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How clearinghouses work

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Here are the nuts and bolts of how it works. The medical billing software on your desktop creates an electronic file (the claim), also known as the ANSI-X12 837 file, which is then uploaded (sent) to your medical billing clearinghouse account. The clearinghouse then scrubs the claim checking it for errors (arguably the most important thing a clearinghouse does), and then once the claim passes inspection, the clearinghouse securely transmits (also very important) the electronic claim to the specified payer with which it has already established a secure connection that meets the strict standards laid down by HIPAA. (Medical claims are also known technically as “HIPAA Transactions”, and it is because of HIPAA that we cannot send claims for patient billing to insurance payers simply by email.) 

At this stage, the claim is either accepted or rejected by the payer, but either way, a status message is usually sent back to the clearinghouse who then updates that particular claim’s status in your control panel. Now you have an accepted or rejected claim. If rejected, you have a chance to make any needed corrections and then resubmit the claim. Ultimately, assuming there are no other corrections required and the patient’s insurance was verified beforehand, you’ll receive a reimbursement check along with an explanation of benefits (EOB). All very simple, right? 

The same sort of activity takes place every night within the federal banking system as our checks and banking activities are sent electronically from local banks to central ACH repositories (Automated Clearing Houses) and then on to banks of origin across the country, and then back to local banks—all done electronically, and somewhat instantly, all behind the scenes. Thus today, you have many dozens of regional medical billing clearinghouses throughout the country all serving the same role; scrubbing medical claims and then transmitting the electronic claim information securely to the insurance carrier for reimbursement. 

The best clearinghouses today offer high-value features that provide a whole new level of revenue cycle management intelligence that makes their services extremely compelling from a financial perspective and also highly desirable from an office-staff efficiency point of view. The average error rate for paper claims is 28%. But using the right clearinghouse can reduce that to 2-3%.