How Doctors Get Paid

It’s all about Flow [Part 1]

By Dr. David Edward Marcinko; MBA, CMP™dr-david-marcinko


Most patients don’t have a clue about how doctors get paid; it’s not by magic.

Yet, a number of different steps occur during the processing of a medical claim as can be seen in the flow chart below. Each step within the process can be mapped out and each is subject to claim payment-or-claim abortion or rejection.

The steps can also be subjected to a number of variables, depending on a number of different factors including staff competency, time, outside vendors, information management, management decisions in general, or regulatory requirements.

Flow Chart

Of course, any one of these points could lapse, causing the entire process to break down. Like treating patients, when the process has no variables, the end result is very predictable, such as in the flow chart below. When there are variations the end results can be very different.

Treatment is Only the Beginning

Doctor gets the chart

Doctor evaluates patient

Doctor documents visit

Doctor marks billing slip

Doctor gives slip to patient

Patient gives slip to billing clerk

Billing clerk enters information into computer

Office staff submits claim to insurer

Third party payor/Insurance company receives claim

Insurer adjudicates claim

Reimbursement transmitted (electronic or mail) to practice

Reimbursement entered (posted) into practice management system by office staff. 

There are two things that you need understand in order to implement an efficient compliance program.

1] The first is the processes needed to run the organization and the desired outcome of those processes.

2] And second, if the process needs improvement, what can be done to make the process function better?

Office Efficiency Checks

Most small medical and dental practices or clinics have a number of checks and balances in place to control variation.

In an example of an inefficient operation, one practice had the physician-executive open every envelope that came into the office. This was done because of a concern that if someone else did it, then something could go missing.

However, the doctor would then turn the mail over to the payment posting person, who would enter claims into the system. Sometimes the person who entered the claims would become busy with other duties and would not be able to enter claims for a couple of days. This proved to be an inefficient method of managing the billing process for the organization.


A possible solution is to have one person in the front office to open the mail, organize the contents based on who needs to deal with the information (such as claims, refusals, or requests), and then distribute them accordingly.

More on how physcians get paid.

Part 2:


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18 Responses

  1. By Christopher Lee
    Washington Post Staff Writer | Wednesday, July 9, 2008

    Medicare has paid as much as $92 million since 2000 to medical suppliers who billed the government for wheelchairs and other home equipment purportedly prescribed by physicians who, according to records, were dead at the time, congressional investigators said yesterday.

    The Centers for Medicare and Medicaid Services (CMS) honored about 500,000 such claims despite pledging six years ago to correct the problem, which was identified by the Health and Human Services Department’s inspector general in 2001.

    In more than half the cases studied, the doctor listed as having ordered the equipment had died more than five years earlier, said a report by the Senate Homeland Security and Governmental Affairs Committee’s permanent subcommittee on investigations.

    “We discovered that some medical equipment suppliers have scammed the Medicare system — and the American taxpayers — out of massive amounts of money,” Sen. Norm Coleman (Minn.), the panel’s top Republican, said in a statement. “Using the ID numbers of dead doctors, these scam artists have treated Medicare like an ATM machine, drawing money out of the government’s account with little fear of getting caught.”

    The report is part of the committee’s ongoing investigations into waste, fraud and abuse in the fast-growing federal health program, which serves more than 43 million elderly and disabled Americans. Medicare pays annually more than $400 billion in benefits and is a fixture on the Government Accountability Office’s “high-risk” list of troubled programs.

    Last year, the government established a Medicare Fraud Strike Force to crack down on a problem that officials estimate costs taxpayers tens of billions of dollars annually. The program’s durable medical equipment component, in particular, has been a frequent target of companies seeking to bilk the government. The subcommittee has scheduled a hearing on the problem today. When the system works properly, a physician writes a prescription for home medical equipment for a Medicare beneficiary. He takes the order to a supplier, who sells or rents the equipment to him. The supplier, in turn, submits a claim for payment to a Medicare contractor for processing. The claim includes a number issued by Medicare that identifies the prescribing physician.

    Senate investigators obtained from the American Medical Association a computer file of physicians who had died between 1992 and 2002. They selected 1,500 at random and asked Medicare officials to turn over medical-equipment claims filed with those doctors’ Medicare ID numbers between 2000 and 2007.

    During that time, the review said, ID numbers for 734 deceased doctors were used to file 21,458 claims that totaled $3.4 million. Investigators counted the claims only if the equipment was bought more than a year after the doctor’s death.

    Extrapolating from the sample, investigators estimate that 384,730 to 572,238 such fraudulent claims were submitted during that period, and Medicare paid an estimated $60 million to $92 million. There are still active ID numbers in Medicare’s system for as many as 2,895 dead physicians, investigators said.

    They examined separate data for Florida, home to many retirees and a perennial leader in Medicare fraud. They found that more than a quarter of deceased Medicare doctors there still have active ID numbers in Medicare’s system.

    The ID for one doctor, who died in 1999, appeared on 83 claims submitted by Professional Gluco Services Inc., a Miami company, between November 2005 and September 2006. A federal grand jury indicted two of the company’s owners last year on charges of defrauding the government of $1.3 million for equipment that had never been ordered or delivered. Both men pleaded guilty.

    Medicare officials had promised to do a better job screening claims after the 2001 inspector general’s report found that the agency had paid $91 million for medical supply claims with invalid or inactive physician ID numbers in 1999.

    Medicare officials said several new steps should help, including a plan to match monthly Social Security Administration data about U.S. deaths against a revamped Medicare provider-identification system. They also pointed to new accreditation requirements for suppliers under a new program, opposed by the industry, that sets some equipment prices through competitive bidding.

    “Fraud and abuse in the context of Medicare-covered durable medical equipment has been a focal point of ours in recent years,” said CMS spokesman Jeff Nelligan. “Before this program, anyone could become a supplier, but now they must be fully accredited based on strict financial and quality standards.”

    Reader Submitted


  2. Doctor Pay,

    Congress’ Medicare advisers will recommend that physicians receive a 1.1% pay increase in 2010 instead of the roughly 21% cut that is currently on tap.

    But, nothing is set in stone; yet!



  3. Hello Jean,

    Doctors are paid via CPT® codes, just like stock-brokers are compensated based on the number of transactions. More transactions and code submissions; equates to more salary regardless of fiduciary responsibility for the brokers; or the quality of medical care rendered by the doctors.

    Recently, brokers are seeking to be paid as financial advisors [FAs], based not on commissions, but rather on a percentage of assets under their advisory-management. Yet, AUMs have conflicts of their own as the recent financial meltdown illustrates. Now, some doctors want to be paid by the hour; just as some attorneys are questioning and eschewing the legal tradition of their hourly billing system. For both the JDs, and MDs, this means that slower practitioners will make more money than astute practitioners. IOW: Pay-for-Slothful Performance [P4SP].

    My point is that no compensation system is exactly fair, or pleases everyone. Such is life. But, physician compensation is definitely on the decline. So, if don’t want to be a doctor, lawyer, FA or Chieftain – or dislike the pay – quit and do something else! After almost two decades practicing, I re-engineered and did; most thankfully.

    Full disclosure: I am a former insurance agent, registered investment advisor; board certified surgeon and Certified Financial Planner™

    Dr. David Edward Marcinko; MBA, CMP™
    [Founder, CEO and Publisher-in-Chief]


  4. Jean,

    The base unit of physician work is known as the relative value unit (RVU). Most physician salaries are determined by the amount of RVUs a doctor produces in a given year, and in most cases, can range between$33 and $48 per RVU in primary care, depending on geographic location and specialty.

    For instance, in an RVU-based salary structure, if a 15-minute office visit is assigned an RVU value of 0.8, and a doctor is paid $36 per RVU, that visit will add about $29 to a physician’s yearly salary.

    Now, just for comparison’s sake, a colonoscopy, which may take twice the time, is valued at close to 6 RVUs, which is 8-times the value given to a 15-minute primary care office visit.

    Hence the primary care physician shortage? Trust this information is helpful.

    Ann Miller; RN, MHA
    [Executive Director]


  5. Dr. Marcinko, Jean and Ann

    The above is the craziest scheme I have ever encountered. Who would ever be in business under this scenario? But, of course, I am “just a patient.” Nevertheless, seems awfully contorted to me!



  6. Are Doctors Overpaid?

    After reading this article; maybe not for some!



  7. Jean,

    For historical review, you might want to take a look at this article about William Hsiao PhD, from Harvard. He is known as the “father” of the RBRVS payment system.

    Dr. David Edward Marcinko, MBA


  8. Dr. Marcinko,

    I saw you present this topic at the pharma workshop in Boston, recently. Job well done.



  9. Dr. Marcinko,

    I know that you lecture on this, and related health economics topics, quite a bit. In fact, I also saw you speak up North last year.

    For your ME-P readers in cyberspace however, a .ppt or similar presentation might be a nice added touch. It might be useful for graduate students, as well.

    What do you think; doable?


  10. Dr. Marcinko,

    I agree with Chelsea. We need more of this type of information. I’m in graduate school where we get theory, not practice.



  11. Paying Doctors to Talk?

    The physician is about to close the door, and the patient blurts out, “I have these chest pains.” Shouldn’t that statement have been mentioned at the beginning of the visit?

    Wendy Levinson, MD, chair of the department of medicine at the University of Toronto, and her colleagues called it the “oh, by the way?” moment in a paper they wrote in the 1990s. Now Levinson says doctors should be paid more for their conversations with patients-and the result may be improved patient care.

    So, does this mean the verbose physician will now become king of the reimbursement hill? What about the shy types versus talkers? I can just imagine the Joan Rivers MD syndrome … “can we talk?”



  12. How Doctors are Paid

    The Wall Street Journal just provided an insightful look at how CMS ultimately sets its reimbursement rates to docs. CMS uses about 90% of the recommendations of the Relative Value Scale Update Committee (RUC), which is a panel of 29 docs convened by the AMA.



  13. How Medicare Pays Physicians

    Uwe E. Reinhardt is an economics professor at Princeton. And, although he has some financial interests in the health care field, he explains in this post how Medicare pays physicians for their services.

    Unfortunately, there is nothing new to report here to a physician audience.



  14. Begging, er-ah Urging to get Paid

    Good post above whose payment flow works in theory.

    But, did you know that the American Medical Association (AMA), along with medical societies representing all 50 states, DC, and 57 national medical specialty societies, recently called on the Centers for Medicare and Medicaid Services (CMS) to use the $200 million allocated by Congress to provide physicians with long-overdue Medicare reimbursements for payments they should have received in 2010?

    The funds were part of the Medicare & Medicaid Extenders Act of 2010, which was passed last week by Congress.

    But, is this “urging” – really “begging” to get paid – and where do we draw the line?

    Dr. Samuelsohn


  15. Relative Value Scale Update

    Since 1991, the RVS Update Committee has been the main, if unofficial, adviser on Medicare physician reimbursement – how specific procedures should be valued, etc.

    T]he Committee’s payment recommendations have consistently favored specialists at the expense of primary care physicians. More striking, however, is CMS’ rubber stamping of about 90 percent of their suggestions, even though, in their last three service reviews, the RUC urged payment increases six times more often than decreases.

    Dr. David Edward Marcinko MBA CMP™


  16. This MD Charges Five Bucks A Visit

    Video link:



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