Loading...

How to calculate patient responsibility in medical billing

Published: January 17, 2024 by Experian Health

how-to-calculate-patient-responsibility-in-medical-billing

For many Americans, access to healthcare is increasingly a question of affordability. There’s no room for error when it comes to determining a patient’s medical bill. Helping patients understand and plan for medical bills starts with calculating patient responsibility quickly and accurately. Incorrect charges, unexpected costs and confusing payment processes create poor financial experiences for patients. According to research by Experian Health and PYMNTS, patients are increasingly worried about their healthcare costs. 46% of those surveyed had canceled care after receiving a high-cost estimate, while 60% of those with out-of-pocket expenses said inaccurate estimates or an unexpected bill would prompt them to consider switching providers. As the stakes get higher, providers must reexamine how to calculate patient responsibility in medical billing so all parties are clear about who will pay for what. Providing that clarity will improve the patient experience, streamline patient collections and protect the organization from bad debt.

What is patient responsibility?

Responsibility for paying medical bills is apportioned between the patient who receives care, their insurance provider (if they have one), and government payers like Medicare and Medicaid (if the patient is eligible). “Patient responsibility” refers to the portion of the bill that should be paid by the patient themselves. Getting these calculations right is critical to the provider’s revenue cycle.

Determining patient responsibility starts during patient registration. Here, providers have their first opportunity to check that insurance details are up to date and ensure that the patient has not overlooked any active coverage. If the patient does not have coverage, they’ll be liable for the whole bill (or will have to find charity assistance). If they do have insurance, the provider will liaise with their payer to check that the proposed care is covered under the patient’s plan and establish any prior authorization requirements. Then, the provider can estimate how much of the cost of care should be reimbursed by the payer, and how much will fall to the patient.

The amount paid by patients includes the following categories:

  • Co-payment – this is a fixed, flat fee the patient pays toward their medical care at the time of service. If providers do not have accurate co-pay information available at the time of the visit, they may need to bill or refund the difference later. Not all health plans include co-payments, and those that do often specify exceptions.
  • Deductible – this the total amount the patient must pay toward medical care each year before the payer contributes. For example, if a patient has a $1000 deductible, they must pay the first $1000 of medical bills that year, and any eligible costs on top of that will be covered by their payer or shared between the patient and payer. High-deductible health plans are attractive to patients who don’t think they’re likely to need care, as these plans often come with lower monthly premiums. However, if the patient does need care, they’ll be left footing a greater portion of the bill.
  • Coinsurance – this is the patient’s share of remaining medical costs after paying their deductible.
  • Out-of-pocket maximum – some health plans set an annual limit to the amount a patient needs to pay toward care, including co-payments, deductibles and coinsurance. Once that limit is reached, the payer will cover the remaining eligible expenses for the remainder of the period.

Clearly, this is a complicated formula. To bill correctly, providers need to know whether the proposed treatment is covered by the patient’s plan, how much the payer has agreed to pay for specific services, and whether individual service providers involved in the patient’s care are in-network or not. Claims will only be reimbursed if all necessary coding and payer policy requirements have been met.

Revenue cycle management tools to calculate patient responsibility

Traditionally, providers have relied on teams of hard-working coders and billers to manually compile and review each claim. But with so many moving parts – not to mention frequent payer policy changes and staffing shortages – manual processes are no longer viable. When determining how to calculate patient responsibility in medical billing, providers should turn to automation and digital tools. This can help them augment their staff’s capacity to calculate patient responsibility more efficiently and accurately and optimize patient collections.

Here are a few examples of how they might do that:

  • Automate insurance eligibility verification – Without understanding exactly what the patient’s active coverage includes, providers will remain one step behind in the medical billing and claims management process. Payers are already using automation and artificial intelligence to fulfil their side of the equation, and providers cannot risk being left behind. Automating the verification process allows providers to capture up-to-date eligibility and benefits data, including the patient’s co-pay and deductible amounts, to calculate the patient’s responsibility pre-services.
  • Find missing and forgotten coverage – As more patients switch health plans, more payers join the Affordable Care Act marketplace, and employer-based insurance changes, it’s increasingly likely that the patient may not be 100% sure of their active coverage. With Coverage Discovery, providers can run quick, automated and repeated checks to see if any active coverage has been overlooked. This could drastically reduce the patient’s responsibility, leaving them with a more affordable bill.
  • Automate prior authorization – Many health plans require specific services to be authorized by the payer before being administered. Providers must check these requirements pre-service, or face a denied claim which could affect the patient’s bill. Obtaining authorization from health plans before administering services can be slow and expensive, and often delays care. The Council for Affordable Quality Healthcare (CAQH) states that automating prior authorizations could save the medical industry $449 million per year (or 11 minutes per transaction). Automated prior authorization software gives providers real-time insights into payer requirements, so they can speed up reimbursement and give patients clarity over what they’ll owe.

Why use a patient cost estimator?

With the necessary insurance information at their digital fingertips, providers can then use a patient responsibility pricer to calculate the patient’s co-pays, deductibles and other out-of-pocket expenses.

For example, Patient Payment Estimates is a web-based price transparency tool that generates personalized estimates for patients before and at the point of service. Patients get a comprehensive breakdown of what they’ll owe, so they can plan for upcoming bills or even pay upfront.

Patient liability estimator tools give patients more financial clarity, saving staff time and encouraging prompter payments. They’re also an important compliance tool, and are specifically recommended in CMS advice on compliance with the Hospital Price Transparency Final Rule.

Accelerate and streamline patient collections

Early financial clarity encourages patients to pay sooner. This means it’s more likely that those bills are paid in full, instead of lingering on the aged receivables list. In addition to upfront estimates, providers should make the payment process itself as easy as possible. This might include directing patients to payment plans or charity assistance, and connecting patients to convenient payment tools at any point in their healthcare journey.

Inevitably, there will be some patients who simply cannot pay their bills. Collections Optimization Manager shows staff which accounts, so they don’t waste time chasing the wrong accounts. By scoring and segmenting patient accounts based on the likelihood of payment, and adjusting as the patient’s situation changes, Collections Optimization Manager helps providers manage resources more efficiently, while supporting a more compassionate patient financial experience. It also enables more effective use of collections agencies to minimize the cost to collect, and incorporates reporting and benchmarking tools to identify improvement opportunities.

Find out how Experian Health’s revenue cycle management tools can help providers calculate patient responsibility in medical billing, for a more compassionate patient experience and streamlined collections process.

Related Posts

Manual prior authorization workflows represent one of the most tedious and expensive aspects of the healthcare revenue cycle. However, despite access to automated prior authorization software, only 31% of providers use electronic prior authorizations, according to the Council for Affordable Quality Healthcare (CAQH). The CAQH predicts that providers who switch to automated prior authorization software could not only gain back valuable staff time, but also see significant cost savings. What is prior authorization and why is it important? In healthcare, prior authorizations are when providers and payers decide in advance if a patient's insurance plan will pay for a specific treatment. Prior authorizations are crucial to reimbursements and keeping revenue cycles on track. Providers that offer services without prior authorization are unlikely to receive reimbursement from the patient's insurer. This can result in unpaid medical bills, leaving billing teams chasing patient collections or writing off bad debt. During the prior authorization process, providers submit a rationale for a proposed treatment to the payer. The request is approved or denied based on certain criteria, including payer policies and medical necessity. The payer may reject a prior authorization request if the treatment or service isn't covered under the patient's insurance plan, if it's not considered medically necessary or if a more affordable alternative is available. Simple paperwork errors, like missed deadlines or incomplete documentation when submitting a prior authorization, may also result in a denial. Challenges of manual prior authorization processes Despite the importance of prior authorizations in the revenue cycle, tedious manual prior authorization processes present challenges for many healthcare providers. Some of the key obstacles providers face using manual prior authorization include: Heavy administrative burden Healthcare providers spend a significant amount of time starting, completing and revising prior authorization paperwork. An AMA survey found that 86% of physicians say prior authorization has increased healthcare resource usage. At the same time, additional AMA data reports that providers spend around 13 hours working on 39 prior authorizations each week, and nearly one-third of providers report that these prior authorization requests usually end up being denied. Changing payer policies Keeping up with multiple payers and ever-evolving payer policies adds strain on staff and ultimately results in prior authorization denials. Changes are often unannounced, making it hard for providers to stay on top of updates. As a result, prior authorization submissions aren’t always accurate and may be based on outdated rules. This can lead to instant rejection and wasted time correcting and resubmitting requests. Inefficient workflows Prior authorization requirements can be complicated, especially when providers are juggling different payers, standards and service lines. Coping with these complexities often puts strain on manual systems, especially when multiple staff and notetaking methods are involved. Staff members may each get different pieces of information from payer websites (or over the phone) and not have the ability to benefit from their shared knowledge efficiently. Navigating communication hurdles and rapid payer information changes can result in workflow inefficiencies that snowball quickly. How prior authorization software can improve efficiency Replacing manual prior authorizations processes with automated prior authorization software can help providers improve efficiency. Here are some key ways providers benefit from automated prior authorization solutions, like Experian Health's Authorizations. Reduces manual interventions: This solution limits guesswork, human errors, and misinterpretations by automating data originating from the EMRs. Automation saves staff time and energy and prevents frustration. Stays current with latest payer policies: The prior authorization system stays up-to-date with the latest regulations and payer requirements. Automatic updates provide staff with the most current information, eliminating the need for staff to visit multiple payer websites or cross-check data by hand. Provides real-time updates: Providers can promptly clear authorizations for service by proactively identifying authorization status as pending, denied or authorized. This allows physicians to make timely treatment plans and for patients to avoid disruptions in care. Reduces risk of denials: Through automation, electronic prior authorization software ensures the accuracy and completeness of submissions by automatically checking with payers and vendors to validate that the authorization is on file. Payers and providers also get a shared view of account information, reducing the need for prolonged discussions about the status of authorization and rework requests. Key features to look for in prior authorization software When implementing prior authorization software, look for a solution that offers a wide range of features to automate and streamline the prior authorization process. Experian Health's prior authorization solution, Authorizations, for instance, offers healthcare providers the following key features: Real-time knowledgebase: Access to up-to-date prior authorization requirements and criteria in the National Payer Rulesets Submissions support: Removes guesswork and directs users to the correct payer portal based on procedure Automated inquiries: Automates the prior authorization payer inquiry process Enhanced workflow: Dynamic work queues display status and guides users through next steps Postback: Allows users to easily send authorization status, number and validity dates to health information systems (HIS) and practice management systems (PMS) Image storage: Receives and securely stores payer responses in an integrated document imaging system Reconciliation: Provides insights into authorization variations and helps resolve them, so staff can take proactive steps to prevent denials and appeals Integration with electronic health records and billing systems: Why it matters Providers often choose a prior authorizations platform that seamlessly integrates with existing Electronic Health Records (EHR) and billing systems for maximum efficiency. Solutions like Experian Health's automated prior authorization management tool, Authorizations, easily adapt to existing processes. This eliminates the need for a complete workflow overhaul and minimizes the learning curve for staff. Embracing prior authorization software for a more efficient revenue cycle Revenue cycle leaders who implement prior authorization automation strategies could see significant savings – $494 million annually as an industry, according to CAQH data.  Claims and revenue management processes are often complex and outdated, costing healthcare organizations time and money. High denial rates and slow reimbursements can hurt cash flow and get in the way of financial stability. Automating prior authorization can reduce claim denials, speed up reimbursements and improve the bottom line. Learn more about how Experian Health's electronic prior authorization software, Authorizations, uses automation to achieve greater consistency and efficiency for healthcare organizations. Learn more Contact us

Published: July 30, 2025 by Experian Health

Discover how healthcare providers can improve collections optimization and revenue cycle performance with smart strategies and technology.

Published: July 16, 2025 by Experian Health

Discover how implementing a patient payment estimator can provide clear cost breakdowns, improve patient satisfaction and streamline collections.

Published: July 10, 2025 by Experian Health

Subscribe to our blog

Enter your name and email for the latest updates.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Subscribe to the Experian Health blog

Get the latest industry news and updates!
Subscribe