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What Is an IBNR Medical Claim?

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Significance often under Appreciated

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chiefdem2]

As some Medical Executive-Post readers and subscribers are aware, hospitals that filed bankruptcy recently include: a two-hospital system in Honolulu; one in Pontiac, MI; Trinity Hospital in Erin, Tennessee; Century City Doctors Hospital in Beverly Hills, and four hospital system Hospital Partners of America, in Charlotte.

One can only wonder about the impact of Incurred But Not Reported claims on their plight?  

IBNR Definition

According to the www.CertifiedMedicalPlanner.org, an IBNR claim is a concept that signifies healthcare services have been rendered but not invoiced or recorded by the healthcare provider, clinic, hospital, or organization.

Cause and Affect

IBNRs are usually the result of a commercial prospective payment risk contract between managed care organizations and healthcare providers, an IBNR claim refers to the estimated cost of medical services for which a claim has not been filed, or monitored by an IBNR collection systems or control sheet.

IBNR Types

More formally, IBNRs are a financial accounting of all services that have been performed but, as a result of a short period of time or “lag,” have not been invoiced or recorded. The medical services that will not be collected should be accounted for using the following accrued but not recorded (ABNR) entry:

Debit — accrued payments to medical providers or healthcare entity

Credit — IBNR accrual account

Example:

An example of an IBNR is hospital Coronary Artery Bypass Graft [CABG] surgery for a managed care plan member. Out of the capitated or prospective payment funds, the surgeon and/or healthcare organization has to pay for all related physical and respirator therapy, and rehabilitation services, as well as ancillary providers, drugs, and durable medical equipment [DME], as contractually obligated. This may also include complication diagnosis and extensive follow-up treatment.

Accordingly, the health plan will not be completely billed until several weeks, months, or quarters later or even further downstream in the reporting year after the patient is discharged. In order to accurately project the health plan’s financial liability, however, the health plan and hospital must estimate the cost of care based on past expenses.

Accounting Cost Controls

Since the identification and control of costs are paramount in financial healthcare management, an IBNR reserve fund (an interest bearing account) must be set up for claims that reflect services already delivered but, for whatever reason, not yet reimbursed.

From the accounting perspective, IBNR is accrued as an expense and is related as a short-term liability each fiscal month or accounting period.

Otherwise, the organization may not be able to pay the claim, if the associated revenue has already been spent. The proper handling of these “bills in the pipeline” is crucial for proactive providers and health organizations that are exploring arrangements that put them in the role of adjudicating claims or operating in a sub-capitated system.

###

Stetho-Claim

###

Assessment

IBNRs are especially important with newer patients who may be sicker than prior norms.

Recoverables that hospitals post as part of their large reserve charges are also, in many cases, IBNR losses. They may be recorded as IBNR claims on their balance sheets. Once these losses start becoming actual losses, the hospital may look to the insurer to pay a part of the claim. This causes disputes between the payor, provider, and/or healthcare organization.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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3 Responses

  1. Dr. Marcinko,

    I agree that one of most relevant financial issues of contemporary healthcare and medical reimbursement today, are Incurred But Not Reported (IBNR) claims. IBNR claims are an indirect result of prospective payments systems, the insurance industry and commercial risk contracts, and to some extent fee-for-service medicine.

    As such, IBNR claims represent a risk and an opportunity for managed care companies, healthcare organizations, clinics, and medical providers alike.

    Thanks again, for bringing it to our attention.

    Rachel
    [Former Hospital Administrator]

    Like

  2. Get the IBNR Webinar

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  3. Dear Dr. Marcinko,

    I am preparing a product to be titled: Employee Benefits Design and Planning: A Discussion of the Finance, Accounting, and Tax Dimensions.

    Projected date of publication by Prentice Hall: April 2014
    Estimated price of product: $ 80.00

    Based on the guidelines set forth, may I please have your permission to include the following adaptation contained in blog entry: “What is an IBNR medical claim?”

    In my work and in future revisions and editions thereof, in print and in any electronic format, including: As used herein, the term “electronic format” shall mean any method of copying, recording, storage, retrieval, or delivery of the work, by any means now known or hereafter devised, including by electronic or electromagnetic means, or by analog or digital signal, on any physical media, now known or hereafter devised, including, for example, magnetic tape, floppy disks, CD-I, CD-ROM, laser disk, optical disk, IC card or chip, and any other human or machine readable medium, and the broadcast and/or transmission thereof by any and all means now known or otherwise devised. These rights will in no way restrict publication of your material in any form by you or by others authorized by you.

    Unless you indicate otherwise, I will use the following credit line:

    Adapted from this ME-P blog post authored by Dr. David Edward Marcinko: “What is an IBNR medical claim?” Blog: Medical Executive Post . . . Insider News and Education for Doctors and Their Advisors. 2008.

    I would appreciate your consent to this request.

    Sincerely,
    Bashker D. Biswas PhD
    [Visiting Professor- Keller School of Management]

    ******************************

    Dr. Biswas,
    Permission granted.
    Thank you for asking.
    Dave Marcinko
    http://www.amazon.com/Dictionary-Health-Insurance-Managed-Care/dp/0826149944/ref=sr_1_4?ie=UTF8&s=books&qid=1275315485&sr=1-4

    Like

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