will pay up to the allowed amount less any patient cost share. Participating providers accept the allowed amount (the rest is written off). For non‑participating providers the insurer may use a different allowed figure, and the provider may receive less from the insurer and seek the remainder from the patient (balance bill), depending on plan rules and assignment status.
3) Patient cost shares: deductible, copayment, coinsurance
- Deductible: a fixed dollar amount the patient must pay out of pocket during the plan year before the insurer begins to pay eligible services.
- Copayment (copay): a fixed dollar amount the patient pays at the time of service (e.g., $25 per office visit).
- Coinsurance: a percentage of the allowed amount the patient pays after meeting the deductible (e.g., patient pays 20% of allowed amount).
4) Impact on reimbursement to the provider and on patient costs
- Reimbursement flow: insurer pays the allowed amount minus the patient’s required cost share. The provider’s total cash collected equals insurer payment + patient payment (if collected). If patient cost shares are not collected up front, the provider must bill/collect later, increasing accounts receivable and bad‑debt risk.
- For participating providers: a portion of the allowed payment is often contractually written off (charges minus allowed). For non‑participating providers: insurer payment may be smaller and the patient may be billed for the balance, increasing patient cost.
- Capitation note: under capitation, providers receive a fixed per‑member payment and usually do not bill fee‑for‑service to the insurer; billing/coding is used for encounter tracking, quality measures, and internal cost allocation.
5) How this understanding helps with billing and coding
- Correct benefit verification: knowing in‑ vs out‑of‑network and the patient’s deductible/copay/coinsurance lets you estimate patient responsibility and collect appropriate payments at check‑in.
- Accurate claim submission: coding must reflect the correct service, place of service, modifiers (e.g., out‑of‑network, emergency, assignment of benefits), and patient responsibility so the insurer pays the correct allowed amount and avoids denials.
- Reduce denials and underpayment: correct coding and documentation support medical necessity and contractual billing rules; this reduces underpayment, rework, and appeals.
- Cash flow and patient collections: estimating cost shares and collecting copays/deductibles/expected coinsurance reduces AR days and bad debt.
- Contract management and write‑offs: understanding allowed amounts helps you post insurance payments versus contractual adjustments correctly and manage revenue expectations.
- Special billing rules: for capitated arrangements, encounter reporting and internal coding/tracking replace standard FFS billing for insurer reimbursement; you still need accurate coding for quality and risk adjustment.
Practical actions for billers/coders:
- Verify insurance and network status before service.
- Check benefit details (deductible met, copay, coinsurance %, out‑of‑pocket maximum).
- Collect copays and estimated patient responsibility upfront when possible.
- Use correct CPT/ICD codes, modifiers, and place‑of‑service to reflect in/out‑of‑network or emergency status.
- Post insurer payments, apply contractual adjustments, and bill the patient for their share promptly.
- Appeal underpayments/denials with documentation when allowed.
Understanding these distinctions ensures accurate claims, better patient financial counseling, improved cash collection, fewer denials, and correct revenue recognition.
1) Participating vs non-participating provider (in‑network vs out‑of‑network)
- Participating (in‑network): the provider has a contract with the plan and accepts the plan’s terms, including the plan’s negotiated “allowed” or “contract” amount as full payment (subject to patient cost shares). The provider usually accepts assignment of benefits and cannot balance‑bill the patient beyond the patient’s deductible/copayment/coinsurance.
- Non‑participating (out‑of‑network): the provider does not have a contract (or doesn’t accept assignment of benefits). The insurer may pay a lower percentage or a reduced amount based on its out‑of‑network fee schedule. The provider can often bill the patient for the difference between its charge and the insurer’s payment (balance billing), making the patient’s out‑of‑pocket responsibility larger.
Effect on patient coverage:
- In‑network care typically results in lower patient cost and higher insurer coverage.
- Out‑of‑network care usually leads to higher patient financial responsibility and may be covered at a lower benefit level or denied except in emergencies.
2) Contract allowable amount (allowed amount)
- Definition: the negotiated rate the insurer agrees to pay for a specific service under the contract. It is the maximum the insurer recognizes for reimbursement for a covered service.
- Impact on provider reimbursement: the insurer will pay up to the allowed amount less any patient cost share. Participating providers accept the allowed amount (the rest is written off). For non‑participating providers the insurer may use a different allowed figure, and the provider may receive less from the insurer and seek the remainder from the patient (balance bill), depending on plan rules and assignment status.
3) Patient cost shares: deductible, copayment, coinsurance
- Deductible: a fixed dollar amount the patient must pay out of pocket during the plan year before the insurer begins to pay eligible services.
- Copayment (copay): a fixed dollar amount the patient pays at the time of service (e.g., $25 per office visit).
- Coinsurance: a percentage of the allowed amount the patient pays after meeting the deductible (e.g., patient pays 20% of allowed amount).
4) Impact on reimbursement to the provider and on patient costs
- Reimbursement flow: insurer pays the allowed amount minus the patient’s required cost share. The provider’s total cash collected equals insurer payment + patient payment (if collected). If patient cost shares are not collected up front, the provider must bill/collect later, increasing accounts receivable and bad‑debt risk.
- For participating providers: a portion of the allowed payment is often contractually written off (charges minus allowed). For non‑participating providers: insurer payment may be smaller and the patient may be billed for the balance, increasing patient cost.
- Capitation note: under capitation, providers receive a fixed per‑member payment and usually do not bill fee‑for‑service to the insurer; billing/coding is used for encounter tracking, quality measures, and internal cost allocation.
5) How this understanding helps with billing and coding
- Correct benefit verification: knowing in‑ vs out‑of‑network and the patient’s deductible/copay/coinsurance lets you estimate patient responsibility and collect appropriate payments at check‑in.
- Accurate claim submission: coding must reflect the correct service, place of service, modifiers (e.g., out‑of‑network, emergency, assignment of benefits), and patient responsibility so the insurer pays the correct allowed amount and avoids denials.
- Reduce denials and underpayment: correct coding and documentation support medical necessity and contractual billing rules; this reduces underpayment, rework, and appeals.
- Cash flow and patient collections: estimating cost shares and collecting copays/deductibles/expected coinsurance reduces AR days and bad debt.
- Contract management and write‑offs: understanding allowed amounts helps you post insurance payments versus contractual adjustments correctly and manage revenue expectations.
- Special billing rules: for capitated arrangements, encounter reporting and internal coding/tracking replace standard FFS billing for insurer reimbursement; you still need accurate coding for quality and risk adjustment.
Practical actions for billers/coders:
- Verify insurance and network status before service.
- Check benefit details (deductible met, copay, coinsurance %, out‑of‑pocket maximum).
- Collect copays and estimated patient responsibility upfront when possible.
- Use correct CPT/ICD codes, modifiers, and place‑of‑service to reflect in/out‑of‑network or emergency status.
- Post insurer payments, apply contractual adjustments, and bill the patient for their share promptly.
- Appeal underpayments/denials with documentation when allowed.
Understanding these distinctions ensures accurate claims, better patient financial counseling, improved cash collection, fewer denials, and correct revenue recognition.
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