When it comes to billing for outpatient wound care and hyperbaric oxygen therapy services, it’s important for wound care clinicians to understand the differences between charges, payments, net revenue, and costs. These terms are often used interchangeably, but this is inaccurate.
A payment received by a hospital outpatient wound care clinic often differs from the initial charge. This is because third-party insurance payers negotiate discounts often referred to as “contractual adjustments.” The size of the discount and how it is determined varies by payer.
For self-managed wound care program administrators, a charge is defined as the amount requested for goods or services, and it typically appears on the medical claim form for billing purposes. This differs from costs, which are the actual expenses incurred for said goods or services.
Net revenue is another term that many program directors and clinicians need to know. Net revenue is the calculated, expected reimbursement of all payers combined, or the total amount the hospital expects for the goods and services it has provided.
For patients, costs involve the amount of out-of-pocket money they pay to providers for health care goods or services. Payments, also called reimbursements, represent the amount a hospital actually receives for providing patient care - typically third-party insurance payers from commercial plans (i.e. Anthem Blue Cross, Cigna, Aetna, etc.) or government plans (i.e. Medicare, Medicaid, VA, etc.) and/or directly out of pocket from the patient.
In recent years, there has been a brighter spotlight on financial data transparency, with tremendous confusion by some who think Medicare pays providers the “charges” they submit on a claim. In actuality, Medicare payments and the patient’s copayments are fixed by law.
For anyone who wants to learn more, there are several excellent resources available including the Healthcare Financial Management Association (HFMA), American Hospital Association (AHA), and the American Medical Association (AMA). For WCA partners, our Luvo University platform provides a robust offering of information through various catalogs and courses.
Knowing the differences between charges, costs, payments, and net revenue really does matter. It not only helps in terms of revenue cycle management, but it allows us to help our patients understand what is paid by their insurance, what is their out-of-pocket responsibility, and why.