How medical billing codes cost consumers millions

Medical billing is a complex and time-consuming process. Image: Flickr / theredproject / CC-BY

Health care reform is a touchy issue, and for good reason. One of the most important things is understanding the high cost of medical care and how that cost directly impacts your wallet.

The basics of billing codes

Billing codes were originally an effort to simplify medical billing. Doctors and insurance companies were having difficulty agreeing on how to name medical procedures and what should be paid for them. One doctor may include A, B and C in a checkup while another doctor may only include A and B. The medical billing code systems were developed to standardize procedures, and therefore the billing for those procedures. As medical practices began splitting these procedures into more and more complex parts, medical billing codes began getting more complex. No matter how they are paid, if a doctor handles insurance of any type, that doctor must use these billing codes to communicate to the insurance companies the type of work that they are doing.

The cost of billing codes

With such a complex system, medical billing has become a gigantic industry. Most statistics say that for every doctor in the American medical care industry, there are 2.2 billing professionals. These billing professionals make an average of $33,000 per year. This means that the average doctor in the United States must bring in an additional $72,600 per year, plus employment costs, simply to properly bill insurance companies for their work. Many doctors have also started “optimizing” their coded billing, charging for every single item for which there is an insurance billing code. Some doctors have reported increasing their income by 70 percent or more simply by taking this tactic. This means that insurance companies, and therefore individuals who buy insurance, are paying out an additional 70 percent for their insurance coverage to the doctor.

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All told, the insurance billing industry is estimated to bring in an extra $360 billion per year.

Cutting out billing codes

Billing codes, thanks to the new health care reform bill, are going to become optional. Rather than an itemized billing system, the health care reform bill presents a lump sum option that has already been tested with Medicare payments in Colorado, Texas, New Mexico and Oklahoma. Several states have also set up lump sum billing options for their state-sponsored health care systems. Lump sum billing will pay one amount per patient, or one amount per type of visit to the doctor. By cutting out billing codes, doctors are often able to handle billing in-house, or with just one assistant, rather than two, and the savings extend to insurance companies, and eventually health care consumers. Not all doctors, however, are opting into lump sum payments, which means that medical billing codes will continue to control the costs of health care for the foreseeable future.