What is Third Party Reimbursement?

Mary McMahon
Mary McMahon

Third party reimbursement is compensation for services provided by a third party, rather than the person receiving the services. This is most commonly seen in a health care context, where a patient receives treatment and an insurance company pays the service provider. Third party reimbursement can be used as a payment method in other situations as well, usually at the discretion of the person offering services. People may refuse to accept this compensation method, or may refuse to provide services in some settings.

Businessman with a briefcase
Businessman with a briefcase

In third party reimbursement, a person receives service and the service provider bills the third party. The client is responsible for providing information to assist with billing, including the name of the third party and other relevant information, like an insurance identification number. The third party will pay the bill or refuse it if the services are not covered. If the bill is refused, the service provider will bill the client. Bills can also be sent when payments are only partially covered.

Health insurance companies use this system, as do government benefits programs. Some employers allow their employees to bill particular products and services to them for third party reimbursement. An employer may, for example, allow people to rent cars on the company's policy. The car is taken out in the name of the employee, but the employer pays the rental fee, rental insurance, and any other costs associated with the car rental.

In some cases, a care provider must have a preexisting relationship with the party providing reimbursement. Health insurance companies commonly use a network of physicians and other health care providers, for example. Their clients are expected to try these providers first when seeking care. If they see a physician out of network, reimbursement may not be provided or it may be much lower than it would be otherwise. Conversely, service providers can refuse to accept third party reimbursement from certain companies or organizations. People usually do this when they are concerned about being paid in a timely fashion.

Third party reimbursement can require preapproval. The party responsible for payment reviews proposed products and services to determine if they should be covered. Commonly, policies specifically forbid reimbursement for certain things, like elective or experimental medical procedures in the case of health insurance. People can usually get a list of approved and disallowed services so they can plan accordingly in advance and avoid the surprise of an unpaid bill.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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