What Is “Offset” In Medical Billing?

Even in its simplest form and context, billing can be a complex financial process, so it’s no surprise that, in a more intricate form, such as the medical billing process, it can be very difficult to wrap your head around.

There are a number of technical terms to familiarize yourself with, one of the most confusing of which is “offset”.

medical billing statement with calculator

It’s a fairly nondescript word, so you can’t really glean anything just by thinking about it.

To understand what this refers to, we have to dig a little deeper, which is exactly what we’re going to do here today.

Whether you’re dealing with matters of offset as we speak, or you’re just trying to prepare yourself for future medical billing, you’ve come to the right place.

Let’s jump right in!

Offset In A Medical Billing Context: What Does It Mean?

In medical billing, an offset can be thought of as a simple amendment made to a claim, an amendment carried out to rectify an error that occurred during a previous claim.

This previously occurring issue is usually an overpayment or a completely erroneous payment.

The offset is dealt with by the medical insurance company.

In a nutshell, offset is an efficient and practical way of ensuring the correct sum overall has been paid out — it’s all about balance.

This can still seem like a confusing concept, so let’s take a look at an example.

An Example Of Medical Billing Offset In Action

Let’s say that a claim is made.

The total billing of this claim is $100 and the insurance is supposed to cover 80% of this sum, meaning they’re liable to fork out $80.

Now, due to an error (which could occur at numerous points in the insurance pipeline), the insurance company pays the medical practice $90.

That’s $10 beyond the total the insurance was supposed to pay out, leaving the company out of pocket.

Now, let’s say another identical claim comes through from the same medical practice.

The insurance company is liable to pay the same $80; however, due to overpaying for the first claim, they’re essentially $10 in credit with the practice.

As such, they simply chip $10 off the latest claim to balance their outgoings and neutralize the debt without the medical practice having to action it manually.

So, for the second claim, instead of paying the correct amount of $80, the insurance pays out only $70, and that $10 difference is what’s known as the offset — simple, right?

This is a very basic example, but fundamentally, this is what offset is and how offset works, but why is debt recouped by medical insurance companies in this way?

When Will “Offset” Happen?

Overpayment or erroneous payment of medical funds can be the result of several different mistakes.

These mistakes might be on the medical practice’s end, or indeed the insurance company’s end.

The most common cause of this issue is a coding mishap.

To streamline the payout process between insurance companies and medical practices, medical coding is used.

The code is delivered to the insurance provider by the medical practice, and each code corresponds to a certain response from the insurance company.

If the wrong code is given, or there’s a mistake in the code given, if the error doesn’t get weeded out somewhere along the pipeline, the insurance company will respond with an inaccurate payout.

This, in turn, is what triggers the offset in future claims.

But this is just one of the reasons for an offset. The root of the issue could be any of the following:

Billing Tech Problems

If an outdated technological billing system is used, it may not function to today’s standards, leading to errors in payouts.

Poor Estimation Tools

Bad estimates lead to incorrect payouts.

Insufficient Training

If a staff member hasn’t been fully trained in the field of medical billing, yet plays a part in the processing of claims, there may well be some human error to deal with at some point in the transaction.

Issue Verifying A Patient’s Coverage

If a practitioner fails to ascertain the finer points of a patient’s coverage, it’s more than likely that there’ll be some issues figuring out exactly how much money should be paid out by the insurance company.

Medical practices tend to outsource this work to companies that have a track record of minimizing these mistakes.

Why Is The Offset Method Used?

billing statements with envelopes

As streamlined as it is, there’s no getting away from the fact the offset method of balancing debt is quite unorthodox.

In more commonplace situations involving debt or overpayments, the receiver of the payment will be asked to make good on the debt themselves, but with offset, that whole back and forth is removed from the equation… or is it?

The truth of the matter is that offset is fail-safe, a worst case scenario.

Insurance providers do not want to apply an offset to a future claim to balance debt.

If they had their way, the issue would be resolved before an offset was necessary.

Ideally, the medical practice will pick up on the overpayment and contact the insurance provider in order to organize amends, but this is unlikely to happen.

This means that the insurance company is always on the lookout for payment mistakes.

Once an over or erroneous payment has been identified by the insurance provider, they will send a letter to the medical practice detailing the issues, requesting that the difference be refunded to the company as soon as possible.

Typically the practice is given 30 days to rectify the situation.

For small sums beneath $50, interest will begin accruing after the 30-day grace period.

If the overpayment was greater than $50, and a representative of the medical practice fails to reach out to the insurance company, or the refund is never actioned, a second letter will be sent out by the insurance provider.

This correspondence will explain that the fee will incur interest until it is repaid.

Should the practice fail to refund the insurance company within 40 days, they will officially trigger an offset repayment scheme.

This failure to repay debt doesn’t look great for a medical practice and can have a lasting effect on both reputation and revenue stream.

That said, offsetting isn’t always bad.

Some medical practices will request an “immediate offset” when a payment error is discovered, as it’s an effortless way to clear any debt.

Final Thoughts

Not so complicated after all when it’s laid out in plain English, huh?

Offset is simply a method used by insurance providers to recoup funds lost due to overpayments and accidental payments to medical practices.

Now you know, you can deal with an offset issue with confidence!

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