4 

Medical Records, Insurance, and

Contracts
in haec verba
{In these words

Communication
consists of five language skills: reading, listening, analyzing, writing, and speaking. When
working in the healthcare field you will utilize all five of these language skills. While each
language skill is important in healthcare, this chapter will concentrate on the language skill of
writing, specifically, the three most common forms of writing you will face as a healthcare
professional: medical records, insurance, and contracts.

Measure Your Progress: Learning

Objectives
After studying this chapter, you will be able to:

 List the five different purposes that medical records serve.

 Provide examples of what type of court cases medical records can be used for.
 Briefly describe the two perspectives related to charting in a medical record.
 Identify what a subpoena duces tecum is and when it is used.
 Compare and contrast the ownership of medical records.
 Using the key terms premiums and actuarial tables, briefly define how insurance works.
 Provide an example of how international classification of disease (ICD) codes and current
procedure technology (CPT) codes affect upcoding.
 Compare and contrast respondeat superior with vicarious liability.
 Explain how the reasonable person standard is applied to implied contracts.

Key Terms
1. actuarial tables
2. contract
3. insurance
 4. legal document
5. reasonable person standard
6. respondeat superior
7. subpoena duces tecum
8. upcoding
9. vicarious liability
Professional Highlight
Mary is a medical records technician at a large healthcare institution. She is not only responsible
for ensuring that all documentation is included in the medical records but also works closely with
medical coding and billing and insurance companies. In order to ensure that the hospital is in
compliance with all of the regulatory agencies and insurance company requirements, Mary has to
have a thorough understanding of the laws related to medical records, documentation, insurance,
and contracts.

How do I figure out what to write in a

patient’s medical record?
What to write in a patient’s medical records is not an easy question to answer. A lot
depends on the circumstances, the patient, what care you are providing, and what role
you are performing. While there is no simple formula to tell you exactly what to
document, there are some guiding principles that will help you figure out what to write.
But before we get into a discussion about what to write in a patient’s medical records,
we should review the purposes that medical records serve. Understanding what
purpose medical records serve will help you determine what you need to document and
why.

Medical Records
While the most common purpose for medical records is the documentation of patient care,
medical records serve many other purposes as well. Medical records can be used to:

 manage healthcare
 track healthcare
 provide clinical data
 meet regulatory requirements
 document healthcare

Managing Healthcare
Managing a patient’s healthcare needs can be difficult and time-consuming. But instead of the
patient having to repeat his or her medical history whenever care is received, we can accomplish
the same goal by looking at the patient’s medical records. By reviewing a patient’s medical
records, we can ascertain: what diseases a patient has had in the past, medications they have
taken, if they have any allergies, or what surgeries have been performed. In addition to what care
has been provided in the past, we can also find out what response the patient had to those
treatments, to help us plan future medical care. For example, if a patient had a lot of post-
operative pain on a previous surgery, the physician might investigate different approaches to pain
management or consider prescribing a different type of pain medication.

Tracking Care
Whenever a patient has an encounter with a healthcare provider, that encounter is documented in
the medical record. This allows healthcare providers to track:

 why a patient sought medical care (signs and symptoms, injury, follow-up),
 where a patient received medical care (such as doctor’s office, hospital, or outpatient
clinic),
 what medical care was provided,
 when a patient received medical care (often, routinely, rarely), or
 how the patient responded to the medical care that was provided.
For example, a patient may have cut his finger while opening a can, but cannot remember when
he received his last tetanus shot. By looking at the patient’s medical record, the healthcare
provider can track down when the last tetanus shot was given to determine whether another
tetanus shot is needed. This concept applies to other areas as well, such as determining when
routine diagnostic tests, such as a mammography or prostate exams, need to be scheduled.

Providing Clinical Data

The data provided in a patient’s medical records can be a wonderful resource of information for
research and statistical purposes. The data of several patients can be reviewed to determine
useful information to clinicians and practitioners alike. For example, public health officials might
want to look at several patients’ medical records that have been diagnosed with an infectious
disease. If public health officials find common similarities, they can take appropriate action, such
issuing a boil water order or looking at one particular restaurant where people ate.

Concept Application
Medical Records––Providing Clinical Data
When the human immunodeficiency virus (HIV) first surfaced in the early 1980s, experts in
epidemiology at the Centers for Disease Control and Prevention (CDC) used the valuable
information contained in patients’ medical records to trace the route of infection, allowing them
to better understand the disease and how it was spread. This information gave healthcare
providers the tools they needed to identify other patients that might be infected.

Meeting Regulatory Requirements

All of the regulatory agencies that govern healthcare require patient care to be documented. One
of the largest and most significant governmental agencies, the Joint Commission on
Accreditation of Healthcare Organizations (JCAHO), accredits and certifies healthcare
organizations. As part of the accreditation process, inspectors from JCAHO will evaluate the
patient’s medical records to ensure that the institution is meeting required performance
standards. Without accreditation and certification by JCAHO, a healthcare institution cannot bill
Medicare and Medicaid for services. Most insurance companies follow suit, requiring JCAHO
certification in order to receive payment as well.

Documenting Health Care: What to Write?

When students first start learning about documenting in a patient’s medical record, there are
some common questions, such as: What do you write, how much do you write, and can you write
too much or too little? Unfortunately there is no simple answer to these basic questions because
it all depends on the type of care that has been provided. Some care, such as providing
medication, only requires initialing a box, writing a couple of words, or maybe writing one
sentence. Other, more complex medical care, such as a surgical procedure, usually requires a few
pages of documentation. But even though there is no simple formula to tell you what to write,
there are two approaches to documenting that will help you determine what to write and if you
have written enough (see Fig. 4-1).

Medical Approach to Documenting

In the medical perspective approach to documenting, you write down any pertinent information
related to the care you have provided to the patient. But that begs the question, what is pertinent?
As we previously discussed, medical records serve many different purposes. Because of the
different purposes medical records serve, a number of different people could possibly look at a
patient’s medical records. Any time that a person looks at a patient’s medical record, he or she is
looking for specific information. That information is dependant on the purpose that the medical
record serves.

When a person looks at information that has been entered into a patient’s medical records, you
typically will not be around to answer questions. Or, even if you are, you may not remember
what care you provided to the patient, especially if it was three years ago. When documenting in
a patient’s medical record, you want to be able to provide the information that a person might be
looking for. This takes us back to the what, where, when, why, and how purposes that medical
records serve. If your documentation can answer those questions, then you will be providing the
information that a person needs. After you have finished documenting on a patient’s chart, go
back through and review what you have written.

Court Case Caruso v. Pine Manor Nursing Center

538 N.E.2d 722, 182 Ill. App, 3d 879 (1989) Appellate Court of Illinois, First District, Fifth
Division
Facts: After several hospitalizations for Parkinson’s disease, dementia, organic brain syndrome,
nephritis, periodontal disease, renal insufficiency, urinary tract infections, and a kidney infection;
Phillip Caruso was admitted to Pine Manor Nursing Center. During his initial examination, a
doctor found him to be in stable condition, with good skin turgor (evidence of adequate
hydration). As part of his nursing care, Phillip received three meals a day, three snacks a day,
and medications four times a day; all of which included water or other liquids. In addition, when
he was repositioned or changed during the night, Phillip was offered something to drink. Seven
days after Phillip was admitted to Pine Manor, he developed tremors, weakness, and confusion
and was taken to the Emergency Room. The ER doctor noted that Phillip had poor skin turgor
(evidence of inadequate hydration) and admitted him to the hospital where a nephrologist
diagnosed him with renal insufficiency with superimposed dehydration. The family, on behalf of
Phillip, filed a medical malpractice lawsuit against Pine Manor. In response to the lawsuit, Pine
Manor admitted that they did not document Phillip’s intake and output, something that, because
of Phillip’s medical history, they were required to document.

Issue: While this case focused on procedural issues that occurred at trial, one important issue, for
our present discussion, was the lack of documentation.

Rule: “[T]he evidence presented showed a proximate cause of Phillip’s dehydration as a result of

his stay at Pine Manor; it was not unreasonable for the jury to conclude that Phillip did suffer
dehydration and that Pine Manor’s treatment of him caused his dehydration.”

Emphasis: Without the documentation of Phillip’s intake and output, Pine Manor had no proof
of what medical treatment was provided nor what the response to that treatment was. This case
demonstrates the importance of documenting in a patient’s medical record and the varying
reasons documenting is performed.

Legal Approach to Documenting

While the main purpose for documenting in a patient’s records is for medical reasons, there are
additional considerations to think about. Medical records are legal documents, which brings into
the discussion about documenting some unique legal rules and requirements.

 Beyond the Scope

In addition to what you write in a patient’s medical record, there are several different formats
that outline how you write. Some of these formats include the SOAP (Subjective, Objective,
Assessment, Plan) method; the DAR (Data, Action, Response) method; and charting by
exception.
legal document:

 any writing that provides information or ideas that can be attributed to the author
Almost anything that contains a writing can be considered a legal document. The importance of
what makes a document a “legal” document, is whether the writing can be attributed to the
author. If a writing can be attributed to the author, then it is considered a legal document. The
receipts that you receive at a store, the instructions included in the latest electronic gadget you
purchased, and even the notes that you take during class are all legal documents, because they
can be attributed to the author. The main importance, for our purposes, is when medical records
are used as legal documents (see Table 4-1).
Because medical records are legal documents, there is a possibility that what you write might be
used in a legal proceeding. Or, because you were the author of a document, you might be called
as a witness if that document is used at trial. These possibilities underline one of the main
reasons you document using a legal approach.

If a healthcare provider is on the witness stand and is asked by an attorney what care he or she
provided to a patient three years ago, it is doubtful that the healthcare provider would be able to
remember. If you were asked on the witness stand what care you provided to Mr. Jones three
years ago, would you be able to remember off the top of your head?

From a legal perspective, then, healthcare workers should write enough so that by rereading their
records they can refresh their memory about the care that they provided. Looking at the medical
records, you will be able to testify as to the what, where, when, why, and how questions that
might be asked of you. The answers to these questions will probably have legal significance in a
medically related lawsuit. If there is not enough information in the medical record to answer an
attorney’s question, then they will only have your testimony to rely on.

Table 4-1
How Medical Records can be Used In Different Legal Settings.
Andy Dean Photography/Shutterstock

Type of Law Medical Documentation Used

Administrative Law A person who becomes disabled will have to apply for benefits. Part of the applicat
medical treatment that has been received.

Bankruptcy, Debtor, and One of the leading causes of bankruptcy in the United States is medical expenses.
Credit Law have. They will be required to show proof of expenses, such as billing statements,

Criminal Law The use of medical records is commonplace in criminal law. Autopsy reports are us
treatment records are used as evidence in criminal assaults, battery, rape prosecu

Employment/Labor Law A person filing a Workers’ Compensation claim will have to provide medical docum
 Type of Law Medical Documentation Used

injury a person sustained was related to their employment.

Family Law There are many aspects of family law that use medical records. Divorcing parents
received or the lack of medical care the other parent may not have provided.

Tort Law All torts, to be successful, must demonstrate some kind of injury. If that injury is a m
have received and the medical treatment they have sought.

Wills, Estates, and Trust Medical records are commonly used in competency issues related to wills and esta
Law medical record) are also included in estate planning and wills.

What Is Not Written

Just as important as what is written in a patient’s medical records is what is not written. There is
a legal principle related to documenting that states: “If it wasn’t written down, it wasn’t done.”
Based on that principle, even though care may have actually been provided, if that care is not
documented in the medical record, then, according to the law, that care was not provided. While
you may very well have provided the care, but forgot to document it, under the law if the care is
not documented, then it was not legally provided.

“If it is wasn’t written down, it wasn’t done!”

teacept/Shutterstock
Along with the legal requirements for documenting medical care, there are laws related to how
corrections in a medical record are handled. For example, if a mistake has been made in a hand-
written chart, a single line is drawn through the mistake. Obliterations, white-out, and the
blacking out of entries is not allowed. With the increasing use of electronic medical records, the
issues related to how corrections are made are becoming more and more obsolete, as computer
software automatically makes corrections according to legal standards.

Beyond the Scope

Each healthcare institution has specific rules regarding how to correct mistakes in
documentation. Because of the varied rules, how to correct mistakes is beyond the scope of this
text. For more information regarding correcting mistakes, consult the healthcare institution
where you are working.

Subpoena Duces Tecum

If documents are required for use in court or other legal proceedings, they are obtained
by an attorney or judge issuing a subpoena duces tecum.
subpoena duces tecum:

“bring with you under penalty of punishment”; a requirement that documents be

delivered to a court or brought with you to court
Any legal document can be requested through a subpoena duces tecum. In healthcare,
the most commonly requested document is the patient’s medical records. But why
would an attorney go through the hassle of issuing a

Court Case Keene v. Brigham and Women’s Hospital, Inc.

439 Mass. 223, 786 N.E.2d 824 (2003) Massachusetts Supreme Judicial Court

Facts: Dylan Keene was born on May 15, 1986 at 1:07 AM. A few hours after his birth, he
developed respiratory problems and was transferred from the regular care nursery to the neonatal
intensive care unit (NICU). At 6:25 AM, blood tests were performed, including a blood cultures,
and the patient was sent back to the regular care nursery. The NICU discharge note stated to
watch for signs of sepsis (infection) and to withhold antibiotics pending the results of the blood
tests. On May 16, 1986 at 2:30 AM, Dylan started having seizures. Antibiotics were ordered and
administered. Tests performed afterwards determined that Dylan had contracted neonatal sepsis
and meningitis. Whether from the infection or the seizure, Dylan suffered severe brain damage.
He has little or no voluntary control over any part of his body, suffers from repeated seizures,
and requires numerous medications and treatments. At issue in this case are the events that
occurred between 6:25 AM (May 15) and 2:30 AM (May 16). However, what actually occurred
during that timeframe is only speculative, because the medical records for that time-period have
been lost.

Issue: This case raises several different and important issues. However, for our present
purposes, one issue is whether the defendant hospital could demonstrate to the court what care
had been provided to Dylan?

Rule: The court ruled that “. . . a party who has negligently or intentionally lost or destroyed
evidence known to be relevant for an upcoming legal proceeding should be held accountable for
any unfair prejudice that results.”

Emphasis: The court in this case looked at the medical records as evidence. The court reasoned
that: 1) Documenting in a patient’s medical record is done, in part, for legal purposes. 2) Medical
records are created, in part, for use in legal proceedings. 3) Because medical records are often
used as evidence, an institution has the responsibility to maintain those records as evidence even
though an actual lawsuit has not been filed.

subpoena? Why not just send a letter to the institution and ask for a copy of a patient’s
medical records? The main reason attorneys use subpoena duces tecums is because it
is a legal request that you are obligated to comply with. Failure to comply can result in
court fines and penalties. Another reason attorneys use subpoena duces tecums is
because of a special distinction associated with medical record ownership.

Medical Record Ownership

While it is the healthcare provider’s responsibility to document medical care, the care that they
are documenting is information about a specific patient. Who owns the medical records, the
patient or the healthcare institution? Medical records are dually owned by both the patient and
the healthcare institution.

Medical Record Ownership: Healthcare Institution

All healthcare providers are required to create and maintain medical records. This requirement
comes from regulatory agencies, insurance companies, and licensing authorities, to name a few.
When you combine this requirement with the multifaceted purpose that medical records serve, it
is easy to see why healthcare institutions are reluctant to part with medical records. Because
healthcare facilities create the medical records, they have the right of ownership to the record
itself. Or, more specifically, they own the pieces of paper that constitute a person’s medical
record. But while healthcare institutions own the paper, the information that is on that paper
belongs to the patient.

Medical Record Ownership: Patients

Patients request copies of their medical records for varying reasons. One of the most common is
for consultations with other healthcare providers. Because the healthcare institution owns the
documents, a patient is not entitled to the documents themselves. But the patient is entitled to the
information that is on the documents. With the growing use of electronic health records, this
premise may be a little clearer. If a healthcare institution uses electronic health records, a patient
would be entitled to a printout of the record, but not the electronic discs and computers that
contain the records.

Medical Record Ownership: Doctrine of Professional Discretion

While patient requests for medical records are usually freely granted, there is one noted
exception. If a patient requests a copy of their medical records, the doctor(s) must first approve
that request before the chart is copied. The Doctrine of Professional Discretion allows a
physician to decide whether to release a patient’s medical records or not. The doctor can decide
to release the entire records, only part of it, or none at all to the patient. This exception is
contrary to the general rule that the patient owns the information and is entitled to that
information because, sometimes, having the information can be detrimental to patient safety and
well-being.

Hypochondriacs
Hypochondriacs are patients who have a preoccupation with disease and illness, often
misunderstanding bodily sensations. They often fear that they have a devastating medical
problem. Providing hypochondriacs with access to their medical records can augment
misconceptions about disease. For example, a hypochondriac may visit a doctor complaining of
dizziness. The physician might make a notation that because of the dizziness, he needs to rule out
the possibility of a stroke. Even though a stroke might have been ruled out, if a hypochondriac
patient sees that notation, he or she may be convinced that he or she had a stroke and will not
only return to the doctor but mention it as part of his or her past medical history. If a doctor
believes that giving a hypochondriac patient access to medical records will be devastating to
either his or her physical or mental health, the doctor can withhold access under the doctrine of
professional discretion.

Psychological/Psychiatric Records
 While doctors can utilize the doctrine of professional discretion for hypochondriac patients, the
most common application of the doctrine is for a patient’s psychiatric record. Information
contained in the psychiatric record could be devastating if read by the patient. For example, a
physician may note in a patient’s chart that because of their depression, the healthcare team
should place the patient on a suicide watch and take suicide precautions. A psychiatric patient
may not have considered suicide, but upon reading it in his or her records, either entertains the
idea or worse, makes an attempt. By withholding the medical records, or at least that portion of
it, the physician is protecting the mental health of the patient making the request.

Storage and Retention of Medical Records

All healthcare institutions are required to maintain and store medical records. Keeping medical
records indefinitely presents problems for healthcare institutions because of the amount of space
that is required and the inevitable cost of

Legal Alert!
The Doctrine of Professional Discretion does not apply to a subpoena duces tecum, as the request
is court ordered and not something a doctor can override. The Doctrine of Professional
Discretion only applies to individual requests for copies of medical records.
The Ethics of Law
Doctrine of Professional Discretion
Under the Doctrine of Professional Discretion, a doctor does not have to give a reason for
denying a patient’s request for their medical records. Is that fair?
 Should a doctor be required to provide a reason for the denial?
 Since no reason for the denial is required, what is to stop a doctor who committed an act
of negligence from hiding behind the Doctrine of Professional Discretion?
 Are there any ways around this exception to the rule?
storage. While advances in electronic forms of documentation have minimized these problems,
electronic records still need to be maintained (see Fig. 4-2).
There are specific rules and guidelines related to the maintenance and retention of medical
records. Remember the legal principle “If it wasn’t written down, it wasn’t done!” This
demonstrates why records need to be stored for a specific period of time. If we cannot provide
proof of care, because of missing records, then that care was not performed.

insurance:
the transfer of an obligation from one party to another, usually in exchange for a fee
The rule of thumb for maintaining medical records is 20 years after the last treatment was
provided. Where this number comes from is significant, because it is directly tied to a law known
as the Statute of Limitations.

I know that healthcare is dependent

on insurance companies, but how do
insurance companies work?
Insurance companies are businesses. They have an obligation to pay money on the policies they
have written. But how insurance companies make money has come under sharp criticism in the
past few decades.

Insurance
With the growing cost of healthcare in the United States, very few people are able to pay for
their own healthcare. Most people in the United States rely on healthcare insurancebenefits
provided through their employer.
Insurance policies can be written for almost anything and can cover almost any loss. How
insurance coverage, insurance policies, and insurance companies work is complex. To better
understand some of these complexities, we can examine a type of insurance that most are
familiar with: car insurance.

When you apply for car insurance, you fill out an application that asks questions related to your
driving record, the type of car you drive, how old you are, where you live, and other
demographic information. A person at the insurance company, known as an underwriter,
evaluates this information to determine what their risk of loss is, or what their chances are of
having to pay money on your behalf. Statistically, a younger driver is more likely to be involved
in an accident than a middle-aged driver is. Additionally, people living in large cities are more
likely to be involved in accidents than people living in rural areas are. Based on the amount of
financial risk involved, underwriters calculate what they are going to charge for that risk; that
amount is referred to as a premium. Any change in the information, such as your age or location,
will alter their risk of loss and change the premium you pay. Another example that can affect the
insurance company’s risk of loss and therefore your premium is the deductable amount. If you
agree to a large deductable, the amount of money the insurance company might have to pay out
will be decreased, which

Concept Connection
Record Retention and Statute of Limitations
The 20-year rule of thumb for maintaining medical records is based on the Statute of Limitations.
The Statute of Limitations is a legal defense that determines how long a person has to bring a
lawsuit.
will also decrease your premium. If you do not want to have a deductible, the amount of
money the insurance company might have to pay out will increase, which will also
increase your premium.

Health insurance works the same way. When you apply for insurance, you provide information
about yourself, your health habits, and any diseases or injuries that you have had. All of this
information is used to determine what the health insurance company’s risk of loss might be. This
helps the company to determine the premium you will pay. If you are a smoker, the chances of
you developing disease is much greater, which will increase the insurance company’s risk of
loss, creating a larger premium. Just as insurance companies know that statistically a young
driver is more at risk for an accident, they also know statistically what a person’s risk for disease
or injury is. The statistical information used by underwriters is found on actuarial tables.
actuarial tables:
a comprehensive list of statistical data; used most often by insurance companies to
determine illness, disease, and accident projections
Statisticians have been gathering information about illness and injuries for centuries. Some of
that information is provided by governmental agencies, other from the insurance claim forms
(see Fig. 4-3). All of this information is plugged into tables where sophisticated mathematical
formulas calculate a risk of loss. For example, if an underwriter is evaluating a policy for a 23-
year-old, nonsmoker with a family history of heart disease, the underwriter can look up the
actuarial table and ascertain what the statistical chances are of that person developing diabetes.
That statistic, along with many others, is used to determine what an insurance company’s risk of
loss might be.
Now that we have an understanding about how insurance companies work, the only remaining
question is how insurance companies make money. The premiums that you pay to an insurance
company are partially invested. These investments help the insurance company generate income
and a profit. And while insurance companies are free to invest how they see fit, they cannot
invest all of the money that they have.

When a person becomes sick or injured, the insurance company is required to remove money
from its general account and place it in a special account called a reserve account. The money
placed in these special accounts is reserved for that purpose only, to pay for the illness or injury.
The money in a reserve account cannot be used for investments or business expenses. Ideally,
insurance companies would like to limit the amount of money they are required to place in
reserve accounts, so they can keep that money in their general account and use it for investment
purposes.

The Ethics of Law

The Ethics of Law: Insurance––A Right or a Privilege?
A right is something that everyone is entitled to equally. For example, freedom of speech and
freedom of religion is a right provided to every citizen under the U.S. Constitution. Access to
healthcare and insurance is not a legal right that everyone is entitled to. But should it be?
 Should healthcare be a right that everyone is entitled to equally?
 Or should healthcare be a privilege that only a few should be entitled to?

Managed Care
In the 1970s and 1980s, insurance companies grew concerned about the skyrocketing cost of
healthcare. To help combat rising costs, they developed a concept referred to as managed care.
Prior to the implementation of managed care, hospitals provided care and insurance companies
paid the bill. But insurance companies voiced concern over whether they were paying for
something that was not really necessary. For example, in the not too distant past, it was common
to admit a person to the hospital overnight so he or she could have laboratory work performed or
X-rays taken the next morning. After the tests were completed, the patient would recoup in a
hospital room until he or she was comfortable enough to be discharged home.

With cost of healthcare skyrocketing, insurance companies become more active in managing the
care that patients received. But technically, that statement is incorrect. Under managed care,
health insurance companies are not dictating what healthcare a person can or cannot receive.
Instead, they are stating what care they will, and will not, pay for. The patient, the doctor, and the
institution still get to decide what treatment a patient receives. But that treatment may not be paid
for by the insurance company. With the implementation of managed care, healthcare providers
were asked to take part in the fiscal responsibility of healthcare. The way that this responsibility
was accomplished was by insurance companies’ changing the payment structure.

Suppose you need to have your house painted, and solicit estimates from different companies.
One company gave you a great hourly rate, but a competitor is going to charge you a flat fee to
get the job done. While you can probably foresee some of the inherent problems each option has,
essentially what managed care accomplished was changing payment from an hourly rate to a flat
rate payment system.

ICDs, and CPTs Codes

In 1983, Medicare released a new, flat rate reimbursement structure based on the International
Classification of Diseases (ICD). Each disease, illness, or injury is assigned a number, which is
located in a special codebook. To understand further, look at the following example.

A patient who is admitted to the hospital for appendicitis is assigned an ICD-9 code of 540.xx.
(The number 9 after ICD indicates that it is the ninth version, which is currently in use today;
and, the “xx” after the number 540 indicates the requirement for a fourth and fifth digit for
accurate coding.) When the bill is submitted, the insurance company will look up the ICD code
to determine the dollar amount they will pay to the hospital. To use an arbitrary figure for
discussion purposes, assume that an ICD code of 540.xx is allotted $5,000. Once the insurance
company receives the bill with the ICD code of 540.xx, they will issue a check to the hospital for
$5,000. But how do ICD codes save money?

When a hospital takes care of a patient, they have to utilize all of the resources that the patient’s
medical condition requires. If those resources cost the hospital $6,000 (and they are only going
to be reimbursed $5,000), then the hospital will lose money. But, if the hospital can economize,
and find a way provide care by only spending $4,000, then the hospital will be able to make a
profit of $1,000.

Patients who are admitted to the hospital are assigned ICD codes. Outpatient procedures, such as
the visits to a doctor’s office or the treatments received at an outpatient clinic, use Current
Procedure Terminology (CPT) codes. Just like ICD codes, each CPT code is assigned a number
and a reimbursement amount.

Upcoding
Even though ICD and CPT codes are now the norm in healthcare, they are not without problems.
One highly illegal and unethical practice that has resulted from this payment structure is the
occurrence of upcoding.
upcoding:
using an incorrect ICD or CPT code to gain a larger insurance payment
Some hospitals and doctors’ offices were unhappy with the small reimbursements that they are
provided with ICD and CPT codes. In order to receive a larger reimbursement, they would assign
a completely different ICD or CPT code number. For example, a routine office visit, where a
patient spends 15 minutes with the doctor, is assigned a CPT code of 99211, which will be
reimbursed at a rate of, say, $50. But, in order to get more money from the insurance company,
the doctor would upcode using a CPT code of 99212 instead, which might allow for a $75
reimbursement. However, a CPT code of 99212 requires that the physician spend 30 minutes
with the patient. If the doctor has not spent that much time with the patient, billing for that
service is paramount to fraud.

Court Case United States of America v. Robert W. Stokes, D.O.

United States District Court, Western District of Michigan, Southern Division (2007)
Facts: Dr. Stokes, a dermatologist practicing in Grand Rapids Michigan, was convicted of fraud
resulting from upcoded bills he submitted to Blue Cross/Blue Shield, Aetna, and Medicare. In
addition to upcoding, it was alleged that Dr. Stokes re-used medical equipment that was not
properly sterilized and performed surgical procedures to remove tissue from patients that were
not cancerous (in order to receive payment for his services); improperly billing insurance
companies for equipment he had re-used and for procedures that he did not perform.

Issue: Does the billing of procedures not performed, and the upcoding of procedures constitute a
crime?

Rule: Dr. Stokes was convicted of three counts of insurance fraud and sentenced to 10 years in
prison and ordered to pay a $1.3 million fine. In addition, the state of Michigan revoked Dr.
Stokes license to practice medicine.

Emphasis: As healthcare providers, we are only allowed to charge for the services that we
provide. Although reimbursement may not provide the amount a person would like to receive for
their services, performing illegal and unlawful actions is not the way to address those concerns.
(This particular case cites the criminal proceedings against Dr. Stokes. In addition to this
criminal case, Dr. Stokes faced multiple civil lawsuits.)

The practice of upcoding was commonplace when ICD and CPT codes were first utilized. But
insurance companies and Medicare quickly clamped down on the problem, severely increasing
the fines and penalties associated with upcoding. In order to substantiate the codes that are being
applied, it is common for copies of patients’ medical records to be sent with the bills to the
insurance company. The documentation must coincide and substantiate the charge, or code, that
is being billed.

What about malpractice insurance?

How does that work? Is it only for
doctors or should all healthcare
professionals carry it?
Before we leave the topic of insurance, we should take a look another type of insurance that
affects healthcare workers, that of malpractice insurance. Malpractice insurance, like car
insurance and medical insurance, is based on the potential risk of loss. However, the risk of loss
with malpractice insurance is the cost of defending a healthcare worker in court and paying a
judgment.
Any healthcare provider can obtain malpractice insurance. By far, doctors pay the highest
premiums for malpractice insurance, with some specialty physicians paying $150,000 a year.
Nurses, respiratory therapists, and radiology technologists can obtain malpractice insurance
policies as well. But the amounts those professions pay for their premium is much smaller; about
$150 per year, on average.

All states in the United States require that licensed healthcare professionals be covered by
malpractice insurance. A healthcare institution that hires healthcare professionals must provide
malpractice insurance for all of its employees. But why would the law require the healthcare
institution to carry malpractice insurance instead of the individual healthcare practitioner?

Employment Provided Malpractice Insurance

If a patient is injured because of a medical mistake, he or she deserves to be compensated. Most
individuals could not afford to pay the thousands or millions of dollars that a medical mistake
might cost. Two legal theories exist that support the requirement that healthcare employers
provide malpractice insurance for their employees: respondeat superior and vicarious liability.

Respondeat Superior
An employer has a lot of control over its employees. It decides what the qualifications are for a
position, the amount and type of training that employees will receive, and the policies and
procedures that an employee is required to follow. Because of the control an employer has over
its employees, it is also responsible for the actions of its employees. This responsibility is
quantified in the legal doctrine know as respondeat superior.
respondeat superior:
“let the master answer,” a concept where the employer is responsible for the actions of its
employees
Because of the amount of control an employer has over the employee, employers are held legally
responsible for the actions of their employees. Even though an employer may not have done
anything wrong, if an employee makes a mistake on the job, it is the employer that is held legally
responsible. But why would an employer be held legally responsible for something, if it did
nothing wrong? The answer is through a legal concept called vicarious liability.
Vicarious liability is liability without fault. That means that even though a person may not have
done anything wrong (they are not at fault), he or she is still held legally responsible for any
damages that are caused. To better understand the concept, consider the following example:

vicarious liability:
liability without fault; a person is held legally responsible for the actions of others even
though they themselves did nothing wrong
Suppose a child breaks a window while playing baseball. The person whose window was broken
needs to get it repaired. But should they absorb the cost of repair simply because a child will be
unable to pay for it? Under the law, the child’s parents will be held legally responsible for fixing
the window, even though the parents did nothing wrong. This same premise, in the larger scheme
of things, demonstrates how an employer can be held vicariously liable for the actions of its
employees.

Court Case Hoffman v. Moore Regional Hospital Inc.

114 N.C.App. 248, 441 S.E.2d 567 (1994) Court of Appeals of North Carolina

Facts: Ruth Hoffman underwent a radiological procedure that was performed at Moore

Regional Hospital. The radiologist, Dr. Lina, performed a renal angioplasty, during which Mrs.
Hoffman suffered complications and had to be transferred to another healthcare facility. Her
condition continued to deteriorate and she passed away on January, 9, 1990.

Dr. Lina was not an employee of Moore Regional Hospital, but worked for Pinehurst Radiology
Group. This group performed most, if not all, of the radiology services for Moore Regional
Hospital. A lawsuit was filed by Mrs. Hoffman’s family against Moore Regional Hospital,
claiming that as respondeat superior, Moore General Hospital was vicariously liable for Dr.
Lina’s actions. Moore General Hospital contends that they are not responsible for Dr. Lina’s
actions because they are not his employer, but instead Dr. Lina is an independent contractor.

Issue: The issue before the court was “whether the alleged employer has the right to supervise
and control the details of the work performed by the alleged employee.”

Rule: “We conclude that no genuine issue of material fact exists as to whether Dr. Lina was an
employee of the Hospital. As a matter of law, he was not.”

Emphasis: A main part of the law of respondeat superior is the ability to control the actions of
their employees. In this case, the court found that Dr. Lina was not an employee of the hospital,
and therefore the hospital did not have the necessary control over her actions to satisfy the
respondeat superior required. The case against Moore General Hospital was dismissed, but the
case against Dr. Lina was allowed to continue.

Why do I need to know about

contract law if I am going to be
working in healthcare?
Contract law is a unique and very specialized category of law. There are numerous requirements
and conditions that need to be in place to form a contract and laws that dictate how a contract is
carried out. While you may not initially think that contract law applies to healthcare, you will
deal with contracts every day that you provide patient care. In addition, there are unique
characteristics to contract law, some of which have a direct impact on patient care that you need
to be aware of.

Contracts
Because healthcare professionals deal in contracts every day, it is important that we discuss some
of the basics of contracts, what they are, how they are formed, and how they are used. To start
our discussion, we need to identify what a contract is.
contract:
an agreement between parties that the law will recognize
In order for a court to recognize an agreement, specific requirements need to be satisfied. Those
requirements are outlined in the common law definition of a contract, which is an offer that has
been accepted with due consideration.

In order for a contract to exist, it must have the legal requirements, or elements, that the law
requires. Using the legal definition of a contract, the elements required to form a contract are:

 offer
 acceptance
 consideration

Offer
All contracts begin with an offer. An offer is thought of as the desire to enter into an agreement.
You probably are not aware of it, but you encounter offers every single day. Advertisements,
such as the commercials you see on television or in the newspaper, are offers to enter into a
contract. While we typically think of contracts being only in written form, verbal offers can form
the basis for creating a contract. In addition, the mere existence of certain circumstances can be
considered an offer as well. For example, a healthcare institution that has an emergency room is
offering emergency services to the community.

Acceptance
Acceptance is, generally, the taking of the offer, and like an offer it can come in several forms.
Acceptance does not require a verbal response, such as “I accept your offer,” but can come in the
form of action. If you respond to an advertisement by walking into a store and giving them
money for the item advertised, you are accepting their offer. To use a healthcare example, a
person who comes to an emergency room is accepting the offer of healthcare services.

Consideration
The consideration element required to form a contract is much more complex than what can be
analyzed here. Essentially, what the consideration requirement is asking is whether the parties
have thought about what they are giving up when entering into the contract. For example, if you
walk into a store to purchase an advertised product, have you thought about how handing over
your money might impact your finances? Even though complex, for our purposes, consideration
is an important concept because it has a direct impact on healthcare; not everyone has the ability
to provide consideration, but contracts still need to be formed.

Contractual Capacity
Contractual capacity is not an element used to determine whether a contract is formed.
It is used to address the element of consideration. If a person lacks the mental capacity
to enter into a contract, then the consideration element of a contract cannot be satisfied.

In the healthcare arena, we have patients who are under the influence of drugs (both illegal and
prescription), or who do not have the mental capacity to form the requisite consideration (such as
a child or the mentally impaired). Even though a person may not have the contractual capacity
required to form a contract, we still need to form a contract in order to provide healthcare
services. In certain situations, the law will allow the formation of a contract by those who lack
contractual capacity.

Implied Contracts
Each time a patient seeks healthcare, he or she has to provide consent in order to receive
treatment. Normally, when a patient arrives at a healthcare institution he or she is asked to sign a
Consent for Treatment form. However, there are times when medical conditions exist where
patients are unable to provide actual consent. For example, what if an unconscious patient is
brought into the emergency room following an accident? Obviously, we cannot wait for an
unconscious person to wake up and give consent before we start treating that person. In
situations like this, the law will determine that an implied consent exists so that healthcare can
provide the treatment a person needs. This implied consent addresses the consideration element
that might be lacking to form a contract from those who do not have the ability to do so.

The essence behind an implied contract is that if the person were able to do so, they would have
agreed to treatment, and therefore entered into a contract for healthcare services. By coming to
the hospital, or being taken to the hospital, it is implied that the person wishes to be treated and
thereby gives their consent to treatment––even if they are medically unable to do so. As a
healthcare professional you need to understand the situations in which a court would determine
that an implied contract was formed.

Suppose a child fell off a swing set at the school playground and is brought into the emergency
room. All attempts have been made to reach the parents, but no one has been able to make
contact with either, in order to get consent for treatment. Under implied contracts, the emergency
room staff can provide basic medical care, such as respiratory support, treat wounds, and
administer some medications. But what if the child requires a blood transfusion? Can we give a
blood transfusion to a child under the implied contract theory? How is someone in healthcare
supposed to know or understand what the limits are? Within the law, there is a legal standard that
is used in situations such as these called the reasonable person standard.
reasonable person standard:
a legal standard used to determine whether the actions of a party are warranted
The reasonable person standard is used to answer a variety of different legal questions and can be
used in a variety of different contexts. The reasonable person standard asks the question:

What would a reasonable and prudent person do in the same, or similar, circumstances?

Returning to our example concerning the child who needs a blood transfusion, the court would
ask: “What would a reasonable and prudent parent (person) do if their child was in need of a
blood transfusion (the same, or similar, circumstance)?” Do you think that a reasonable and
prudent parent would offer consent to a blood transfusion in this situation? If the answer is yes,
then we can consider giving the blood transfusion under implied consent. But if the answer is no,
then we will not be allowed to give a blood transfusion under implied consent.

“What a reasonable and prudent person would do in the same or similar circumstance.”
teacept/Shutterstock
Making tough decisions such as this one, is further evidence of why all healthcare professionals
need to know about health law and medical ethics. Have you thought about whether the child’s
family belongs to a particular religious group, such as Jehovah’s Witnesses, which do not receive
blood transfusions for religious reasons?

The Statute of Frauds

At the beginning of this section, we looked at the definition of a contract: an agreement between
the parties that the court would recognize. As we noted, the definition does not require that
agreement to be in writing, as the courts may recognize oral contracts as well. But even though
the definition of a contract does not require a writing, there are times when the law does. The
Statute of Frauds is a law that indicates when a contract must be in writing in order for the courts
to recognize that contract. The Statute of Frauds requires written contracts for:

Concept Connection
Reasonable Person and Negligence
The reasonable person standard is used throughout the law, in many different types of cases. For
example, the reasonable person standard is sometimes used in determining negligence.
 Executor/administrator agreements (such as wills and trusts)
 Anything that cannot be completed within a one-year time-frame (such as employment
contracts for over a one-year period)
 Interests in land (such as the purchase of a home)
 The sale of any item priced at $7,500 or more (such as a vehicle or piece of equipment)
While you may not be exposed to the Statute of Frauds requirements as an entry-level healthcare
practitioner, it does have implications on your personal life, so you should be aware that it exists
and what situations it covers.

Cross-Examination
Make FALSE statements TRUE.
Rewrite the false statements below by replacing the bolded, italicized, and underlined word(s) to
make it a true statement.

1. There are two perspectives related to what to write in a patient’s medical record,
the licensure perspective and the patient perspective.
_______________________________________
2. According to the legal principle, “If it wasn’t written down, it likely may still have been
performed.”
_______________________________________
3. When writing an insurance policy, an underwriter will use premiums to determine a
person’s actuarial table.
_______________________________________
4. Diagnostic Related Groups are used for coding outpatient procedures to insurance
companies.
_______________________________________
5. Respondeat superior helps explain why an employer is responsible for the actions of an
employee even if the employer did nothing wrong.
_______________________________________

Circle Exercise
Circle the correct word from the choices given.

1. A (diagnostic related group, doctrine of professional discretion, subpoena duces tecum)

is a special request used to obtain a copy of patient’s medical record.
2. A (current procedure terminology, doctrine of professional discretion, subpoena duces
tecum) allows a physician to rule against a patient’s request for medical records.
3. (Acceptance, Contractual Capacity, Offer) is sometimes used to address the element of
consideration.
4. Insurance companies developed (premiums, managed care, upcoding) to help combat
the rising costs of healthcare.
5. The (Malpractice Insurance Policy, Premiums, Statute of Frauds) will determine when
a contract is required to be in writing in order to be enforced by the courts.
Matching
Match the numbered term to its lettered definition.

1.
1. _________ actuarial tables
2. _________ contract
3. _________ insurance
4. _________ legal document
5. _________ reasonable person standard
6. _________ respondeat superior
7. _________ subpoena duces tecum
8. _________ upcoding
9. _________ vicarious liability
1. a comprehensive list of statistical data; used most often by insurance companies to
determine illness, disease, and accident projections.
2. a legal standard used to determine whether the actions of a party are warranted.
3. an agreement between parties that the law will recognize.
4. any writing that provides information or ideas that can be attributed to the author.
5. “bring with you under penalty of punishment”; a requirement that documents be
delivered to a court or brought with you to court.
6. “let the master answer,” a concept where the employer is responsible for the
actions of its employees.
7. liability without fault; a person is held legally responsible for the actions of others
even though they themselves did nothing wrong.
8. the transfer of an obligation from one party to another, usually in exchange for a
fee.
9. using an incorrect ICD or CPT code to gain a larger insurance payment.

Deliberations: Critical Thinking
Questions
1. Question 1: The legal principle “If it wasn’t written down, it wasn’t done” demonstrates
the importance of documenting care. But does the opposite hold true? Just because care is
documented, does that mean that care was actually provided? Is there a way to tell
whether care was provided or not, even though it was not documented?
2. Question 2: You are caring for a patient recovering from a heart attack. A common
medication provided to heart attack patients is nitroglycerin, which can cause headaches.
The doctor has provided the following order for pain medication: two tablets of 325mg
aspirin every four hours as needed for headaches.
During the night the patient puts his call light on requesting something for his headache.
You give him the aspirin that the doctor orders. Twenty minutes later you check on the
patient and find that he is fast asleep.
 Using that example, write what you would document in the patient’s medical record.
3. Question 3: The survival of any healthcare institution relies heavily on the
reimbursement that they receive from insurance companies. Operating as a business
requires that healthcare institutions operate within a budget and perform cost/benefit
analysis on the products that they offer. Should a hospital focus on patient care
requirements or approach healthcare from a business decision perspective? Is there a way
for them to do both?
4. Question 4: A pedestrian was hit by a car and brought into the emergency room
unconscious. There was no identification on the patient to indicate who he is or who his
family is. Besides his head injury, he has also suffered severe trauma to his left lower leg.
The surgeon is recommending amputation as the best course of treatment for his leg
injury; waiting too long could result in severe blood loss, infection, gangrene, and even
death. However, because the patient is unconscious, he is unable to provide consent. And
because there is no identification on the patient, no way to know if he has family to
contact. A decision needs to be made now. How would you decide? What factors would
you use to make that determination?
5. Question 5: A doctor is unhappy with the reimbursement amounts being provided by an
insurance company. Although he does not increase the amount of time he spends with
each patient, he has the patients wait in the examination room for additional time. That
timeframe can then be used to charge a higher amount under the CPT classification. As a
medical assistant working in the doctor’s office, you become aware of what the doctor is
doing. What should you do?

 Closing Arguments: Case

Analysis
Danny is a registered nurse working on a busy orthopedic floor at the local hospital. He has had a
particularly busy day, with several of his patients either being discharged home or sent to
surgery. Because of this, he has not had time to document his care as it happened, but has jotted
down notes. He is now at the end of his shift and sits down to complete his documentation.

Danny is documenting the care that he provided to Mr. Jones. After he has written a few
sentences, the unit clerk gives Danny some lab work that just came back on Mrs. Smith. After
reviewing the lab work, Danny returns to his documentation but mistakenly writes some notes
about Mrs. Smith’s lab work in Mr. Jones’s chart.

1. Question 1: How would you suggest Danny correct this mistake?

2. Question 2: A few weeks later, Mr. Jones requests a copy of his medical records so that
he can send them to a specialist for a second opinion. A person working in the medical
records department has received the request and obtained the doctor’s approval to provide
Mr. Jones with a copy. But, while she is copying the medical record for Mr. Jones she
notices that there is documentation about Mrs. Smith in the chart. What suggestions do
you have about how to resolve this issue?
 3. Question 3: Because the office copied the patient’s medical records, they submit a bill to
her insurance company as a simple office visit. The insurance company denies the
payment. Should the doctor’s office absorb this cost or bill the patient? Explain your
answer.

 The Briefcase
This section repeats the objectives from the beginning of the chapter and provides a summary of
the most important concepts for each objective. Use this section as a quick review and to check
your understanding of the chapter key points.

Objective 1:
List the five different purposes that medical records serve.

 Manage Healthcare
 Tracking Healthcare
 Provide Clinical Data
 Meet Regulatory Requirements
 Document Healthcare

Objective 2:
Provide examples of what type of court cases medical records can be used for.

 See Table 4-1 on pg.