Monday, 1 April 2013

Clearing House

After claim is generated, where we will send the bill ?
You will immediately say "To the insurance company if the patient has insurance".

That's right. But are we going to send to the claim to each individual insurance company directly ? . Patient might be enrolled with different insurance company not to one particular insurance.   So it may be very tedious job to send the claim to each insurance company directly.

Why ? Here are the reasons

1. Each time if you found new insurance from the patient, then you have to contact the insurance company and get the details how to send the claims directly to them.This process is potentially long and involved testing/certification process to complete and go for live.

2. Billing staff or the Practice management should be able to configure to setup configuration for each insurance transmission method (login, password, mode of transmission, etc).

3. On the other side (Insurance or Payer), think insurance company will receive the claims from different practice. For this, they should have the enough manpower which will increase their cost.

4. The unnecessary added confusion of multiple accounts to log into, and multiple data entries, which increase the opportunity for errors.Lost claims and lack of tools for  efficient claim management

So What is the solution ?
So we need a POST OFFICE, so then if we post the claims to POST Office, then they will take to deliver to individual insurance/Payer. That's what Clearing House is.

Here is the diagram that explains.


So Clearing house is a company that passes claims and reports between a provider and insurance company.  Is there any cost for this Post office ? Yes
Clearinghouses charge fees in many ways. Some charge an initial start up fee to the billing service ranging from $125 to $300.  Most of them charge a per claim fee of some sort, depending upon the Insurance(hereinafter i will always mix the words insurance or payer or carrier)

Instead of clearing house, if you send the claims directly to insurance company, there is no cost involved in that. That is the only advantage over clearing house.

Here is the list of advantages using clearing house to send Claims

  • Allows you to catch and fix errors in minutes rather than days or weeks
  • Results in significantly higher claim success --fewer rejected claims.
  • Rapid claims processing: Submitting claims electronically can reduce your reimbursement times to under ten days.
  • Eliminates the need to prepare claims and manually re-key transaction data over and over for each payer
  • Submit all your electronic claims in batch all at once, rather than submitting separately to each individual payer. A medical billing clearinghouse allows you to submit all your claims at the same time, rather than submitting them separately for each individual insurer. Again, the faster and more cleanly your claims are submitted to the carriers, the faster payments are received by your medical billing client.
  • Reduce or eliminate need for paper forms, envelopes and stamp.

You may ask "Can i send the paper claims to the clearing house ? 
No, Only Electronic claim (EDI) you can submit to the clearing house. But there is scenario where suppose particular insurance company does not accept Electronic claim submission(very rare), so in this case, still you can submit the electronic claim format to the clearing house and you can instruct the clearing house to send the claim via paper to that insurance company.

Other than transmitting  the claims to the insurance company, there are some task are performed by the clearing house. Here is the list and we will see in detail about this in the upcoming chapters.

  • Eligibility verification
  • Sent file status
  • Claim status reports
  • Electronic Remittance Advice (ERA)
  • Patient statement services
  • Payment processing reporting
  • Transaction summaries and reports of all your clearinghouse activity

Following are the growing list of Clearing house.

Gateway EDI
Fusion EDI

Simple Workflow
Provider Smith uses ABC billing software. Provider Smith then enrolls with XYZ clearinghouse. ABC software sends the claims entered into it to XYZ clearinghouse. Payer Gold is enrolled with the same XYZ clearinghouse. So XYZ receives Provider Smith’s claims and sends them directly to Payer Gold

Example flow of EDI 837
1. Provider Smith uses ABC Billing Software.
2. Provider Smith already signed up with XYZ Clearing House and an ID has been assigned to Provider Smith by the clearing house.
3. ABC Billing software has the option of generating EDI 837 message and transmit the claims via FTP Method to the clearing house.
4. XYZ receives message and then identify the Payer from claims received and then  it just forward the each claims to corresponding Payer.
5. Each Payer receives the claim and claim adjudication  process takes and prepare the response 835 and send back to the clearing house. And then Payer also will send the check payment to the provider.

Another Example for EDI 270 and 271

1. Provider Smith uses ABC Billing Software.
2. Provider Smith already signed up with XYZ Clearing House and an ID has been assigned to Provider Smith by the clearing house.
3. ABC Billing software has the option of generating EDI 270 message and through web service call, it will send the message to the clearing house.
4. XYZ receives message within few seconds and then identify the message for Payer GOLD. Since XYZ already enrolled with the Payer Gold, so it just forward the message to Payer Gold via web service.
5. Payer Gold receives the message and prepare the response 271 and send back to the clearing house. Immediately clearing house forward the response to the Provider Smith’s ABC billing software.

All the above transactions are takes places within few seconds via web service calls.

In some cases, Insurance from the Provider may not be handled in the clearing house. In that case, the clearing house pass to the other clearing house. You can think again as Courier service. If a particular Courier service does not have delivery option to particular city, still they will accept the mails from the customers and then they will find the other courier service who has delivery option to that particular city and then they just forward.

Provider Smith uses ABC billing software and enrolls with XYZ clearinghouse. Payer Gold isn’t enrolled with XYZ clearinghouse; it’s enrolled with JKL clearinghouse. So XYZ clearinghouse must send the claims to JKL clearinghouse before they can be sent to Payer Gold. This exchange takes longer to get the claim from the provider to the payer and may delay payment.






  1. Hi , the blog is very informative. I am a rookie learning the Healthcare domain concepts. As I understand, Every insurance company has a Clearing house working for them? If yes, are all the EDI 837 as well as EDI 270 files submitted to the Clearing house?? Will the response of 271 also originate from Clearing House to Provider? How will an EDI system interact with a Claim system at payer side in order to carry out the Claim adjudication ??

    1. Every insurance company does not have their clearing house . Instead think clearing house is like as Post office in the city. Any insurance company can sign with one or more clearing house to receive the claims from the Provider office via clearing house system. EDI 837 and EDI 270 are generated at provider office (billing system) and then transmit to the clearing house and then clearing house transmit the same to the particular insurance company. Similarly response ins pass back to clearing house and then provider office receive the same from clearing house

  2. 1)So when the EDI 837 & EDI 270 are generated from the office . In what format the file is generated? and in which format does the office gets back in response when the insurance company send the EDI 271 ?

  3. Does the report that the payer sends back has a name?

  4. In the case where clearinghouse XYZ has not Payer Gold as enrolled Insurance or Payer how does it know that it need to redirect to JKL clearinghouse, where on the EDI Message is indicated that XYZ has to bypass the message.